Germans lead new car race

The German takeover of Rolls-Royce and Bentley - BMW & VW acquiring the world's most prestigious cars - has stirred marriage and merger fever in the European and wider auto industry.

Consolidation comes from the pressures of technology costs and over-capacity which is estimated at 30 percent worldwide. The high cost of R&D contrasts with falling prices. Car prices in Europe and US are lower than five years ago for most models, and cut-price exports from recession-plagued Asia will keep prices low.

The latest list of who is kicking whose corporate tyres includes Volvo, Fiat, Lamborghini, BMW, Renault, Mercedes, Peugeot, Bugatti, Audi, Porsche, Chrysler, Ford, Kia and Nissan. All are involved in talks, bids, deals, offers - and rumours - about takeovers, links and partnerships.

Britain's Vickers Company accepted an offer from BMW for its Rolls-Royce car division after it had agreed to a first offer from VW.

The pursuit by German manufacturers of new markets and wider product ranges beyond national frontiers is also illustrated by the merger of Daimler-Benz and Chrysler expected to be approved by shareholders in September.

BMW'S plans to expand its top-end range after winning the race for Rolls-Royce. But BMW could face heightened competition in the middle-range market from Daimler-Chrysler.

BMW plans to boost output of Rolls-Royce cars from 2,000 a year and VW promises to increase production of Bentleys to 10,000 year.

Other European car leaders like Renault, Peugeot-Citroen and Fiat are coming into merger calculations because they are regional rather than global manufacturers and have no presence in North America, which accounts for more than a third of global demand.

Daimler-Benz, which is moving into the volume market for smaller cars in Europe with its Mercedes's A-class and Smart models, has added Chrysler's annual 3 million production to its own 1.2 million vehicles. Volkswagen is the only European which can match that volume and also has US operations.

Fiat has a strategy to go global, alone or with a partner. Fiat is strong in South America and Eastern Europe, and plans to start production of its Palio car in Russia and India next year.

Giovanni Agnelli, patriarch of the Turin family that controls about 30 percent of Fiat, has recently talked with BMW which is 50 percent owned by the Quandt family trust of Munich.

If complete merger is not possible, the Quandt and Agnelli families could share control of a combined group.

Fiat has twice failed in merger moves in the past 14 years - talks with Ford and Volvo ran off the road.

BMW began the current spate of merger moves by buying Rover of Britain in 1994, but the BMW-Rover combined production of one million cars still lags behind the rest of the European majors. VW makes more than four million cars a year, Fiat three million, and the major French companies about two million each.

The BMW dialogue with Fiat involves combined assets of A$73 billion. Both need to increase global reach and product range in an industry in which pressures to consolidate are increasing.

The Daimler-Benz merger with Chrysler gives the German company direct access to the US mass market and adds the four-wheel drive Jeep to its range, a threat to BMW's Land-Rover exports.

With combined revenues of US$130 billion, the deal being arranged between Chrysler and Daimler-Benz is the largest merger in industrial history and could create the world's fifth-largest car maker.

Daimler's strength in Europe, based on its Mercedes luxury cars, complements Chrysler's American base and its family and sport-utility vehicles.

Daimler-Chrysler, as it is to be called, will be owned 53 percent by Germany's biggest industrial firm and 47 percent by America's third-biggest vehicle manufacturer.

Chrysler, which has been weak in passenger cars, will be able to draw on the engineering expertise of Mercedes. Even BMW's chief executive, Bernd Pischetsrieder, calls Daimler's move "courageous and strategically correct".

Ford and GM have major investments in Europe, but never has one of America's car giants been run partly from Europe, as Daimler-Chrysler will be.

Mercedes-Benz produces some of the best cars in the world, plus some plainer models just coming to market. With production heading for one million cars a year, it is a volume producer rather than a luxury niche brand.

Chrysler's saloon cars are outsold in America by Ford and GM, but its average profit for each vehicle is higher. Its strength in minivans and Jeeps will help Mercedes which does not have strong products of its own in these classes.

Volvo, which is valued at over US$10 billion, is in talks with Volkswagen, Europe's largest car maker, about a possible merger. Volkswagen CEO, Ferdinand Piech, met the Volvo president, Leif Johansson, at the Swedish company's headquarters to open discussions.

Meanwhile, Volkswagen is buying Lamborghini of Italy, through its Audi subsidiary, for about US$80 million.

The owners were an Indonesian group controlled by Tommy Soeharto, the youngest son of the former Indonesian president, and MyCom Berhad, a Malaysian finance company. VW is also negotiating to acquire Bugatti, another famous Italian maker of fast cars.

VW plans for Lamborghini are to restore its former status as a rival to Ferrari, which has been taken over by Fiat.

The Lamborghini acquisition is another sign of how Ferdinand Piech, CEO of VW, is fast taking the company upmarket. Adding Rolls-Royce and Lamborghini gives VW the broadest model range imaginable and more corporate prestige.

VW and Porsche, another classy brand, have a joint-venture to make a luxury 4WD. The cars will be built in a VW factory, either in Germany or in a new plant in Slovakia.

VW plans to make 80,000 off-road vehicles a year, while Porsche expects to make 20,000 of a de-luxe version.

Looking to Asia, Daimler-Benz also aims to buy control of Nissan Diesel, Japan's fourth-largest maker of heavy trucks, for about US$95 million, small change compared to its proposed US$48 billion stake in Chrysler.

Daimler wants to expand activities in Asia and is talking to several other Asian companies about possible co-operation. Nissan Diesel has factories in China, Thailand, Indonesia, Pakistan and the Philippines.

COPYRIGHT 1998 First Charlton Communications Pty Ltd.
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