All the buzz at the Paris auto show about new collaborations and partnerships among carmakers implies that we're headed for another age of industry consolidation. It's the kind of thing that happens every decade or so, and it can be dangerous.
When companies come together as strategic or equity partners, it nearly always sounds wise and well timed -- at first. These days, meeting fuel economy standards and gearing up for electrification require massive r&d spending. Joining forces and sharing costs make sense.
Yet so many promising partnerships have gone awry in recent years that carmakers must be wary of catching the fever. Often when one company forms an alliance, others are compelled to follow suit. Deals done for the sake of doing deals almost never work out satisfactorily. You can look it up.
If tie-ups are inevitable, automakers need to look for partnerships that lead to specific, achievable goals and not yield to the temptation of expansion by acquisition.
We have just come through a batch of breakups. Ford Motor Co. and General Motors have cut loose several brands they accumulated in the past two decades or so. Almost none of them worked out as planned. Several other major automakers have had trouble making partnerships and takeovers work in the past decade.
The Renault-Nissan alliance formed in 1999 is arguably the most successful automotive alliance of the past 25 years. In contrast to the DaimlerChrysler dud, there was no attempt to merge the Nissan and Renault cultures. Former Renault CEO Louis Schweitzer was focused and didn't overreach. The two companies have worked together tactically on several levels.
But big tie-ups and mergers often are just defensive maneuvers. The GM-Fiat alliance 10 years ago could be explained as a way to share purchasing and powertrain development costs. But at the heart of the deal was an attempt to prevent DaimlerChrysler from gaining control of Fiat. It never really made sense.
The billions GM spent to extract itself from the deal surely swamped whatever synergies were derived.
Clearly, some alliances will make sense. For example, Saab needs strategic partners to survive. BMW will benefit by selling Saab engines. And Nissan's agreement with Daimler to supply a new Smart car for the United States is a logical move.
And, yes, size matters more than ever. But as the temptations of tie-ups and takeovers mount, auto companies should proceed cautiously.