| Why mergers fail What Marchionne says: "It is ultimately a matter of leadership style and capability." |
LUTZ: One reason mergers fail is an absence of really powerful leadership. That's what caused BMW to fail with Rover. They went over there and they got a spiel from the Austin Rover guys saying, "We're perfectly all right. We just ran out of money. All we really need is a little capital infusion and here is our hockey stick."
The BMW guys thought, "Well, this is going to be easier than we thought." The thing became a huge cash drain. You can't do that. It takes guys like Lee Iacocca and Carlos Ghosn who say, "Here are the marching orders." Without the push from the top, they never get anywhere. Heard anything recently about the General Motors-Peugeot alliance?
PALMER: The common thread ... between partial success and complete and utter failure is one of leadership. It's leadership and it's focus and it's will to get it done.
ELLINGHORST: That is the absolutely crucial thing.
LUTZ: We look at DaimlerChrysler as having been a failed merger. Well, it wasn't failed for the Chrysler shareholders. At the time of the merger, the Chrysler shareholders realized an enormous gain.
The subsequent execution was flawed in that Daimler never stepped in. Everybody kept doing their own architecture, and you had the hubris as part of the Mercedes [side] that said, "We will never use a Chrysler engine." I have news for you: Our four-cam V-6 engine 3.2-liter was every bit as good as the equivalent Mercedes-Benz.
ANDERSSON: Being part of the Renault-Nissan Alliance, I would say it's working well. It's 15 years now and we really see the benefits of one engineering organization, one manufacturing organization … Carlos Ghosn is a very strong leader and very effective.
MANGANELLO: I don't see [mergers] happening right now. Everybody is moving along pretty well right now with their sales. Everybody is feeling comfortable with their profitability. I don't think any OEM — or any CEO of an OEM — wants to take the risk.
LUTZ: No CEO wants to lose his job.
MANGANELLO: Unless they're ready to retire. Then they can go out with a nice package. [Marchionne] may be desperate, but he is putting on a pretty good bluff. He is looking down the road and somebody has got to come up with all that cash if he wants to do all the projects he needs to do.
KRAFCIK: You could argue that some of these companies are distressed today.
MANGANELLO: They just don't know it.
KRAFCIK: I know times are good, but if you look at the market cap of car companies right now, Ford is worth about $60 billion, give or take, GM is worth about $53 billion, give or take. These are companies with $150 [billion], $200 billion top lines selling at a quarter of their revenue.
LUTZ: That's just pitiful.
MANGANELLO: They think, "We'll survive, but those other guys may not."
LUTZ: I agree with John. There may not be the pressure to do it now, but at some point we're not going to have this level of prosperity.
ELLINGHORST: There is probably no other industry where you can buy a huge r&d power at a cheaper price than the auto industry right now. Look, I do generally believe in the whole idea of consolidation. I just really think it's not going to happen at the peak of the cycle.
LUTZ: I would take exception to the comment that it makes no sense now. Taking a look at your strategic options at a time when you are not under pressure and when you still have options is the right time to consider strategic moves. If you are in deep trouble and hemorrhaging cash, it's kind of too late. One of the problems with GM in '07, '08 was we were running out of options.
PALMER: The rational time to be looking at consolidation is probably on the up cycle when the company has got money, but we're an irrational industry.