The auto industry is again considering the notion of major tie-ups. Fiat Chrysler Automobiles boss Sergio Marchionne, believing automakers are burning too much capital and earning too little in return, has called on the industry to consolidate to head off disaster, and has sought talks with GM.
The truth is some marriages do produce positive results. After a long engagement, Ford took control of Mazda for more than a decade, with both sides benefiting. Renault and Nissan have been working in tandem for nearly two decades now. At FCA, the two halves of the merged company are healthier, growing faster and more consistently profitable than they've been in decades. Mini under BMW's stewardship has flourished.
Why? What makes some mergers or alliances work?
One overlooked and underestimated factor can be found in the turmoil Press glimpsed in those nascent GM-Chrysler discussions seven years ago: When merger partners have overlapping operations, the drive to wring out costs often results in a fight for survival among the troops.
In contrast, successful mergers typically involve very little overlap, so those internal battles are kept to a minimum.
Talk about counterintuitive. Vast overlaps in operations are often the reason mergers appear to make so much sense. That's what has some, including former GM Vice Chairman Bob Lutz, cheering the prospect of a GM-FCA alliance -- a combined company would be able to consolidate two vast headquarters, two technical centers, proving grounds, truck platforms, rear-wheel-drive architectures, small cars, midsize cars and more. Not to mention two sets of executives.
But what looks so good on paper is what makes them so difficult to pull off.
John Hoffecker, a managing director at AlixPartners, a consulting firm with a large automotive practice, notes the absence of overlapping operations is a hallmark of many mergers and acquisitions that pay off. The partners can come together to right themselves without fighting over who's going to feel the pain.