Global auto industry realigns

Foreign carmakers pick over pieces of Big Three

Christine Tierney / The Detroit News

The shock waves from Detroit's desperate struggle for survival are rippling across the global auto industry, bringing radical changes in a matter of months.

Foreign automakers are seizing opportunities amid the turmoil as U.S. automakers shed assets and brands to focus on their core operations.

Italy's Fiat SpA is gaining some of the heft it needs to thrive in the long term by pairing up with bankrupt Chrysler LLC. Canadian parts supplier Magna International Inc. hopes to become a full-fledged carmaker by taking a stake in General Motors Corp.'s ailing German subsidiary Adam Opel GmbH.

Russia's second-largest automaker GAZ is trying to obtain the expertise it needs by linking up with Magna and Opel, while a little-known Chinese manufacturer, Sichuan Tengzhong Heavy Industrial Machinery Co., could end up with a name brand by buying GM's Hummer business. On June 16, a consortium led by Swedish boutique carmaker Koenigsegg Automotive AB signed a preliminary agreement to acquire GM's struggling carmaker Saab.

By the time the auto industry emerges from this terrible downturn, it will look different, although it is doubtful all of the factory overcapacity and other structural problems will have been solved. GM, the world's No. 1 automaker for more than 70 years until it was displaced by Toyota Motor Corp. last year, is likely to slip further down the ranks, while a re-energized Volkswagen AG moves up.

"If you move Opel to Magna, by 2015, our forecast has GM No. 5 with Toyota, Volkswagen, Ford, and Renault-Nissan ahead of it," said Michael Robinet, vice president for global forecasting at CSM Worldwide in Northville.

"The Asian Four -- Toyota, Honda, Nissan and Hyundai -- are well placed. There are some bright lights at Ford, and there are new players from India and China trying to make a splash on the scene," he said.

New groupings are being formed as part of the shuffle, which is marking a pause -- if not an end -- to the decades-long dominance of Detroit's automakers. They became global leaders by taking advantage of turmoil in other regions to purchase carmakers such as Sweden's Volvo and Saab, and Mazda of Japan.

In the 1990s, an industry crisis in Japan cleared the way for then-DaimlerChrysler AG and Renault SA to take stakes in Mitsubishi Motors and Nissan Motor Co. Ford expanded its stake in Mazda Motor Corp. to take control. At that time, it added to its collection of premium brands, acquiring Britain's Land Rover and Volvo. It has since sold Land Rover and Jaguar to India's Tata Motors and hopes to sell Volvo, which has attracted the interest of Chinese carmakers.

Germany's luxury carmakers snapped up mass-market brands during the mergers-and-acquisition frenzy of the 1990s -- only to divest them within a few years. Daimler shed Chrysler and its Mitsubishi stake, and BMW unloaded most of the Rover car business in Britain.

But BMW and Daimler's Mercedes-Benz are searching now for ways to work together to cut costs and counter a powerful domestic rival as members of the extended family that controls Porsche and much of Volkswagen negotiate a deal to merge the two carmakers.

Porsche, which took on more than $12 billion in debt to buy a 50 percent stake in Volkswagen, is in talks to bolster its finances by selling a stake of up to 25 percent -- valued at close to $3 billion at current market prices -- to the Gulf state of Qatar.

The Germans have looked to the Gulf region for investors for many years. Daimler recently raised $2.7 billion by selling a 9.1 percent stake to the emirate of Abu Dhabi.

'An imploding market'

Two forces are driving the latest round of consolidation: a hugely expensive shift to new and cleaner technologies, and the crisis in the U.S. auto market, which has been traditionally the most lucrative in the world. "It's a consolidation by necessity because of an imploding market," said Jim Hall, an auto analyst at 2953 Analytics in Birmingham.

The collapse in U.S. auto sales -- from 16 million cars and trucks in 2007 to fewer than 10 million estimated for this year -- has led the U.S. Treasury to push GM to sell more assets and brands than it was planning. And the Treasury gave Chrysler no choice but to merge with Fiat.

By contrast with past consolidations when cash-rich automakers scooped up choice brands, most of the current deals are being financed by governments. These days, Hall said, "the companies that have money don't grow that way."

The U.S. Treasury has lent Chrysler $7 billion and is offering another $6 billion to the new Fiat-Chrysler group, while the German government is providing aid for Opel.

But by transferring assets and merely rearranging the pieces, the auto industry is not addressing its chief problem: too much capacity, or idle assembly lines.

Even Toyota has idled factories for long stretches. It stopped production at a new San Antonio truck plant for three months last year. That's very expensive.

"The GM and Chrysler plans only reduce capacity by a negligible amount," said Maryann Keller, a longtime auto industry analyst and head of her own firm in Stamford, Conn.

She is baffled by GM's plans to sell Saturn to business magnate Roger Penske and Hummer to a Chinese firm and feel both deals could backfire on GM.

"Saturn is going to compete with its former owner," Keller said. GM will initially supply Saturn with cars, which will compete against its own models in the market and ultimately cost GM far more than what GM will net from the sale. "Why is this good?" she asked. "Here is a situation where GM had a money-losing brand on its hands which should have just gone away."

The Hummer deal also is likely to be disadvantageous in the long run. "No company comes to the U.S. with the expectation of selling a few cars," Keller said.

"Why provide access to the U.S. for competition that's not here? GM should be thinking, 'Why should I be trying to create a pathway here for the Chinese?' "

More deals likely

At least some of GM's executives were thinking of tackling the overcapacity when the U.S. automaker held talks with Daimler about an acquisition of Chrysler in the spring of 2007. GM and Chrysler had many overlapping models -- and GM could have benefited by taking over Chrysler and cutting back some of its operations.

GM studied the possibility again in August of 2008. But the talks ended in November when it became evident that no one would finance such a deal in the midst of the credit crisis, GM CEO Fritz Henderson said in an affidavit filed this month with a New York bankruptcy court.

Now GM is trying to use its bankruptcy to transform itself into a smaller, more focused company by ditching more brands, assets, employees and dealers.

The goal, Henderson says, is to improve GM's profitability so that it can break even on a pre-tax basis even in an anemic U.S. market with annual sales of 10 million vehicles.

His cautious approach may be wise. Most forecasting firms, including J.D. Power and Associates, expect a very slow recovery in demand. "We don't see 16 million (in annual sales) until after 2013," said Jeff Shuster, J.D. Power's executive director for automotive forecasting.

"We're likely to see more consolidation in coming years," involving players from other regions, Shuster said.

"We're going to see the global ties of this industry become even stronger."

ctierney@detnews.com (313) 222-1463