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Car mergers may rev up
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May 6, 1998: 3:43 p.m. ET
But analysts differ on possibility of a worldwide industry buyout binge
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NEW YORK (CNNfn) - The proposed merger between Germany's Daimler Benz AG and Chrysler Corp., disclosed Wednesday, may be just a green flag starting the race to consolidation in the auto industry.
So far, it has been only secondary players -- such as parts makers and luxury auto makers -- in auto industry circles that have revved up their buyout engines.
A possible Chrysler-Daimler deal could take that consolidation wave to a higher level, one involving some of most-recognized names in world business. But opinions differ about whether that wave will swell or not.
"There is enormous pressure for consolidation in the auto industry," said analyst John Casesa of Schroder & Co. "There is way more supply than demand -- at least 40 extra plants around the world -- and that's the primary reason the returns in the business are crummy."
Many auto makers have transnational partnerships, share supply deals or hold equity stakes in many of their overseas counterparts.
Among the possible deals Casesa foresees, Chrysler rival Ford Motor Co. (F) is "very likely" to boost its one-fourth stake in Japan's Mazda Motor Corp., or even take over the company altogether.
"This European-U.S. deal could break open Japan," Casesa said. General Motors Corp., the world's top auto maker, has relationships with Japan's Isuzu Motors Ltd. and Suzuki Motor Corp.
Last week, Daewoo Corp. of South Korea said it is putting the final touches on a deal giving GM a 35 percent stake. Executives said the deal will be completed by June.
Mike Flynn, an associate director at the University of Michigan's Office of the Study of Transportation, said he thinks it will be other European auto makers next on the auction block.
"If I were a betting man," he said, "I would say Peugeot, Renault and Fiat are among the most likely to benefit from merging with a stronger partner."
He was referring to French automakers Peugeot S.A. and Renault S.A and Italy's Fiat, the No. 2 European car maker behind Volkswagen A.G.
Longtime speculation -- revived recently -- has been that Ford and Fiat might merge. Renault led an abortive attempt to merge with Volvo AB of Sweden in 1993.
But David Healy, an analyst with Burnham Securities, said consolidation isn't necessarily going to follow a deal between Chrysler and Daimler.
"It's not necessary for a wave of consolidation in the worldwide auto industry," Healy said.
While Casesa said there is a global glut of auto factories, Healy said any deal between Chrysler and Daimler isn't likely to reduce that because they don't overlap either in product lines or geography.
So far, the only such deal even vaguely suggestive of the Chrysler-Daimler talks is the bidding war between Germany's Bayerische Motoren Werke AG and rival Volkswagen AG for Rolls-Royce Motor Cars, a unit of Britain's Vickers PLC.
Meanwhile, several deals have emerged among auto parts makers. Most recently, Dana Corp. this week emerged as a "white knight" to buy Branford, Conn.-based Echlin Inc. The $4.2 billion bid from Dana saves Echlin from a hostile bid by SPX Corp.
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Chrysler
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