DETROIT (CNNfn) - Daewoo Motor Co. has only a small display off the main floor at the auto show here this week, but it is still grabbing much of the attention.|
That's not because it has new cars or new technology to shake up the industry. Instead, it is the poster child for global mergers and partnerships that are reshaping and narrowing the field of automakers.
Officials from General Motors Corp. (GM) and Ford Motor Co. (F) are negotiating openly to try to buy the company, and Monday Robert Eaton, co-chairman of DaimlerChrysler AG (DCX), said his multinational conglomerate, which has the least presence in Asia of any U.S. automaker, shouldn't be counted out.
"We're talking to the Asians. We're talking to the Europeans. The only thing I can say we aren't doing is talking to the Koreans and that could change," he told Reuters. He also predicted his company would complete some kind of acquisition within 90 days, and hoped to have a toe hold in the Asian market through acquisition by the end of the year.
If a deal does take place, it will follow last month's $1.4 billion investment by GM to give it a 20 percent stake in Fuji Heavy Industries, owner of Subaru, along with its purchase Monday of the 50 percent of Saab that it didn't already own.
Last week Renault SA said it is in negotiations to buy another Korean automaker, Samsung Motors. It already bought about a one third of Nissan Motors last spring.
"These markets are going to grow. They're going to have their ups and downs, just like the American market," Rick Wagoner, president and chief operating officer of GM, said Monday. "But Asia will be the fastest growing area of the world."
Troubled Daewoo still attractive
Still, the interest in Daewoo might seem strange at first blush. The company is virtually bankrupt, and is believed to be more than $16 billion in debt. But the fact that owner Daewoo Group is also financially troubled and being pressured by creditors to sell the car unit makes it an attractive opportunity.
"Korea is the sixth largest car market in the world, and companies need the distribution network that Daewoo has," explained Rod Lache, analyst at Deutche Banc Alex. Brown. "It also is a good platform with its low cost small car to move into China. It might not be the hottest one at the dance, but it's the only single one."
Korea and the rest of Asia are not the only places that deals are being eyed. If DaimlerChrysler is close to a deal, it is expected to be French automaker PSA Peugeot. But the company has also been rumored to be eyeing Italy's Fiat or even Japan's Honda Motor Co.
Some have predicted that the world could soon be left with maybe five or six major manufacturers, each with operations in North America, Europe and Asia, controlling more than 90 percent of the world's production.
A look around the floor of the North America International Auto Show here shows that global consolidation is already a reality. The Ford area includes the overseas nameplates of Volvo, Jaguar, Aston Martin and Mazda, of which it owns all or a substantial stake. The GM displays includes Saab, and borders two Japanese manufacturers in which it has substantial stakes - Isuzu Motors and Suzuki Motor Corp.
Toyota staying out of deals
But some major companies, notably Toyota (TM), have shunned acquisitions or merger talks, although it has established partnerships with major manufacturers such as GM and Volkswagen, to share some research and development costs.
"None of us have enough engineers to do what we need to do. You get scale on the engineering level by doing alliances and you get scale on the costs," said Jim Olson, senior vice president of Toyota Motors of North America. But he doesn't foresee Toyota getting buying smaller manufacturers as a way of expanding distribution or market share.
"I don't want to sound arrogant, but why would we?" Olson said. "They don't have the market share or technology we need. Scale is No. 1 on our dance card. Where do you get scale? You go to the big players with alliances."
Still, some observers believe that eventually the only independent car companies might be the niche players, such as Porsche, and that mass-market automakers will have to have firm links with one another. Part of it is major companies having to answer the moves of competitors as much as fulfilling their own plans and strategies.
"Ford is scared to death if GM gets Daewoo, they have a very strong position in Asia. They are looking at it from both an offensive and defensive standpoint," said David Cole, director of the office for the study of automotive transportation at the University of Michigan
But Lache said there are risks for the major carmakers, and their shareholders, from this kind of merger atmosphere. While DaimlerChrysler needs some kind of presence in Asia, its earnings per share, and thus its stock value, will be hurt by an acquisition of such a troubled property as Daewoo, Lache believes.
"In the long run it may gain greater market share, greater scale," Lache said of a DaimlerChrysler acquisition. "But it'd raise a lot of near-term concerns."
DaimlerChrysler officials insist they won't overpay for whatever deal they do.
"We have the attitude that if it is strategic, that's great, but if it's a financial bath, then it's not strategic," said James Holden, DaimlerChrysler's president.
-- Reuters contributed to this report