A new global highway code

by Alan Dickey

It has taken just two mergers to change the face of the European and global car manufacturing sectors once and for all – but changed it is, for better or worse.

First in line was Daimler-Benz and Chrysler. The newly-formed Daimler-Chrysler has finally released details of its $42bn merger, and, in doing so, has rewritten the car industry’s rule book.

Forecasts of buoyant sales and soaring earnings wooed Daimler and Chrysler shareholders into endorsing the merger overwhelmingly last autumn. Daimler-Chrysler now says it expects the full integration of the two companies to take two to three years.

The alliance was dubbed by some `a marriage made in heaven’, and has so far lived up to expectations. Sales rose 6% in the first two months of this year and the company forecasts they will grow by more than e20bn (£13.4bn) to e153bn by 2001.

With Daimler-Benz’s strength in Europe and Chrysler’s in North America, the new company was said to have stood a good chance of conquering Asia by snapping up a stake in Nissan – until it pulled out of talks last month.

Instead, Nissan, the second biggest car maker in Japan, threw its hat into the ring with Renault, creating the other global merger. The French company agreed to pay $5.4bn for a 36.8% stake.

Renault, which fled the US market a decade ago with a reputation for poor-quality cars, plans to return by selling its (much improved) cars under the Nissan brand name early in the next decade.

Nissan and Renault are facing the same global excess capacity and thin profit margins that drove Chrysler and Daimler-Benz together, and which forced Mazda to give up control to Ford.

A few years ago, Renault was losing money, faced with too much capacity and a bloated cost structure. Nissan, lumbered with sizeable debt, expects to speed up its cost-cutting programme, perhaps closing plants and pruning weak auto parts suppliers.

Nissan also needs to improve sales and create a more attractive model line-up: the company’s US sales fell 14.7% last year.

In Europe, Renault will take over most of Nissan’s operations, so Nissan can focus on rebuilding its business in North America and its home market.

The first fruits of the joint venture will appear in 2003, as Nissan’s Micra and Renault’s Clio start rolling off the same assembly line.