M&A

3 November, 2009

COLUMN-Politics to drive car industry restructuring: Paul Taylor

(for news from the Reuters Autos Summit, click here) -- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

By Paul Taylor

PARIS, Nov 3 (Reuters) - From the Soviet-era production lines of Togliatti to the assembly plants of Antwerp or Sicily, politics is driving -- and more often obstructing -- the sorely needed restructuring of the global automobile industry.

Despite chronic production overcapacity, notably in Europe and the United States, politicians of all stripes are deeply reluctant to let a single manufacturer go to the wall.

As a result, alliances of car makers such as Renault-Nissan (RENA.PA) (7201.T) or Fiat-Chrysler (FIA.MI) are more likely than outright takeovers or failures. Consolidation is likely to be concentrated in the suppliers sector, where there is less national prestige at stake and less political sensitivity.

Why did the German government commit billions of taxpayers' euros in an election year to rescue stricken car maker Opel while simultaneously refusing to spend less than half as much to save twice as many jobs at fallen retailer Arcandor?

The answer is that heavily unionised workers in the auto sector wield political clout out of proportion to their numbers. Since the industry controls the fate of towns or regions, politicians are deeply reluctant to see car factories close.

The last bastions of the 20th century industrial working class carry the same potent social symbolism as coal miners once did in Britain and Germany, and farmers still do in France.

That also explains why governments in western Europe, the United States, Brazil and Japan bribed consumers this year with cash or tax breaks to trade in old cars and buy new ones.

The United States, usually unsentimental about layoffs, has injected tens of billions of dollars to rescue General Motors and Chrysler from bankruptcy, keep Ford (F.N) on the road and support component makers that would otherwise have gone under.

Fear of violence and "boss-napping" in countries such as France and Italy has influenced decisions on plant closures after managers of supplier factories faced with closure were taken hostage by staff or their families threatened.

So how can the inevitable rationalisation of the auto industry take place given the political and social obstacles?

The example of Britain's long farewell to the unlamented British Leyland, dragged out in salami slices over a quarter of a century, may be a precedent for other developed countries. MG Rover, its final avatar, collapsed in 2005 with 1.3 billion pounds in debt.

Germany's Opel deal -- the state-guaranteed sale of a majority stake in GM's European arm to a consortium of parts maker Magna (MGa.TO) and Kremlin-backed Russian bank Sberbank (SBER03.MM) -- may be the start of a similar long-term disposal.

The purchasers' business model hinges on transferring technology to make Opel cars in and for the Russian market.

Nowadays brand-owning manufacturers assemble cars rather than building them. Most components, from dashboards, steering wheels and seats to key features such as transmissions and the chassis tend to be outsourced. Only engines are often, though not always, made by the brand owner.

With the big brands in Europe and America set to survive for many years due to political protection, the Darwinian struggle for survival, market share and expansion into the big emerging markets is likely to focus on the suppliers.

(Editing by David Evans)

Source: http://www.reuters.com