Auto Sector Ripe For Mass Marriages

If Renault and Nissan tie the knot with GM, the auto sector could host a wave of marriages, since major manufacturers must raise market share and slash costs to survive in the intensely competitive industry. JP Morgan analysts said in a research note this week: "One of our investment themes is that the industry will see further consolidation in the coming two-three years, as a large number of participants are sub-scale, in our view including GM-Europe, Ford Europe, Peugeot-Citroen and possibly BMW."

General Motors' board is to meet July 7 to consider a three-way alliance with the existing French and Japanese partnership aimed at keeping Toyota from leading the global pack. GM has said only that it is taking the proposal by major shareholder Kirk Kerkorian under advisement.

At the German bank HVB, analyst Georg Stuerzer agreed that a three-way deal would put pressure on other major automakers. "It seem the new trend in the automotive industry is a cooperation between several OEMs accompanied by shareholdings in each other," Stuerzer said.

The U.S.-German group DaimlerChrysler would not sit on the sidelines if GM teamed up with Nissan and Renault, Stuerzer added. DaimlerChrysler would probably woo Japanese manufacturers, including number one Toyota or Honda, or dust off long-discussed plans for an alliance with Volkswagen, the biggest European automaker, he said.

Successful manufacturers will have to cut prices while "optimizing cost structures and operating efficiencies", international ratings agency Standard and Poor's said in late March. Two ways of achieving that is through common research and development of new models and grouped purchasing of materials and parts, paths which most automakers have been exploring for some time.

The head of the auto parts group Valeo, Thierry Morin, said in late April: "Auto manufacturers have their backs to the wall, it appears they will finally tackle the problem of surplus global capacity, which is in the neighborhood of 20 million units."

GM must make changes quickly, Credit Suisse First Boston (CSFB) analyst Koji Endo pointed out, while the powerful United Auto Workers (UAW) union "will block any drastic measures". In France, the CFDT-Renault union said July 4 that "the rapid and deep transformation of the global auto industry will force the international trade union movement to coordinate and adapt" its response.

Copyright Agence France-Presse, 2006

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