When Europe’s automotive executives come to look back wistfully on 2011, they may be forgiven for thinking of July as the month that didn’t happen. This was, after all, the month in which General Motors chief executive Daniel Akerson told reporters that Opel was not for sale after speculation linking the German vehicle manufacturer to the likes of Volkswagen, Hyundai and Beijing Automotive with varying degrees of accuracy. Elsewhere in Germany, the Quandt family sought to scotch rumours that they were poised to increase their holding in BMW. In Sweden, embattled Saab’s hopes of a €30m (US$43) cash injection from Russian businessman Vladimir Antonov were dashed by the European Investment Bank. And to cap it all, VW and Suzuki now appear to be wondering why they entered a joint venture with each other in the first place.
European vehicle manufacturers and their suppliers know their core local markets are teetering on the brink of their continent’s sovereign debt crisis and cannot keep shutting off their escape routes.
In fact, Europe presents some rich pickings for foreign automotive acquirers. The continent is awash with companies which lead in the latest component and gadget technology but which also need a financial solution to the pickle that the recent industry crisis and massive regional overcapacity has put them in. Consider, for example, the likes of Italian OEM Fiat, about to be squeezed out by the automotive behemoth VW and Porsche forming with truck manufacturers MAN and Scania in the north of the continent; and Germany’s Continental, whose attempt at a similar game-changing deal with local rival Schaeffler has left both companies in a stagnant – albeit diminishing – pool of debt. These examples are a trend among European vehicle manufacturers writ large to try to maintain a European grip on a car industry that is already for the most part outsourced to places far outside the continent. Small and medium-sized businesses, frequently family-owned and producing some of the sector’s more advanced technology, have clung to their independence, sometimes enshrining it in foundation ownership, irrespective of whether or not this is really the best way forward for the business.
The reality, however, is that many of these automotive businesses have seen the writing on the wall, realising that as M&A money increasingly favours other targets, European companies cannot price their independence as highly has they have done in the past. While Mergermarket figures show the total value of European M&A trebled in the first half of this year when compared to the same period in 2010, that increase in investment was dwarfed by the tenfold increase in the value of automotive M&A in North America. And, perhaps more worrying, the number of European deals in the first half of 2011 was more or less flat on the second half of 2010 against a global (mainly North American) increase of nearly 12%. M&A advisors have already told Mergermarket of a drop in the prices automotive industry owners demand for their European assets. The slow realisation that highly-leveraged multiples are not returning any time soon has started to concentrate minds in the heavy industrials sector as people shuffle quickly towards a disposal-at-a-reasonable-but-not-excessive-price window which may be about to close for a very long time.
GM needs to spin off Opel, Saab needs a lasting solution and even VW needs to find some way of making a partnership with a powerful Asian partner like Suzuki work.
While some of the crucial battles for newer technology and new markets may already be over (see last month’s column), European vehicle manufacturers and their suppliers know their core local markets are teetering on the brink of their continent’s sovereign debt crisis and cannot keep shutting off their escape routes. Whatever the protestations last month, GM needs to spin off Opel, Saab needs a lasting solution, and even VW needs to find some way of making a partnership with a powerful Asian partner like Suzuki work; if July really was the month in which things didn’t happen, the rest of the year could be when the sparks really need to fly.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Thomas Williams is deputy editor and head of German coverage for Mergermarket EMEA. He is also Mergermarket’s European automotive and industrials correspondent, and writes for the group’s live deals product, Dealreporter. www.ft.com/mergermarket
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