The final act of the Volkswagen-Porsche drama closed this week when VW handed over €4.5bn for the remaining 50.1% of Porsche it does not already own. Spun out over nearly five years, the various scenes have seen allegations of foul play around the biggest short squeeze in history, state aid through Lower Saxony’s effective veto on restructuring, law suits and questions on the nature of German corporate governance. Attention will now shift to the next stage in the creation of a VW-dominated behemoth – the slow-burn consolidation of VW’s holdings in MAN and Scania. But perhaps one of the less explored facets of the VW-Porsche deal is how it will accelerate a supplier dash to China, and is already causing suppliers across the border in France to reorganise themselves.
Perhaps one of the less explored facets of the VW-Porsche deal is how it will accelerate a supplier dash to China, and is already causing suppliers across the border in France to reorganise themselves
That suppliers and OEMs are increasingly looking to China for acquisitions or joint venture investments is hardly new. Mergermarket figures show China accounted for more than 6% of all declared European automotive investment in overseas targets last year and stayed resilient as conditions worsened in the first four months of 2012 accounting for 27.5%.
However, the catalyst for a much bigger shift of European auto to China was, some industry sources believe, buried in the proposed structure of VW-Porsche just a couple of months ago. In June, Volkswagen announced that Jochem Heizmann, member of the board with responsibility for Commercial Vehicles, would take a newly created board post which puts China at group level. The clear commitment to VW China will, industry sources say, give this part of VW’s operations much more autonomy, particularly in purchasing decisions. Anyone supplying VW and Porsche without a significant subsidiary of partnerships in China is likely to feel the pressure in the coming months.
Such a large group demands large-volume orders; and that means suppliers need to find new partners both to have the capacity to meet such demands and to have the necessary connections with the VW-Porsche group. Porsche has traditionally always been able to drive a hard bargain with specialist suppliers if only for the value they attach to including Porsche on their customer list. But supplying the new group will be crucial for any supplier planning to survive Europe’s overcapacity crunch.
Supplying the new group will be crucial for any supplier planning to survive Europe’s overcapacity crunch.
While French suppliers will also be adapting their strategies to serve the recent GM-PSA deal, the impact of the link-up between the two German groups has apparently not been lost on the French government-backed Fonds Strategique d’Investissement (FSI). One German automotive banker identified the FSI as pressuring companies in their portfolios to invest in German automotive targets in order to reduce exposure to the troubled French automotive sector and get a slice of the German action. Though companies like the casting and forging business Farinia, an FSI investment named as looking to acquire in Germany, deny they are under pressure to buy across the border, it could be that much of this Franco-German consolidation has already taken place. Declared French investment in German automotive peaked in 2010 with five deals totalling €1.2bn, the largest being Renault-Nissan’s acquisition of a 3.1% stake in Daimler in 2010. More typical perhaps of the kind of transactions which are going on are Faurecia’s acquisitions of Plastal’s German exterior parts subsidiary, Plastal GmbH, for US$22m and Angell-Demmel Europe, a German real-metal automotive trim parts maker with an established relationship with Audi, BMW, Daimler and, of course, Porsche.
Whatever the motives behind these moves, it seems unlikely that any were made without an eye to the imminent birth of Germany’s surely overbearing automotive giant. The automotive industry’s realignment in Europe is almost complete, and it is for the industry’s suppliers to adapt to the new reality.
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, Mergermarket EMEA
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