Car Industry needs Consolidation or Niche Players?

2 out of 3 American car makers have filed for bankrupcy. Once glorious massive GM has entered Chapter 11 and already handed its European arm (Opel/Vauxhal) to one of its parts suppliers, Magna, and a state controlled Russian Bank (was there ever any cold war outhere?) while Chrysler has been handed over by the Obama administration to FIAT, a car maker that was due to collapse but managed to turn itself around, being among the best performing in the industry today and carrying the promising  recipe to save Chrysler. All these would sound science fiction few years back.

The growing discussion though today is whether the Car Industry is or will get a place for few large groups only. If someone will look back in History, the answer should be No. GM has been  really huge and global but  has already collapsed while the German Goverment has seen more future in Opel being a stand-alone brand than integrating with FIAT and Chrysler as proposed by Sergio Marchione, FIAT CEO and turnaround mastermind. In the past though all small and niche players run to the rescue and became divisions of larger groups… Looking also at Mr Marchione statements, to survice in the global market you need  economies of scale through 5m+ cars/year and to make profits must produce ~1m of  cars out of each platform.  So what is really going on here? All right or all wrong?

Well, in our opinion both history and Mr Marchione theory are true but not holistic. A car maker to be equally effective in growing and shrinking economies needs something beyond size or no size. Needs the right portfolio of technology to deliver models appealing for today buyers, needs enough economies of scale to justify driving certain innovation and the right management approach to leverage on the scale and the technology in an agile and pragmatic manner. The major challenge in the car industry is that cars take long to be converted from concept to a sellable item while customer trends change rapidly - and management need to cope with that. Niche marketing is not mutually exclusive to consolidation…Lamborghini supercars are coming now out of VW and Ferrari has been the most profitable part of FIAT for years… So our answer is that Niche players are NOT viable as “stand alone” and consolidation is not by default the magic answer. Niche brands operating along with mass-production brands ARE. All that is needed is a blend of economies of scale and innovation friendly attitude. In other words, treating each brand separately while leveraging on common or adjacent technologies. And thats a management skill above all and beyond scale…Does it matter when your daily cheap Espresso Coffe shares common ingredients with a mouth melting Tiramisu desert for special occasions? I bet it would matter if they gave you to drink a Tiramisu or eat an Espresso! Thats what the car industry got wrong… GM  kept offering huge fuel hungry SUVs and Trucks to jobless people who wanted a cheap fuel efficient car…


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