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This article appeared in yesterday's Irish Independent Motors magazine, although it looks like it's a syndicated article so it probably appeared elsewhere.

Survival of the fittest

Globalisation works for consumers but is playing havoc with some car giants. Some cling perilously to existence while others lose huge sums. Tough, says Graham Searjeant

Morale in Turin must be frail. Fiat Auto, once Europe's favourite foreign carmaker, is losing €750m a year. The company that used to supply 80pc of the cars bought in Italy with Fiat, Lancia and Alfa Romeo marques, has seen its share of its home market sink to a low of 27pc. The Agnelli family's Fiat group, which also owns brighter businesses such as Ferrari, wants to be rid of its first born.

It wanted to force General Motors (GM), the world's biggest motor manufacturer, to honour an investment deal signed in 2000 that valued Fiat at €11bn and created a buy or sell option.

If not, it wanted GM to offer compensation to keep the Turin carmaker going until it can bring in new models with more potential than the latest Fiat Panda 4x4. GM was so anxious to avoid buying Fiat Auto that it paid out a fortune to get out of the clause. Prospects do not look rosy. Fiat was one of Europe's biggest manufacturers but failed to keep up with the great advances of the past 20 years - unlike BMW, Honda or Toyota - and failed to build an international alliance, such as Renault-Nissan, Peugeot Citroen and Daimler Chrysler. Fiat's underlying weakness has been to assume that it has a right to exist. The car world's two other weakest links share this delusion. MG Rover, really the old Austin plant at Longbridge, survived its intended closure by BMW because it was politically unthinkable in a region of marginal seats.

Longbridge had helped to cripple British Motor Holdings, then British Leyland and Rover. BMW tried its best to make non specialist production profitable. MG Rover now makes only 130,000 vehicles from a range of models. Down the road at Cowley, the former Morris factory, BMW is making 190,000 Minis a year and is expanding production to more than 250,000. Jaguar's old Coventry plant closed with scarcely a murmur, yet MG Rover is the last British volume carmaker.

Negotiations for a 30-70 joint venture with China's Shanghai Automotive Industry Corporation (SAIC), which has a market but few models of its own, are run longer than expected. Rover has been the keener of the two. Mitsubishi Motors (MMC) was once Japan's number three carmaker but is now number five and lost or wrote off €3bn last year.

Apart from the healthier BMW, MMC is the smallest global carmaker. MMC's share of its key markets in Japan and the US halved in two years after a series of revelations that the company tried to cover up engineering faults that were later claimed to have caused deaths. It more recently agreed to its second financial rescue package in eight months.

DaimlerChrysler, which then held a controlling 37pc interest, refused to participate even in the first rescue last summer. A local turnaround fund invested instead. This time, it has taken the pride and dignity of the wider Mitsubishi group to prop up the carmaker. MMC is being saved because a company sporting the three diamonds cannot be allowed to fail.

This does not sounds a sure-fire formula for success, even though the turnaround of Nissan, once a worse case, was one of the most spectacular in corporate history.

The car industry is truly global and competitive. Investment by newcomers such as the Korean industry, the SAIC and multinationals has created a vast increase in capacity. But the brief recession in the US and the longer stagnation in Japan and Germany have limited output growth to about 5pc since 2000. There is lots of empty factory space.

GM and Ford, which took over many of Europe's smaller specialists, have only just avoided their vast debts being relegated to junk status. The tests have been changed because the debt markets could not take it.

Being owned by one of these giants is no guarantee of survival. GM Europe lost almost as much as Fiat last year and has examined the closure of Sweden's Saab as one option. Toyota Motor made such as success of expanding steadily without takeovers that it has reached 10pc of the world market and may have overtaken Ford. Its long-term target is 15pc. SAIC, which mainly assembles GM and Volkswagen cars, aims to be the world's number six carmaker by 2010. If SAIC does not fall on its face, it may need a bigger partner than Rover. This is globalisation. It works for consumers but it is harsh on manufacturers. Tough.

Graham Searjeant is Financial Editor of the London Times.
 

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Plenty of these types of articles trotted out year on year. They all say the same thing, but when it comes down to it, it just mean Brits buy Chinese/French/German produced goods, and the French/Germans buy French/German goods. When it comes to cars, the Brits buy Foreign-owned ones.
 
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