Global Auto Embraces the New “7+2”

　　There are two directions for the future trend of automotive industry. One is to further enhance the degree of concentration and the other one is to strengthen the differences.

　　As to the enhancement of concentration, we can get some basic notions from the establishment of Fiat - Chrysler, Volkswagen - Suzuki, Renault - Nissan - Daimler and other coalitions. Some sources said on March 25 that Daimler, maker of Mercedes-Benz cars, would be willing to take a stake of about 3 percent in Renault in April in exchange for its own treasury shares.

　　The optimization of international auto market has become clearer after the restructuring lasted for a year. Across the world the automobile industry has formed a "6+3" pattern since 1970s. Six alliances of automobile manufacturers and three independent automakers hold the absolute dominance in the global passenger car market, according to the CBN. After a new round of consolidation, the pattern has evolved into a "7+2" pattern and Chinese enterprise got involved for the first time, which indicates that Chinese automakers have already become an influential force in the world.

　　Catalyst of financial crisis

　　At the beginning of 21st century, the "6+3" pattern includes GM-Fiat-Suzuki-Fuji Heavy Industries-Isuzu alliance, Ford-Mazda-Volvo car group, Daimler-Chrysler-Mitsubishi group, Toyota-Daihatsu-Hino alliance, Volkswagen-Scania group, Renault-Nissan-Samsung group and Honda, PSA Peugeot Citroen and BMW.

　　Great changes have taken place and the traditional "6+3" pattern has embraced a significant shift since the beginning of 2005. In February 2005 General Motors gave up Fiat's shares with the cost of 1.5 billion dollars and sold all the shares of Fuji Heavy Industries in October 2005. In April 2006, GM sold off Isuzu's shares. In the year of 2006 and 2008 GM sold all the shares of Suzuki. When GM started the bankruptcy protection program, Saab was for sale and the operations of Hummer, Pontiac and Saturn were paused. Now GM is not as gigantic as before.

　　Among the six major alliances, Chrysler-Daimler group became disintegrated in May 2007 and Daimler sold Chrysler's 80% stakes for 7.4 billion U.S. dollars. When Chrysler went into the bankruptcy and reorganization process in 2009, Daimler sold the remaining assets of Chrysler and obtained 3.2 billion dollars, which indicated that Daimler gave up all the remaining shares and the relationship between Daimler and Chrysler was disengaged. Daimler sold the shares of Mitsubishi to Goldman Sachs in November 2005 and the alliance went into collapse.

　　In addition, Ford is planning to sell Volvo. In November 2008 Ford sold 20% stakes in Mazda. As to the Ford-Mazda-Volvo union, the partnership may break down after Ford formally signs a contract with Geely. Detroit's Big Three showed poor performance prior to the financial crisis as well as during the downturn. Now the previous pattern of global automotive industry has been erased. At the same time, the new pattern is gradually being built.

　　Holding shares was replaced by forming alliance

　　In fact, when tracing the origin, we found that Asian financial crisis played a critical role in changing the industrial pattern. "Made in Korea" was faced with a collective crisis at that time and South Korean automakers were looking for buyers. Now a decade later Detroit is facing a similar situation. At that time, Hyundai acquired Kia and GM took over Daewoo. In addition, Samsung was bought by Renault. Acquisition of South Korean automakers was a "starting point" and the Detroit's Big Three began their worldwide industrial restructuring.

　　GM bought shares of Fiat and several other enterprises; Ford took over Volvo; Daimler-Benz handled the reorganization of Chrysler; Renault-Nissan alliance was established. Regarding the restructuring of automotive industry, we can see there are only two successful cases-Hyundai Kia and Renault-Nissan.

　　Actually Hyundai Kia was not included in the traditional "6+3" pattern. In 2009 the worldwide annual sales of Hyundai Kia totaled 4.63 million units, ranking fifth across the globe. Hyundai Kia has already become a major power in the international automotive market and at the same time it was one of the few automakers in the world which can keep growing in 2009.

　　The successful reorganization of Renault-Nissan has turned into a change of cooperation method in auto industry and become a paradigm for a new round of restructuring.

　　Renault and Nissan jointly set up an administrative institution (Renault-Nissan Co., Ltd. The two companies spilt the shares into 50/50) which is in charge of developing strategies for the alliance and does not interfere the business activities of Renault and Nissan. At the same time, the two automakers achieved common procurement, sharing of platform resources and mutual development of market. In Renault-Nissan alliance, there are few restrictions about the capitals and two automakers share the integrated management. The new cooperative pattern replaced the previous format that one side held shares of the other. Since GM and Chrysler have already undergone bankruptcy protection, the flaws of holding shares were exposed. The subsidiary automaker usually lost its way after the mergers and acquisitions and the efficiency has not been improved after the assets and personnel were integrated. Different corporate culture would eventually lead to failure.

　　China's power

　　During the financial crisis, Chrysler was the first one to engage in restructuring after filing for bankruptcy protection as a self-help way.

　　Fiat took over Chrysler and held 35% shares. The next one is Volkswagen. Volkswagen bought 20% shares of Suzuki in December 2009. Previously, Volkswagen which was not affected by financial crisis took over Porsche and a new alliance was established. A few days ago it was reported that Renault-Nissan and Daimler-Benz may conduct a cross-trade for 3% shares.

　　Lee Iacocca, the former Chairman of Chrysler once predicted that the global automotive industry would be consolidated into six large companies-GM, Ford, Japanese auto alliance, German auto alliance or a French auto group as well as two or three companies which were founded by other automakers.

　　Parts of Iacocca's predictions for "5+3" pattern were proven to be correct. Now there are some changes. Currently the international auto industry has embraced a "7+2" pattern, which includes GM-SAIC, Ford-Mazda-Chang’an, Toyota-Fuji Heavy Industries, Volkswagen-Suzuki, PSA Peugeot Citroen-BMW, Renault-Nissan -Daimler and Fiat-Chrysler-Mitsubishi. Honda and Hyundai Kia have become the only two automakers which are not included in the alliance. It is worth noting that GM-SAIC alliance indicates that Chinese automobile manufacturer enter the global industry alliance for the first time. In December 2009, SAIC and GM established a joint venture in Hong Kong and began to develop Indian Market. It is the first time that a global auto giant develops international market with a Chinese company. Meanwhile, SAIC now ranks 8th among the world's automakers and has become an important force which may exert effects on the overall situation.

　　Auto manufacturers and their productions (Unit: 10,000 units)

　　1. GM-SAIC: 562.3+270.6

　　2. Ford (including Volvo)-Mazda: 537.6 (31.1) +110

　　3. Toyota-Daihatsu-Hino: 723

　　4. Volkswagen-Suzuki: 629 +231

　　5. PSA Peugeot Citroen-BMW: 320+128.6

　　6. Renault, Nissan, Daimler-Benz: 230.9 +335.8 +101.2

　　7. Fiat-Chrysler-Mitsubishi: 215 +93 +79.5

　　8. Honda: 339.2

　　9. Hyundai: 463 (Translator: Qinghua/Hanxin)

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