Towards a Worldwide Oligopoly in the Automobile Industry

Over the past few months, an accelerated concentration movement in the automobile industry seems to be pointing to a new turn in the globalization process. This phenomenon takes on a variety of forms : mergers (Daimler/Chrysler), acquisitions (Volvo and Land Rover by Ford, Dacia and Samsung by Renault), minority control takeover (Mitsubishi by DC, Nissan by Renault), crossed participation (GM-Fiat, Volvo-RVI), etc. Indeed, the constitution of an oligopoly on the worldwide level seems to be underway, as has been announced over the past few years. It is argued that all these operations are partaking in a "creative destruction" meant to result in a new global equilibrium. Is the future therefore already traced out ? The response is not so obvious. First of all, one may seriously question the so-called inevitable nature of such a trajectory, and even doubt the sustainability of such a configuration.

An initial argument raises doubts about the inevitable nature of this trajectory as it highlights the variety of firm strategies. Carmakers have not all jumped on the globalization bandwagon through mergers-acquisitions. Toyota, Honda, and PSA still largely prefer internal growth so as to enlarge their international presence. Likewise, and relative to this point, a distinct position in discourse emanating from the two French carmakers is particularly interesting. Whereas over the past year, Renault has multiplied its international alliances in its search for critical size and worldwide presence, PSA has taken the opposite stance. It defends its status as an independent carmaker relying on localized cooperation with diversified competitors-partners so as to benefit from economies of scale. Of course, events in the past few months have taught us all to better anticipate surprises, and it is not impossible that PSA enter into association with one or the other of its competitors in the upcoming weeks, especially in light of rumours emanating from "well-informed" sources confirming this.

However, PSA's announced strategy possesses a certain amount of coherence : those firms that are the furthest advanced in terms of globalization (GM, Ford, Fiat, Volkswagen) do not necessarily have the best and/or most remarkable economic performances. GM and Ford's record profits essentially stem from North America (their financial activities, and their sales of light trucks in a growing domestic market). European subsidiaries and those in emerging countries do not contribute to these groups' profitability, and on the contrary, even stunt it. On the other hand, more prudent carmakers taking one step at a time display a higher level of profitability that financial markets tend to value.
Thus, one may question the famous threshold of 4 million vehicles per year that is often presented as the goal to obtain and even surpass. It seems to correspond to the new minimal optimal size allowing for economies of scale. In light of a significant number of uncertainties in the realm of economic calculations, scientific doubt thus appears to be the more reasonable intellectual attitude to adopt.

A second argument questions the so-called inevitable nature of the concentration process and even wonders about the potential reversibility of the process. Failures in the area of concentration do not only include recent difficulties experienced by Rover-BMW. Recall that before BMW (after?), Rover had been associated with Honda. Other preceding failures should also come to mind : SEAT-Fiat, Dacia-Citroën, Renault-AMC, GM-Daewoo, Volvo-Renault, Autolatina and AutoEuropa (joint venture between Ford and VW), etc. These examples prove that alliances can be dissolved, especially seeing that in the realm of mergers, success is more often the exception and not the rule. Thus, one may imagine several scenarios where the delicate alchemy between firm cultures or profit strategies could lead to the unravelling of presumably definitive ties.

However, let's imagine that the concentration movement is pursued and that five or six worldwide automobile groups result from it, thus making up a new worldwide oligopoly. It is highly unlikely that such a configuration represent a stable equilibrium, putting an end to competitive rivalry (a costly one indeed since it would eliminate profit margins) that automobile groups are involved in. Of course, in the 1950s-1960s, a similar stable oligopolistic schema did function on the national level, notably in the United States and in Europe. However, the context was entirely different - the automobile market was dominated by carmakers and characterized by a slowdown in technical and organizational innovation. Today, this is no longer the case since the new regime relies on the permanent management of innovation that itself does not privilege stabilized configurations.
The emergence of unprecedented responses to needs for mobility could push new actors to the fore, thus changing the situation for already existing firms. In addition, carmakers lose control over the automobile system with concentrations in the component industry wherein different global oligopolies are emerging, such as in the tire industry. These oligopolies are made up of technologically complex subsystems with high value, such as seats or cockpits. The vertical coordination of these different oligopolistic strata - competing for profits - represents a factor of long-term instability that excludes the possibility of returning to the post-war automobile industrial context.

In this new globalization phase, firms can only reinforce their competitive position by their capacity to create organizational innovations in what is indeed a century-old automobile industry, but one that is in perpetual motion.

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