Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
My point is that almost always after a giant merger, the resulting enormous company performs worse than the two companies did before the merger - and if they're both sick companies to start, instead of two large sick companies you end up with one giant very sick company.
Quote:
Originally Posted by iamweasel
I don’t disagree with you on the general premise that many mergers end up failing, though, but lots of times that’s due to management incompetence outweighing economies of scale benefits.
Studebaker-Packard Corporation.
At one point - two great automobile companies. But not at the time of the merger/buyout.
I think one of the key ways that "bigger is better" is that Company A, with twice the sales and profits of Company B, can devote twice as many dollars to developing the next generation of products with the same percentage of their gross sales or profits. This was one of the reasons cited when Case and New Holland merged in the late 90's, so they could better compete against market leader John Deere, especially when emerging technologies were being developed and adopted (GPS planting and harvesting, robotics, self-driving equipment, tighter diesel engine emission compliance, etc.).
One of the big problems facing large corporations that merge, is that they end up with too much manufacturing capacity, redundant service organizations, older facilities, diluted brand heritage, and a company that ends up being a "hodgepodge" of facilities and people that would look nothing like what a "startup" would do. They not only double their advantages, they also double their problems, and like the Nissan and Renault merger, the weaker company becomes a drag on the healthier one - Nissan's CVT issues happened AFTER the merger with Renault, didn't they?. Even if not, Nissan (Datsun) used to have a good reputation for quality, not so much today.
Often, the CEO's will unleash a whole Dilbert-book of terms like "leveraging synergies while optimizing manufacturing footprints and rationalizing supplier bases", but often it's simply throwing scat at the wall hoping it will stick; two drowning men hoping that grabbing onto the other will help them make it to shore. Remember the old (unpublished) CEO adage, "When in doubt, reorganize". In this particular case, I guess that time will tell. But my guess is that Toyota didn't rush to have a management strategy meeting when it heard the news.
Mergers , to do it the right way, take time to implement successfully. I personally believe private mergers have a greater success rate than public mergers due to Wall Street influencing public company execs to focus more on the short term, not long term.
I havent even test drove a new vehicle in twenty years, but can tell you I am not beating down any dealers door to buy ANY current offering by ANY manufacturer at this point in time. They just dont build anything I want at any price, but especially not at prices they are asking. If I were younger and just absolutely needing a reliable commuter car, maybe Honda Fit or whatever lower end Mazda I can get with manual transmission. Thats only possible way I can get moneys worth out of it.
If I buy another car this lifetime it will be older in pristine condition.
At one point - two great automobile companies. But not at the time of the merger/buyout.
For those who study History.
We could also mention Nash and Hudson who formed AMC. Little trivia, Packard and Studebaker originally wanted to join Nash and Hudson. But Packard president Jim Nance didn't wanted to be second fiddle to AMC president George Romney who suceeded to George Mason after his death.
Well I happen to be one of those MBA's who has worked in product development for the #1 selling vehicle in the country, and if you think the economies of scale stop after a couple hundred thousand vehicles then I would strongly disagree with you on that.
I'll give you one example I worked on: Front Seat Structures. (Essentially the metal framing of the seats, not the fabric, cushioning, stitching, etc.)
My F-150 program was the lead on the new corporate seat structure. On the driver seat alone we had about 20 different seat frames / mounting dimensions being used in the company at the time. (Each one requiring different tooling.) The plan was to reduce it to 3 different versions that the entire company could use. (Essentially small, medium and large. We took the lead on the large version.)
All new product programs in the pipeline had to design their floor plan to accommodate one of these 3 seat structures. On average this dropped our variable cost of seat structures by about 20%. This was primarily due to reduced tooling costs amortized into the piece cost and increased volumes of the 3 part #'s we were left with.
When you sign supplier contracts often times there is a sliding pricing scale based on volume, and on the seat structures there were about 10 different pricing/volume tiers all the way up to 5 million parts. You buy between X & Y, you pay Z, buy between A & B, you pay C, etc.
So back to FCA, if they start sharing components across FCA and PSA instead of each doing their own thing then yeah, I think they can save some money for the new combined company if they do it right. This is why everyone is doing platform sharing across the industry. The visible exterior and interiors may have unique parts to differentiate platform mates, but common chassis/powertrains can help trim the cost down.
Yeah, but this has been done before and failed miserably.
GM under wagoner was all about “branding”.. a “platform” could be a Cadillac, Chevy, Buick or a Pontiac.. such vaunted brands as “cimmaron”, “j2000” or “cavalier” - built from common parts and differentiated by different packages of stickers and wheel choices and trim levels.
What inevitably ends up happening is some really *smart* guy (bob lutz?!) decides that having a passenger-side vanity mirror costs $3 per vehicle, and they sell two million “units” a year, so the mirror gets discontinued and the parent makes SIX MILLION DOLLARS in pure profits from the genius of one man.. until consumer reports mentions that Toyota still has passenger vanity mirrors - and your wife makes you buy a Toyota because even an extra $15 on your monthly payment doesn’t make up for the lack of the mirror that she never even uses.
The “synergy” of joining two existing automotive companies together are largely wasted energy. Both companies probably have spent money designing and building gas-caps. In a perfect world, you might pick the “best” gas-cap of the two, and harmonize that across both companies.. what usually happens is that both working, paid-for for designs are tossed, and a committee designs a third “ultimate global” gas cap, then spends years harmonizing that new design across the brands. In the meantime, they need to continue to produce both old designs for service replacements, and stock the new “superior” design as well.
Any savings is lost because of culture clash, lost corporate knowledge, infighting, nationalism, highly-paid consultants, golden parachutes for executives, etc. the customer gets a “meh” product for the same or even higher price until they get smart and go away to a competitor that isn’t schizophrenic and or psychotic.
But that outdated crap like the Challenger and Charger keep on selling even better than the mustang. The challenger is timeless and people still love to look of them.
I own a new mustang GT, and people “love the look of it” too, but then they go *buy* a pickup or an SUV. I’ve driven my new mustang GT nearly 4,000 miles, and haven’t ever pulled up at a stoplight next to current-model Mustang, Camaro, Charger, or Challenger.
All of them put together don’t sell that often compared to four-door pickup trucks and suvs. All the cars you’ve mentioned are “hero cars” that people look at - but only rarely actually buy. My local dealer has zero mustangs on the lot, and at least 75 F-150’s. My local Chevy dealer has one camaro, and it’s used.
Yeah, but this has been done before and failed miserably.
GM under wagoner was all about “branding”.. a “platform” could be a Cadillac, Chevy, Buick or a Pontiac.. such vaunted brands as “cimmaron”, “j2000” or “cavalier” - built from common parts and differentiated by different packages of stickers and wheel choices and trim levels.
What inevitably ends up happening is some really *smart* guy (bob lutz?!) decides that having a passenger-side vanity mirror costs $3 per vehicle, and they sell two million “units” a year, so the mirror gets discontinued and the parent makes SIX MILLION DOLLARS in pure profits from the genius of one man.. until consumer reports mentions that Toyota still has passenger vanity mirrors - and your wife makes you buy a Toyota because even an extra $15 on your monthly payment doesn’t make up for the lack of the mirror that she never even uses.
The “synergy” of joining two existing automotive companies together are largely wasted energy. Both companies probably have spent money designing and building gas-caps. In a perfect world, you might pick the “best” gas-cap of the two, and harmonize that across both companies.. what usually happens is that both working, paid-for for designs are tossed, and a committee designs a third “ultimate global” gas cap, then spends years harmonizing that new design across the brands. In the meantime, they need to continue to produce both old designs for service replacements, and stock the new “superior” design as well.
Any savings is lost because of culture clash, lost corporate knowledge, infighting, nationalism, highly-paid consultants, golden parachutes for executives, etc. the customer gets a “meh” product for the same or even higher price until they get smart and go away to a competitor that isn’t schizophrenic and or psychotic.
Removing a part or de-contenting a vehicle has nothing to do with merger synergies. In fact, if they commonize the mirror used as opposed to having different mirrors across GM, it would have saved them less money to remove it from all the vehicles. Two different issues.
I don’t disagree that many mergers fail, especially with public corporations, but I firmly believe that is due to Wall Street and Executive behavior (short term thinking) getting in the way. Mergers, especially in the auto industry with such long lead times on product development, take years to work even if done the right way.
If PSA/FCA was a private company where they don’t have to make rash decisions to please Wall Street, and if the execs/management was truly focused on long term growth and not personal or short term agendas, this merger could work beautifully. But of course those conditions are not realistic in this scenario so most likely they will stumble and fumble around for a while, and nobody will be surprised if it doesn’t work.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
