Among Carmakers, Bigger Isn't Always Better
You say: "New economies of scale beef up the big boys, which gobble up less efficient parochial players. So who will be left?" The crucial question is: Are "parochial players" really less efficient? ("The Global Six," Cover Story, Jan. 25).
Let's compare General Motors Corp. with Suzuki. The former is probably 10 times as big as the latter. By all accounts, then, GM already is a beefed-up guy like the ones resulting from megamergers in the DaimlerChrysler style, while Suzuki is the archetypal "parochial player." The funny thing is that Suzuki appears to be vastly more efficient than GM. Its cars are better engineered, better assembled, and more successful. GM, by contrast, is a testament of how not to do things.
It is barely efficient, its models are generally disconnected from consumer expectations, and its reliability is way behind Japanese brands, including Suzuki. All that in spite of the fact that Suzuki's research and development budget must have been a fraction of GM's. Thus vanishes the widely accepted idea that in order to have good ideas, R&D, and products, a car company must have jumbo size and money (remember that the price of computer power is going down by the minute and so should be the costs of developing autos).
But amazingly, the big players can do exactly the opposite. Ford Motor Co. invested billions in the new Taurus, which even an inexperienced person, let alone a company executive, would instantly veto. It is ugly, charmless, a poor performer, and has the distinction of leaving bystanders guessing which way it is going. Just compare it to the new Passat or Honda Accord.
Second, the notion that bigger is better by providing leverage to extract the best deals from suppliers doesn't seem to be supported by the facts. Why should a company that buys 16 million shock absorbers a year from suppliers that already operate with razor-thin margins get better deals by buying 32 million? It seems to me that 16 million is way past the economy-of-scale point.
The bottom line is that success seems much more related to being good than to being big. [Former GM Chairman] Roger B. Smith had everything big and was paid millions of dollars a year only to take GM's market share in the U.S. from 45% to 34% in a decade.
Moreover, in a world of only six players, there would be roughly 24 main platforms to choose from, making owning and driving cars a lot more boring. But thanks to the vision of "independents" such as BMW, Honda, Suzuki, Renault, and some other highly competent car manufacturers, a stream of ever-more attractive and charming things like Suzuki's Wagon R, Mini Coopers, and Twingos seems to be assured. Vive la difference!
My prediction, from an engineering point of view, is that the DaimlerChrysler merger will not be as successful as planned. [Co-Chairman Jurgen E.] Schrempp will have to step aside, and someone will clean up the mess. The company you stated as being an excellent example, Ford, is excellent because it has kept its various models separate. Ford Europe is not Ford North America. Therefore the "Lego" effect is possible only to a degree.
I have lived in North America and Europe. I would not buy the same car in both places: In Germany, I have a high-powered sports car to drive 250 km per hour on the Autobahn. In Canada, I would buy a sport-utility vehicle, since snow is such a consideration.
What's more, how can Ford be more competitive by creating Lego-like parts? Likewise in North America, it is all standard measurements (inches, etc). The rest of the world is metric. Have you ever attempted to import a vehicle from Europe to North America and vice versa? Not a pleasant experience. My point is that the only merger activity that will happen is with those companies that have money to burn. Those that succeed will be the ones that focus on their customers' regional requirements.