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WORLD> America
Foreign brands gain US entry with GM's dismantling
(Agencies)
Updated: 2009-06-07 20:43

Foreign brands gain US entry with GM's dismantling
Racing fans walk past Penske Racing carts in the garage area of Pocono Raceway in Long Pond, Pa., June 5, 2009. General Motors Corp. has a tentative deal to sell its Saturn brand to auto racing magnate Roger Penske's dealership group, both companies said Friday. [Agencies]

Penske said he expects to begin making money immediately on Saturn, which has never been profitable for GM.

"I would expect that the model that we're putting together, the distribution model, will be profitable Day One," he said. "We'll have less costs. We'll not be in the manufacturing side of it."

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Fiat's takeover of Chrysler, in its final stages, follows a more traditional logic. CEO Sergio Marchionne has been studying US plants for ways to raise efficiency, and will retool one so he can start making the stylish compact Fiat 500 and a sporty Alfa Romeo or two. Under terms of Chrysler's bankruptcy plan, it will close five more US plants.

In Europe, the Opel deal was reached under enormous political and union pressure to keep open all four German plants — which appeared to be one of the things that knocked Fiat out of political favor with early reports that it would close an engine factory. The winning bidder, Magna International Inc., has pledged to cut just 10,000 GM Europe jobs — a number eventually matched by Fiat.

But that deal is still not final. Fiat restated its interest Friday, although German officials downplayed prospects of Magna failing to complete the takeover.

Marchionne's aim had been to combine Chrysler and Fiat with GM's European business to create a world automotive powerhouse to produce up to 6 million cars a year, his threshold for surviving toughening world market conditions.

Such strategies have raised the obvious question among analysts: If the industry is being strangled by overproduction, why not just let the gasping giants expire?

For years, the US auto manufacturing base has been too large for the market, forcing automakers to overproduce to keep plants running and flooding the market with vehicles. As a result, the Detroit Three especially have been forced to discount vehicles to sell burgeoning inventories.

But Penske said the continued restructuring by Chrysler, GM and Ford Motor Co. should solve that problem, at least in the US.

"I think there's no question that this re-engineering of the manufacturing base in the US by the Big Three will take capacity out," he said. "But more important, the plants that will survive will be the ones that are most efficient."

Yet London-based Morgan Stanley analyst Adam Jonas said he does not expect worldwide capacity to be significantly changed a year from now. And he questioned the logic of gathering brands under one roof without real synergies.

"Did we just hook up five or six companies that don't mean anything? To get common distributors, development, common planning, common everything, it takes a lot of time, a lot more money and a lot of risk," Jonas said.

Worldwide, analysts say automakers have the capacity to produce 18 million to 20 million more cars than the market demands, leaving many plants grossly underutilized. To make money, automakers have to run their plants above 90 percent capacity, but few are doing that in a depressed global market.

Nearly 70 million cars and light trucks were produced worldwide in 2007, when the latest figures are available from the International Organization of Motor Vehicle Manufacturers.

Ferdinand Dudenhoeffer, director of the Center for Automotive Research in Gelsenkirchen, Germany, said capacity will need to shift to emerging markets such as India and China, not saturated markets like the United States and Europe, where most of the dealmaking is centered.

All the changes brings to mind past unhappy auto mergers: Ford with Land Rover and Jaguar, Chrysler with Germany's Daimler AG, and General Motors with Fiat.

A big exception, Dudenhoeffer said, is Volkswagen AG, which gathers multiple brands from Bentley to Lamborghini to Skoda under one roof. "But it took 20 years to bring them onto the same technical platforms," he said.

Analysts say bigger isn't always better, as evidenced by GM's efforts to shrink itself to become profitable.

"The story of consolidation is not the story which drives the car world," Dudenhoeffer said. "If you look at a company like Porsche, the most successful car companies in the world are small."

 

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