Impact of Corporate Takeovers on Automobile Industry- a review Naresh Kumar Goel

Today’s business world deals with an increasing phenomenon of Corporate takeovers, a process through which companies gain access to some tangible and intangible resources.

The study reveals the possible impacts of takeovers regarding the brand perspective in the automotive industry, through the eyes of the case studies incorporated in the paper.

Further the study observed that the companies that merge sometimes face difficulties in establishing the corporate identity of their new formed company. While both are eager to keep their own corporate and product brands, the new portfolio becomes too complex and does not allow cost savings synergies in terms of components equalization, production rationalization or marketing. However, in the case of acquisitions the process of adopting a new corporate identity applies mostly to the acquired company and overall it is a bit more clear what strategy should the acquired company adopt. Investments usually made by acquiring company seem to make portfolio more competitive.

This study analyzes the impact of corporate takeovers on the automotive companies. This is realized through analyzing the cases studies shortly described. Dacia represents an important pillar for Renault Group and Renault is a strong player on automotive industry. Moreover, the acquisition proved to be a successful one, although very different corporate brands merged, and totally new and strong portfolio was created, fact that makes it even more attractive to examine. Through this case this paper will try to enrich the literature on what concerns the possible impact that a merger/acquisition can have on the new company’s corporate and product brands.

Time proved that adopting a successful corporate brand strategy and building a competitive portfolio of brands after the acquisition process turned out to be very difficult or even impossible for some companies. This is sustained by Daimler & Chrysler, BMW & Rover or Renault & Volvo merger failures.

Daimler and Chrysler is an example of a merger, which was not very successful. Among other reasons, the failure stayed on the basis of a poor corporate brand strategy. The companies choose to create a new identity. ‘DaimlerChrysler’, based on the association of their individual corporate brands Daimler and Chrysler. But this lead to brand discrepancy since Chrysler valued cost-control and its brand image expressed risk-taking and assertiveness, while Mercedes was focused on uncompromising quality coupled with disciplined German engineering. The main consequence of this situation was that the Mercedes brand started to damage.

But, even if fewer, there are also some examples of successful acquisitions in automotive industry and some are represented by the Volkswagen acquisitions of Skoda, Seat or Audi.
The Group chose to offer each of its acquired brands a differentiated identity, but however it also sharpened each brand profile, stray that may have represented a key aspect of Volkswagen successes. Volkswagen decided to buy Skoda to penetrate into another car segment. Both Seat and Skoda took the original VW car function of reliable quality, affordable price and medium technology. Initially Skoda targeted the, Eastern bloc but however in time it turned out that the success was larger.
Another successful acquisition, which did not enjoy so much attention from the literature perspective, was the one between Dacia and Renault. Overall, this merger may seem similar to the one of Volkswagen and Skoda but it has also some particularities that made it become successful. The acquirer initially wanted Dacia to sell cars of Renault quality under a low price on emerging markets. Like Skoda, Dacia became more successful that its acquirer expected, so that in present time it sells cars on both emerging and rich countries. However, the two mergers resulted into different brand strategies.

Takeovers have been, for at least two decades, the center of management research. They are increasingly seen by companies as an efficient and fast way to expand onto new markets to gain new competences including brand. But, as stated before, the success is by no means assured. Among the main reasons that contribute to this issue it can be mentioned some failures in: anticipating the impact of the merging brands (both from corporate and product level), evaluating the candidate's brand profile correlated with the acquirers needs and creating a successful brand strategy.

This study will offer a general view of the mergers impact on brands (from corporate and product level) and will focus more on the impact of the acquisitions over the acquired company. This will be achieved through the case studies mentioned above and especially through the Renault & Dacia case, by analyzing the impact over the Romanian Car manufacturer from the brand perspective.

Corporate acquisition trend during first half of 2015.

According to a study conducted by PWC, the global automotive acquisition trend during first half of 2015 is revealed as under:

Global automotive – strong midyear results: Automotive acquisitions deal volume for the first half of 2015 was up ten percent, further extending gains made in the first half of 2014. With 276 deals, the industry saw its highest volume of deals transacted since 2011 and slightly below pre-recession levels.

In many respects, the financial strength of the automotive industry is back. This is evidenced by deal value increasing by 24% in the first half of 2015 up to $34.1 billion, the highest value of deals in the past decade (excluding the United States Treasury facilitated investments in 2009). Much of this increase in deal value is driven by seven megadeals with a total aggregated disclosed value of $26.6 billion, the largest of which was ZF Friedrichshafen AG’s $12.5 billion acquisition of TRW Automotive Holdings Corp.

Source: https://www.pwc.com/gx/en/automotive/publications/assets/pwc-auto-m-and-a-insights.pdf, Accessed: 2016.05.06

In the first half of 2015, average global automotive deal size increased 58% from $284 million to $449 million. This also marks the highest average deal value in the past decade and four times its low in 2012.

Further, the number of megadeals increased from five to seven in the first half of 2015. Continuing the trend from the first half of 2014, larger megadeals have led to a significant increase in overall average deal value in the first half of 2015.

Source: https://www.pwc.com/gx/en/automotive/publications/assets/pwc-auto-m-and-a-insights.pdf, Accessed: 2016.05.06

Cross-Sector Acquisitions: Global cross-sector acquisition activity shows similar trends as global automotive acquisitions with regards to increases in deal volume and value. As evidenced in the chart below, global cross-sector acquisitions is continually trending upward, approaching 2008 levels. In 2015, both deal volume and value increased by 10% and 40% respectively.

According to PwC Auto facts, the industry is expected to add 20.0 million units of production between 2015 and 2021 for a compounded annual growth rate (CAGR) of 3.5%.

Source: https://www.pwc.com/gx/en/automotive/publications/assets/pwc-auto-m-and-a-insights.pdf, Accessed: 2016.05.06

Following up on a very strong 2014, North America’s total production volumes continue to grow due to new investments in expanding capacity at existing plants as well as new plants.

Despite economic challenges in Europe due to hectic discussions about overall stability of the European banking system, higher foreign demand will help drive automakers to raise their output further, and is expected to improve overall utilization and industry profitability. The European Union forecasted assembly in 2015 of 17.6 million units, which is up 5.1% year-over-year.

Source: https://www.pwc.com/gx/en/automotive/publications/assets/pwc-auto-m-and-a-insights.pdf, Accessed: 2016.05.06