Friday, January 29, 1999
By merging, Ford and Volvo are depriving Japanese carmakers of two blue-chip partners in future ventures. The new linkup may also jeopardize existing ones between Japanese car companies and Ford or Volvo. For the two most affected Japanese companies, Nissan and Mitsubishi Motors, their already bleak prospects look even worse.
First Nissan. It and Ford together produce a minivan sold as the Nissan Quest and Mercury Villager. The Quest is the only Nissan minivan sold in the huge U.S. market and competes with American entries as well as those from Toyota, Honda and Mazda. If, as some analysts have recommended, Ford decides to develop a minivan for Volvo, which currently lacks one, the joint venture with Nissan could be a casualty.
Nissan's position was not good even before the Ford-Volvo linkup. Net debt accounts for half of sales, implying that just to break even in a competitive market, the company would have to charge hundreds of dollars more for comparable vehicles than virtually debt-free Honda and Toyota. Nissan has been negotiating with other car companies about some sort of cooperative arrangement, but its huge debt is a gigantic stumbling block. The Ford-Volvo merger would appear to make Ford, with its billions in cash that could bail out Nissan, even less interested than it was. Absent Ford's participation, any remaining suitors will not have to put as much money on the table.
Mitsubishi's financial situation is almost as bad as Nissan's. Moreover, Volvo was one of its major partners and Mitsubishi was hoping for a more extensive relationship. The two have a small car joint venture in Holland; in addition, Mitsubishi reportedly wanted to get Volvo to use some its excess capacity in the United States. The Japanese press has speculated that Ford may move to replace Mitsubishi in Volvo's Dutch venture with its Japanese partner, Mazda. If so, Mitsubishi's efforts to build strategic alliances would be dealt a major blow.
Although the business press of Japan and the United States paint the Ford-Volvo merger and other combinations within the industry as imperatives to survival, Japanese carmakers, none of which has entered into an alliance as sweeping as Ford-Volvo or Daimler-Chrysler, may well provide a major test of this assumption. In the past, most mergers including those in the automobile industry have had a poor track record. If that again proves to be the case, Japanese companies (perhaps even including Nissan and Mitsubishi) could be sitting pretty as they prosper, not because of their inherent superiority, but as a consequence of their rival's ill-conceived mergers. Alternatively, Japanese carmakers may yet become part of the game as either buyers or sellers of their businesses. For European and American firms, the temptation to overpay for the likes of Nissan, a huge company operating in a gigantic market, may prove hard to resist.
"JEI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.