LONDON (Reuters Breakingviews) - Daimler and BMW should quit fumbling around the backseat. Faced with slumping global demand for their pricey cars, merging would reap synergies worth more than the 13 billion euros in annual savings they’re currently targeting. As Peugeot and Fiat Chrysler Automobiles consummate their marriage in 2020, the German heavyweights will model one of their own.
Analysts forecast almost no sales growth over the next two years for cars. And luxury brands’ winning streak – premium car demand has grown above global demand each year since 2009, according to Jefferies – is coming to an end due to a Chinese slowdown. Even in the Middle Kingdom, upmarket vehicle sales hit 11% of the total, in line with the global proportion.
Ola Kaellenius and Oliver Zipse, bosses of Daimler and BMW respectively, are feeling the strain. Together with incoming European Union fines for dirty fleets, Daimler, worth 53 billion euros, plans to save 1 billion euros in staffing costs by 2022 and accelerate its transition to electric vehicles. BMW, worth 48 billion euros in mid-December, is seeking 12 billion euros in total savings by then to offset higher technology spending.
The Fiat-Peugeot deal suggests an alternative. The Germans already cooperate in mobility services and autonomous vehicles. And there are additional financial benefits. The Italo-French combo is seeking to save about 2.4% in combined operating costs. Applying the same proportion to Daimler-BMW would result in savings worth 38 billion euros – assuming a 28% tax rate and 9 billion euros in restructuring costs – to shareholders today. But given their greater overlap in products and geographies they could probably achieve synergies worth twice that much.
BMW’s controlling Quandt family has a strong independent streak and might not take kindly to having significant Chinese carmakers as shareholders. Together, Geely and BAIC Motor own a combined 15% of Daimler, although that could rise to 20%. Again, they can look to Fiat, where the Agnelli family will emerge as the largest shareholder in the group. Assuming a nil-premium merger, Stefan Quandt and his sister, Susanne Klatten, would hold nearly 17% of “BMDaimler”. The Chinese would be diluted to around 12%.
True, German unions would howl at the prospect of potential job losses. But given the financial and industrial logic in a stagnant market, the Fiat-Peugeot playbook will be scrutinised heavily in Stuttgart and Munich, where Daimler and BMW are respectively based, in the year ahead.
This is a Breakingviews prediction for 2020. To see more of our predictions, click here: bit.ly/2S1J9zo
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