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Auto mergers, partnerships driven by fuel economy

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Auto mergers, partnerships driven by fuel economy

Increasingly, automakers are finding partners that boost fuel economy rather than market share

Christine Tierney / The Detroit News

Automakers in search of partners traditionally look for companies that can offer access to more customers, either in new vehicle segments or in regions where they don't sell.

But now, a new rationale is driving deals in the car industry. Automakers increasingly are seeking partners with fuel-saving technologies to help them comply with strict mileage and emission rules taking effect in the biggest auto markets.

The U.S., Japan, Europe and China are introducing tough new standards that will sharply boost development costs for automakers struggling in a difficult environment.

That's pushing many car companies to forge new relationships. Germany's Daimler AG is rejiggering its portfolio of corporate holdings, selling stakes in India's Tata Motors and sports car maker McLaren Group to invest in a new partnership with Chinese carmaker and battery specialist BYD Auto.

"Daimler's know-how in electric vehicle architecture and BYD's excellence in battery technology and e-drive systems are a perfect match," Daimler Chief Executive Dieter Zetsche said March 1, when the deal was announced.

The sales of Daimler's McLaren and Tata assets are "freeing up capital which will likely be deployed into the joint BYD electric vehicle venture, a step which could have significant strategic importance to Daimler," said Jochen Gehrke, an analyst at investment firm Deutsche Bank.

For its part, Tata Motors has bought control of a small Norwegian electric car maker, Miljo Grenland Innovasjon.

France's PSA Peugeot Citroën, an expert in diesel technology, has formed a venture with Mitsubishi Motors Corp. to develop electric cars, and recently considered an equity tie-up with the Japanese carmaker.

Conversely, the poor fuel economy of General Motors Co.'s Hummer trucks was cited as a reason why Chinese authorities nixed the sale of Hummer to Sichuan Tengzhong Heavy Industrial Machinery Co. Ltd.

Consulting firm KPMG International predicts environmental regulations will spur the next phase of joint-venture deals and alliances among automakers pooling their resources.

It pointed to Volkswagen AG's recent acquisition of Porsche as an example of the trend. The deal grew out of Porsche's concern that it couldn't survive in the new regulatory climate selling only high-performance, low-mileage cars. But instead of acquiring VW, as Porsche set out to do, the sports car firm ended up being absorbed by the Wolfsburg, Germany-based giant.

Small carmakers and companies that make large vehicles face daunting environmental hurdles over the next few years.

Alternative technologies are costly to develop, and automakers can't focus their resources on a single technology because preferences vary by region.

Europeans have tried to reduce carbon dioxide emissions associated with global warming by producing more diesel-powered cars, while American and Japanese consumers prefer gas-electric hybrids.

The Chinese government is eager to promote ultra-clean, battery-powered cars. "The Chinese government and automakers understand that they can't catch up to or move ahead of Western manufacturers by developing traditional internal combustion engine technologies," said Gary Silberg, a partner in KPMG's mergers and acquisitions group and report author.

The new technologies will lead to new pairings, with automakers teaming up with utilities and manufacturers of batteries to power electric cars. GM and Ford Motor Co. have signed agreements with LG, a South Korean battery manufacturer that is not a traditional auto supplier.

While the financial difficulties of Detroit's automakers have kept them on the sidelines, Silberg said he expected the U.S. automakers -- and startup firms -- to get swept up in the trend.

From The Detroit News: http://detnews.com/article/20100325/AUTO01/3250361/1148/Auto-mergers--partnerships-driven-by-fuel-economy#ixzz0jBx5qvlf

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