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Meltdown adds players to auto game

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Meltdown adds players to auto game

Before the global economy tanked and Detroit's automakers were seared by the sum total of their bad habits, a ranking Ford Motor Co. exec made a prediction to me:

Volvo Cars, the crown jewel of Sweden's auto industry and cornerstone of Ford's premium car stable, would be absorbed by a Chinese automaker. And so it's poised to be, gutting the "consolidation-is-inevitable" assumption that has governed the global auto industry for the past decade.

Quite the opposite, actually.

Zhejiang Geely Holding Group Co.'s agreement to acquire Volvo for $1.8 billion, announced Sunday, is undeniable confirmation that the past decade of creeping consolidation is in reverse. In its place is a new kind of fragmentation that threatens to change a competitive balance dominated by the American, German, Japanese and South Korean rivals.

Chinese, Indian and Russian players are bidding for and, in several cases, winning established pieces of the business that give them, among other things, respectability, brand cred, engineering know-how and global distribution networks. Meanwhile, Silicon Valley start-ups with names like Tesla and Fisker are staking claims in the emerging electric vehicle space.

Detroit creates competitors

The net effect is more competition, not less, and Detroit mostly has itself to thank for the new challenge. Bids for vast economies of scale drove the creation of Ford's defunct Premier Automotive Group, rationalized General Motors Co.'s panoply of brands and justified the failed Daimler-Chrysler tie-up. But the execution fell woefully short, creating new competitors armed with jettisoned brands.

A Chinese automaker soon will own Volvo. An Indian industrial conglomerate controls Jaguar and Land Rover. A Russian automaker with ties to the Kremlin narrowly missed in its bid to share a majority stake in GM's pan-European Adam Opel unit. A Dutch sports-car maker, Spyker, rescued Saab Automobile from GM's trash heap.

Had GM succeeded in selling Saturn to a group led by industrialist Roger Penske and dealing Hummer to the Chinese, even more competitors would be vying for the customers GM, Ford and Chrysler are trying to get back into showrooms.

The good news is that Detroit's automakers, emerging from a decade of restructuring and downsizing, have the products and the business models to compete for the first time in decades. Balance sheets are stronger and, with sales improving, all three are generating badly needed cash again.

A traditional power like Toyota Motor Corp. is grappling with the self-inflicted troubles of its recall-and-quality scandal. Luxury heavyweights like Daimler AG, parent of Mercedes-Benz, are exploring tie-ups with the likes of China's BYD Auto, essentially confirming their technological limitations in batteries.

Markets are players, too

Bottom line: Several of the "BRIC" countries generally considered to be promising growth markets for American, German and Japanese automakers -- Brazil, Russia, India and China -- are shaping up to be homes to legitimate contenders for customers, too.

And stiffening environmental rules from the United States and Europe to Japan and China are forcing all automakers to develop cleaner technological solutions -- or partner with someone who can do it in exchange for traditional automotive credibility.

The global financial implosion that delivered two-thirds of Detroit's automakers to federally mandated bankruptcy, reordered the United Auto Workers and sped Ford's return to profitability isn't giving way to the consolidation predicted by so many.

It's culminating in a global "golden rule," where those who have the gold influence the rules of who plays the game.

From The Detroit News: http://www.detnews.com/article/20100330/OPINION03/3300332/1148/AUTO01/Meltdown-adds-players-to-auto-game#ixzz0jf7xnuNp

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