Automotive Consolidation – Asian Influence

Ashvin Chotai of Intelligence Automotive Asia and I have just given a seminar at Chatham House in London on the outlook for automotive M&A activity in Asia and outbound from Asia.

Although activity has dropped (90 deals in 2007, 30 in 2008), companies are still picking up some of the opportunities thrown up by the global turbulence. In the first quarter we saw purchases by Motherson Sumi – Visiocorp of Europe, Geely -DSI of Australia and BeijingWest – Delphi Brakes and Suspension business. Geely is now rumoured to be looking at SAAB. We expect to see more activity from Chinese and Indian companies although they face serious challenges in managing the assets purchased.

The prevailing view in Japan is that companies have to expand overseas or die, due to the unfavourable demographics in their home market. The currently strong yen should help, once the effect of the drop in production volumes has passed.

Japanese companies face problems in completing purchases, however. The prospect of an NSG – Pilkington situation, where NSG concluded that they lacked the management resources to run the combined global business and handed over the management to Pilkington executives, is seen as a serious obstacle. Nevertheless, many companies are trying to implement a strategy of overseas expansion by acquisition. One recent non-automotive example is the purchase of myonic, a small German specialist bearing producer, by Minebea.

Korean companies face a number of obstacles in purchasing overseas assets, not least, a weak Won. They also lack experienced international managers to run the acquisitions. Nevertheless, the conventional wisdom seems to be that companies will have to expand abroad or lose out to Chinese competition. This perception should continue to drive M&A activity. The assembly of a war chest for overseas acquisitions by the KDB is a positive sign of this strategy.

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