The next wave of consolidation and alliances in the global automotive industry is already happening.

Pressure for Consolidation

Triggered by the rise of new technologies, tighter regulatory standards, urgent sustainability policies and evolving models of urban shared mobility and personal connectivity - the global automotive industry is facing unprecedented change. Industry players have come to terms with the disruptive challenges of emerging digital technology and are now moving forward with extraordinary options to reduce costs. Clearly, automakers are opening-up to the realization that the best way to reduce development costs, is by working together through partnerships. Pressure for consolidation in the automotive business is nothing new and reflects the desire to enter new markets, gain economies of scale, access new capabilities and avoid or stagger large capital outlays. Most people think consolidation means A acquires B or C merges with D. However, in the automotive industry, besides mergers and acquisitions, consolidation has historically taken many forms, including manufacturing joint ventures, shared platforms, cross-supply of powertrains and research and development collaborations. The urgency for transformation, and the need to make bets on multiple products, services and sectors, also means that strategic alliances are the most flexible alternatives.

Favouring Alliances vs Mergers

In the most recent times, OEMs have moved away from mega-mergers in favour of alliances on specific technologies. This modern consolidation approach reflects a convergence of factors – economic, demographic and technological – that will surely continue to shape the industry over the next decade. A cautious and tentative approach to managing such alliances is also apparent; not all of them are formed with long-term objectives. Most alliances are undoubtedly for a limited period to benefit from an immediate technology opportunity, possibly looking to ultimately transfer in-house. For a successful long-term association, a greater effort in cultural alignment is required. With the financial position of the largest global technology companies being way greater than major auto manufacturers - 50 major auto manufacturers together make up about 20 percent of the combined market capitalization of the 15 largest technology companies - the next wave of cross-sector alliances involves a complete rethinking of current business models.

Unlikely Relationships

The advent of digitally integrated and connected platforms on vehicles is leading to the emergence of unique collaborations, seen as completely unrelated to transportation. Unlikely relationships such as BMW Group and Spotify streaming music to vehicles, Jaguar partnering with PayPal and Shell to offer drivers the convenience of paying for fuel from inside their cars, and Audi China, with its joint venture FAW-Volkswagen, cooperating with Alibaba, Baidu, and Tencent in areas of data analysis, internet-vehicle platforms and smart urban transport, are just a few examples. In a first of its kind relationship, Medtronic and Ford Motor Company have partnered to develop a system allowing a medical monitoring device to communicate via Bluetooth to the vehicle's dashboard, is yet another exceptional case. Evidently, the main objective is to offer owners and drivers a similar, and as seamless an experience in their vehicles as they have with their smartphone devices.

Lines Becoming Fuzzy

With the boundaries between different industries and their players becoming hazy, consolidation and alliances between multiple stakeholders is evident, involving technology, people, data and resources. These modern collaborations offer many advantages over traditional associations. However, they are also very complex and intricate, needing careful management to realise their full potential and avoid pitfalls that could limit their success. Concluding, an outline of recent, exciting announcements that set the tone for what lies ahead:

Ford Motor Company and Mahindra Group, leveraging their respective strengths on product development for India and emerging markets, have entered into definitive agreements on power train and connected car solutions, including co-development of compact SUVs, electric vehicles and telematic control units. Mahindra Group will supply a low-displacement petrol engine to Ford India for use in its present and future vehicles, starting in 2020. The two automakers plan on utilising each other's factories and sales network in India and other global markets.
Renault's alliance with Nissan and Mitsubishi - the world's largest auto alliance by sales volume - will start equipping its cars from 2021, with Android operating system to make smart dashboards. Google is clearly looking to make Android the dominant force behind car in-board systems.
Volkswagen and Ford are exploring a development and production alliance for commercial vehicles, including vans, and possibly other projects that could strengthen both companies’ global competitiveness. While the strategic alliance does not involve the two firms taking any ownership stake in each other, it does allow for sharing of technology and developmental costs around major projects.
Groupe Renault and Brilliance China Automotive Holdings Limited, have established a joint venture to manufacture and sell light commercial vehicles (LCVs) to accelerate further growth in China. Renault has also confirmed plans for three new electric LCVs within the next two years, to counter driving restrictions on ICE vehicles within China’s city centre’s
BMW is seeking partners for its second-generation self-driving, autonomous driving program, for debut in 2025. BMW is already working with Fiat Chrysler Automobiles, Magna International, Intel and Mobileye to bring a new self-driving platform to the entire automotive market by 2021. With Intel and Mobileye, BMW Group is developing necessary solutions and innovative systems for highly, and fully, automated driving. The BMW iNEXT will be the primary model for fully autonomous and automated ridesharing fleets, for both highway and urban environments.
Volkswagen Group has expressed interest to ally with other automakers to create an industry standard for self-driving technology. Believes such a move could help split costs and provide companies better legal protection following accidents involving autonomous cars.

Automotive Consolidations and Alliances - The Next Wave