Does the GM – Fiat alliance mean anything for India?
General Motors (US) and Fiat (Italy) have announced an alliance that has resulted in a cross holding between the two companies. While GM will have a 20% stake in Fiat, the latter will own 5% of the GM. GM also has a right of first offer to buy the remaining 80% if Fiat were to decide to offload the stake.
Global consolidation is happening at a breath taking pace across sectors. However, this consolidation has the potential of sparking off the much-needed consolidation in the domestic market. Consider this hypothetical scenario.
GM (India) and Fiat (India) consolidate their operations. Then Daewoo Motors India joins this group (GM is said to be the front runner in the race to acquire the company from the now bankrupt Daewoo chaebol). GM and Suzuki are also partners this again opens up another avenue of consolidation with respect to Maruti Suzuki!!. On the other hand, Daimler Chrysler and Telco (10% owned by Daimler Chrysler), decide to merge their domestic car operations in order to take on the combined might of the Maruti-GM-Daewoo-Fiat combine.
Such a scenario would dramatically reduce the number of independent manufacturers in the domestic markets (from five to two in this case). However, this is only hypothetical. But nonetheless it is desirable.
With the domestic markets showing signs of promising growth, manufacturers are in the process of building up capacity. Some, like Daewoo have built large surplus capacities. This optimism has led to the creation of a surplus in the markets, leading to cutthroat competition. Companies like Mercedes Benz India have had to alter their strategy time and again to survive in this market.
A consolidation is definitely overdue in the domestic markets. Whether the latest global deal will have a fallout in India as yet remains to be seen.
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