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Will the global auto sector consolidation reach India - Views on News from Equitymaster
 
 
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  • Mar 25, 2000

    Will the global auto sector consolidation reach India

    As per a leading newspaper Hyundai Motor, Korea will be undertaking a due diligence of Daewoo Motors, Korea. The asset evaluation will cover the foreign affiliates and production plans of Daewoo Motors.

    Ford the US giant has already completed its due diligence on Daewoo and is a strong contender for the takeover too. Hyundai Motors, South Korea's largest car maker has a two thirds share of the local market. It is also looking for a tie-up with Ford for sharing sales network and technological assistance.

    The trade unions of Daewoo Motors are keen that a Korean company should take over rather than a multinational, hence the scales seem to tip in favour of Hyundai over Ford.

    General Motors has also shown interest in taking over the auto segment of the Daewoo group. However they are keen to only takeover its domestic operations and are not interested in the unprofitable international operations in Uzbekistan, Romania, Ukraine etc.

    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.

    This could lead to GM (India) and Fiat (India) consolidate their operations.

    This global consolidation will have an impact on the Indian passenger car segment. The Indian operations of Daewoo have a 3,000 large labour force, this would put uncertainty on their existence. Daewoo has also made large investments in machine shops to produce large engines in India while their small engines are imported.

    In the small car segment Daewoo's 'Matiz' is sold in India and in the medium car segment it markets the 'Cielo' brand. Hyundai is operating only in the small car segment with its brand 'Santro'. Hence if this takeover goes through Hyundai will be able to garner a substantial market share in the small passenger car segment in India. As the other major player in India is Maruti this would lead to just two large players in the Indian small car market. This shakeup would also bring about the much needed consolidation in the domestic automobile sector.

     

     

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