Carmakers Continue to Consolidate

by: Old Trader

Given the rocky state of the auto market in almost all of the developed economies, there's little wonder that car makers continue to consolidate in an effort to trim costs, and to lighten the load of developing new, green products for their markets.

The latest "hook up" is PSA Peugeot Citroen's (OTCPK:PEUGY) plan to enter a "strategic partnership" with Japan's Mitsubishi (OTCPK:MMTOF). One of the possibilities for the shape of this partnership would include PSA purchasing a stake of anywhere from 30 to 50% of Mitsubishi. The two firms already cooperate to a degree, sharing SUV platforms, and are in the process of building an assembly facility in Russia to manufacture Peugeot, Citroen, and Mitsubishi mid-sized cars and SUVs. In addition, Mitsubushi and Peugeot have agreed to develop a car based on Mitsubishi's i-MiEV car, which is to be sold in Europe under the Peugeot and Citroen nameplates by the end of 2010.

But very much like the link up of Fiat (FIATY.PK) with Chrysler, this appears to be another union of a pair of weak sisters. Looking at global sales, the "big four" automakers would be Toyota (NYSE:TM), GM, VW, and Ford (NYSE:F). The next tier down includes Honda (NYSE:HMC), PSA, Nissan (OTCPK:NSANY), Fiat, Renault, and Hyundai. Moving even lower down the ladder brings one to firms like Suzuki, Chrysler, and Mitsubishi. Renault has had a controlling interest in NIssan for a number of years, and it hasn't been what would termed an astounding success, although I wouldn't call it an absymal failure, either.

It looks like this shuffling amongst the second and third tiers of auto firms will only enable them, if all goes well, to maintain their relative rank in the global markets, rather than giving them a substantial leg up into the top tier.

Source: The Deal Book

Disclosure: No positions in any stocks mentioned.