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It is no longer news that year 2020 will be a very tough year for automakers globally. Therefore, Mergers and Acquisition (M&A) will be a major feature in the sector throughout the year. And the signs of what to expect later in the year are already unfolding.
Daimler on Tuesday reported a net profit of €2.7bn for 2019, which translates to 64 percent down on the record it posted in the previous year.
This, of course, is the latest in a succession of poor financial results from a number of automakers, which industry analysts believe would eventually add to merger pressures.
David Leggett, Automotive Editor at GlobalData, rightly pointed this out in his reaction to Daimlers’ results for 2019.
“Daimler’s 2019 results reflects some special factors – such as expenses for ongoing governmental and legal proceedings and measures relating to Mercedes-Benz diesel vehicles as well as expenses for a recall of Takata airbags, ” he said.
“However, it was also apparent that it is being impacted by high
upfront investments for new products and technologies. Margins are being squeezed in spite of high or record sales – Mercedes-Benz cars hit a new record with almost 2.4 million cars sold in 2019, but operating profit was down by 53 percent on the previous year.”
According to Leggett, “Demand prospects are far from strong globally, with major regional
car markets such as China, North America and Europe either flat or in decline.
“Higher costs and intensified competitive pressures in stalled markets will support further industrial consolidation this year.”
Continuing, he said, “We expect to see more merger and acquisition (M&A) activity in the auto industry as companies position themselves to be more competitive in the face of considerable business challenges ahead – most notably to invest in costly advanced technologies such as electrification and automated drive, while also meeting tighter CO2 emissions targets.
“Investors are understandably nervous about auto stocks and anxious to see signs of progress and strategic actions to address industry-wide challenges.
“The restructuring pressures are building for car companies and
suppliers alike.”
Leggett had stated on Monday that the proposed Volvo Car and Geely Auto merger points to continuing M&A pressures in the sector.
Plans of Volvo Cars possibly merging with Geely Automobile Holdings were announced on Monday.
And reacting to the development, Leggett said, “The proposed deal continues an ongoing theme of more merger and acquisition (M&A) activity in the auto industry, as companies position to be more competitive in the face of considerable business challenges ahead – most notably to invest in costly advanced technologies such as electrification and automated drive, while also meeting tighter CO2 emissions targets.”
According to Leggett, “Although Volvo Cars is owned by the Zhejiang Geely Holding Group (Geely Automobile Holdings’ parent) and there is already considerable engineering cooperation between Geely Auto and Volvo, the move would bring the two automotive businesses even closer together.”
He also maintained that, “The combination would bring the opportunity to have greater scale
economies in areas such as parts procurement and accelerate technology sharing across the Volvo, Geely, Lynk & Co and Polestar brands.”
Stressing the advantage for the proposed merger, Leggett added that “A combined company would have access to the global capital market through a Hong Kong listing and possibly Stockholm’s stock market later on, a move that could bring more capital for investment in costly advanced technologies.”
