News: Analysis & Commentary: Letter from Detroit
At the Auto Show, a Bevy of Hot New Rumors
Did you hear the one about Ford buying Honda?
Forget about millennium fever. The auto industry has a bad case of merger fever. Or maybe it's just cabin fever. At the blizzard-bound Detroit auto show media preview that ran Jan. 3-6, nobody could talk about anything except who's courting whom and who will go to the altar next. But with thousands of journalists and auto executives with nothing else on the brain save DaimlerChrysler's impressive postmerger stock price and a global industry with too many players, what else could you expect?
The subject of most speculation: Ford Motor Co., with a staggering $23 billion in cash. And who would be the object of Ford's affection? Rumors at the annual gathering in Detroit's Cobo Hall had Ford buying everyone from BMW to Volvo to Honda, not to mention some of the more homely potential brides of the auto industry, Nissan and Renault.TANNED AND RESTED. Ford's new CEO, Jacques A. Nasser, couldn't help but smile over all this attention. But he notes that he was lolling on a beach in the Caribbean over the holidays when he was purportedly ensconced in secret meetings to hatch a merger that would make DaimlerChrysler look puny. And while he declines to rule out anything, he makes it clear he won't be pushed into a bad marriage. "We don't want to take our hard-earned cash and use it to pay off someone else's hard-earned debt," he says.
Still, the auto mavens are convinced that the industry--where the top companies are awash in cash and the weaker players are drowning in excess capacity--is due for another megadeal. "A significant merger is imminent in the next 90 days," says DaimlerChrysler Co-Chairman Robert J. Eaton, who knows a thing or two about big automotive mergers. In fact, Eaton claims to know the shape of the next deal: the combination of two European auto makers, neither of which is DaimlerChrysler.
Could it be Fiat-Volvo? "That's my favorite," says Lehman Brothers auto analyst Joseph S. Phillippi, "because nobody's thought of it before." Then, there's the one about DaimlerChrysler's gobbling up Renault and Nissan in one bite. That one has been denied up and down by DaimlerChrysler. It is in talks to buy Nissan's diesel truck business, but says it's not expanding them to include Nissan's struggling car business.
For every whopper that won't float, there are plenty more. How about Volkswagen acquiring Volvo? That's if Ford doesn't overrun the Swedes first. Or picture this: Ford engineers a double-barrel takeover by grabbing Honda in Japan and BMW in Germany simultaneously. Said one competing Detroit exec: "I'd give the chances of that somewhere between zero and zilch."
But immense improbability--or the absence of any facts--can't stop the loose talk at Cobo. At one press conference, a Japanese journalist dumbfounded General Motors Chairman John F. Smith Jr. by asking how GM would compete against the new Ford-Honda combo. After a silence, Smith muttered: "As far as I know, that's just a rumor."NORTHERN EXPOSURE. No doubt, the companies being pondered are wishing everyone would just ogle their shiny new cars and not their stock. "BMW will stay the way we are, successful and independent," declared Wolfgang Reitzle, a member of BMW's management board. "There's no reason to merge, why should we?" Indeed, BMW has a powerful poison pill to fend off advances, thanks to the reclusive Quandt family's 47% stake. Honda Motor Co. is equally averse to merger. "Our plans are to remain independent, period," says American Honda Executive Vice-President Richard Colliver.
Small and vulnerable Volvo will have a harder time keeping the wolves at bay. With Volvo's largest shareholder, Fidelity Investments, only holding about 5% of its outstanding stock, the Swedish auto maker simply lacks the protection BMW enjoys. And with only 400,000 car sales annually, it also may lack the heft to survive independently in a rapidly consolidating global industry. For now, an exasperated Hans-Olov Olsson, Volvo's North American chief executive, denies any plans to merge. "You can have a hostile takeover," he acknowledges. "You cannot predict what might happen." Maybe so, but it sure beats shoveling snow.By Keith Naughton and Karen Lowry Miller, holed up at the auto show for BUSINESS WEEK