Fiat CEO predicts only six carmakers will weather the economic storm

Mass consolidations and a number of major bankruptcies are inevitable says Fiat Group CEO Sergio Marchionne as the auto industry weathers the global economic crisis and experiences one of the worst slump in sales in several decades. Marchionne goes so far as to predict that only six carmakers will survive beyond a crucial 24 month period, with most being absorbed by the larger and more successful firms.

"By the time we finish with this in the next 24 months, as far as mass-producers are concerned, we're going to end up with one American house, one German of size, one French-Japanese, maybe with an extension in the United States, one in Japan, one in China and one potential European player," Marchionne explained to Automotive News Europe.

Marchionne also predicted that carmakers would need to build more than 5.5 million vehicles per year to remain viable going into the next decade. At present, only five companies - Toyota, General Motors, Volkswagen, Ford and Renault-Nissan – are at that size.

The Italian exec’s grim view of the future landscape of the automotive industry is backed by a number of analysts, including Jürgen Pieper from Germany’s Metzler Bank. Pieper explains that the reason there are so many individual car brands in Europe today is because many of these are still family owned. However, if the private fortunes of these families start to dwindle due to the poor performance of the carmakers they represent, then it is highly likely that these brands will be sold.

Up to 46.6% of BMW is currently owned by the Quandt family and 30% of PSA Peugeot-Citroen Group is owned by the Peugeot family – two of the most vulnerable European firms, according to the analyst. The strongest, on the other hand, are Volkswagen Group, Renault-Nissan, and Daimler.

The key is economies of scale, parts sharing, and sharing research and development costs. "Audi has been doing better than Mercedes and BMW over the last few years because it benefits from being owned by VW," Pieper explained.

At the same time, some analysts see the opposite happening. Taking General Motors as an example, struggling brands such as Saab and Saturn would be sold off or axed rather than being acquired by another carmaker.

"In a recession I do not think there will be much consolidation," said Garel Rhys, emeritus professor of motor industry economics at Cardiff Business School in Wales. "I cannot see anyone wanting to get into bed with anyone else." Most carmakers have too many problems of their own to consider merging with another, he explained.