Mercedes-Benz just upped its stake from 4% to 5% in storied British carmaker Aston Martin. That may not sound like a lot, but it's a big burst of cash for Aston. This might not all sound like much, but I think Mercedes is going to buy Aston outright sooner rather than later, and here's why.
The facts of the matter are thus:
- Aston Martin and Mercedes-Benz have steadily been growing closer over the past few years. The Germans are already planning on supplying the Brits with engines, and with this new announcement, the Germans are going to be supplying electrical systems as well
- Aston Martin is mostly owned right now by private equity and investment firms like Italy-based Investindustrial (approximately 37.5% ownership) and Bahrain-based Kuwait Investment Dar and Adeem Investment (slightly less than 50%). Private equity and other investment firms tend to hold onto their investments for two to three years in an ideal situation, or three to five years in a "long-term growth" situation. Kuwait Investment Dar and Adeem have held their stake since 2007, and Investindustrial first bought into Aston in late 2013. Those investment vehicles are going to want to return capital to their investors, at some point.
- Just running a company the size of Aston (which is actually not that big, in terms of automakers) still requires massive amounts of money, if only to keep the lights on. But Aston Martin is right now facing a major capital requirement beyond the day-to-day. The VH platform that has underpinned virtually every vehicle they made – save the weirdos like the One-77 and the Cygnet – is due for a replacement by 2016. Actually, it's overdue, seeing as how it's been around since 2001, and Aston's been trying to keep things going with what it has already. Aston makes great cars, so that strategy isn't the worst in the world, but the DB9 will have been in production for 13 years by the time it gets replaced. It might as well be Methuselah, in the realm of high-end sports cars. But developing a new platform and bringing it to market ain't cheap. We're talking hundreds of millions of dollars, if not more. That extra cash has to come from somewhere.
- Aston Martin isn't just getting squeezed on the business side, it's getting squeezed on the regulatory side as well. European Union laws mandate that the vehicles produced across an entire car companies' range must average out below a certain emissions level. That's fine for companies like Volkswagen, which can crank out V12 Lamborghinis and W16 Bugattis all day every day, as long as they keep making diesel Golfs. But for companies like Aston, it's a nightmare, and it directly led to the decision to build the Aston Martin Cygnet, which was really just a Toyota iQ in a fancy dress. The Cygnet is dead, as no one bought it, but Aston's problem hasn't gone away. It would go away, however, if Aston was bought by a company that made really small cars, like the Smart. Just really, really convenient.
So it looks like there are some pretty good reasons for why Aston Martin would want to get into a serious relationship with Mercedes-Benz, and the two are already holding hands at the movie theater.
But here's the kicker, after all that. I still can't figure out why Mercedes would want to buy Aston. What does Aston Martin offer, that Mercedes can't do itself? Why buy the company that makes the Vantage when you already sell the AMG GT? Why buy the company that makes the DB9 when you already sell the CL600? Why buy the company that looks ready to make the Lagonda, when you already have the S65 AMG?
Sure, none of the examples I just gave are necessarily direct comparisons, but we're talking about laying out billions of dollars for a small British car company, and they're close enough.
But on the other hand, when has a fear of cannibalism and internal competition ever stopped a German car company from buying a smaller one?
Think I'm wrong? I very well could be, and it's not like I'm privy to the discussions going on in the Aston Martin and Daimler AG boardrooms. But unless I'm missing something huge, everything looks like it's pointing in one direction.
Photo credit: Alexandre Prevot