Last month the automotive world was stunned, kind of, over the rumors that the almighty Volkswagen Group was contemplating becoming even almighty-er by acquiring a controlling stake in Fiat Chrysler. It didn't pan out. Is this why?
A new report in the UK's Autocar may shed some light on the situation. At the moment the Volkswagen Group is the third-largest automaker in the world, behind Toyota and General Motors, but group chairman Ferdinand Piëch wants to see them become unquestionably the biggest.
Had they absorbed Fiat Chrysler, that is unquestionably what would have happened — it would have increased the Volkswagen Group by about 50 percent into a 17-brand mega-conglomerate that would build everything from Jeeps to Bugattis. It may have been called Auto Union, too.
I guess Piëch's ultimate goal isn't just to build cars, it's to build all the cars.
But the plan apparently didn't work out because of Volkswagen's declining profit margins, a situation that has led to "a major fire-fighting exercise" within the automaker, says Autocar:
Although it is selling huge numbers of cars and makes healthy profits, the core VW brand – which accounts for 5.9m of the group's 9.7m sales – saw its profit margins slide below two per cent for the first half of 2014, with a risk of even lower margins next year.
With rivals Toyota and Hyundai making margins of over eight per cent with their mainstream cars, the mighty VW brand is, by comparison, in trouble.
[...] The next two years will be a whirlwind of activity at the wider VW Group as it struggles to rationalise product development, production and production costs. It is clearly in no position to attempt any kind of further mergers or acquisitions.
They also believe that Fiat's Agnelli family likely would have kept Ferrari and Maserati, and Fiat's South American operation would have been sold to a Chinese automaker.
Autocar calls it "a pity" that it didn't work out. I disagree. I'm glad it didn't, for the same reason that I don't like gigantic media conglomerates that own everything from the TV networks I watch to the news I read to my Internet service provider. I don't like homogenization, especially in the car world. Different brands and different technologies help drive innovation.
That's way too many vehicles to have VW Group platforms. I don't want everything to be the same.
Further, while this massive scale would have helped "Auto Union" keep its costs down, at what point would such a huge company be too huge to properly manage? Maybe they would have been too big for their own good.