Will the Global Auto Industry Consolidate?

The global automotive industry is going through some big changes with some manufacturers merging while others are forging important alliances.
Getting Together
In 2009, Fiat acquired a stake in bankrupt Chrysler while Toyota continues to hold shares of Daihatsu, Subaru and Mazda. Recently, Daimler agreed to form a small car alliance with Renault-Nissan, itself a Franco-Nippon agreement hatched in 1999. Spyker now owns Saab while China's Geely Automotive is acquiring Volvo.
What on earth is going on with the car industry?
Consolidation is the word as rapidly shifting consumer demand, stressed out economies and too much capacity weigh in. And don't think for a moment that this trend will abate. Likely, we'll be hearing of additional mergers, acquisitions and alliances formed in a bid to help companies profit from these changes.
Marchionne Opines
According to Sergio Marchionne, chief executive for the Fiat Group and Chrysler Group, LLC, automakers need to produce approximately 5.5 million cars annually in order to be profitable. That scale of operation is currently reached by a handful of companies right now, but as mentioned by The Auto Writer in December 2008, a few changes here or there and you'll have the consolidation Marchionne has envisioned taking place.
Not all consolidations or collaborations work out according to plan. Most recently, the Daimler-Chrysler hook up was an abject failure not the merger or acquisition originally conceived in 1998.
Still, that didn't stop Daimler from pursuing a small car alliance with Renault-Nissan, with each company taking token stakes in each other to seal the deal. Daimler was burned once so don't expect this agreement to go beyond small car component sharing with perhaps some commercial vehicles thrown in.
Emerging Markets
All across Europe, there are too many manufacturing plants to justify production. The strongest growth markets are China, India and Brazil and those are the places where capacity is being expanded. One only has to look at the major players operating in each country to realize that the stakes are high. Meanwhile, contraction of sorts is taking place in Europe and North America which means that some companies are shrinking, making it more difficult for them to go it alone.
One likely scenario is this one: as emerging markets continue to fuel demand, local manufacturers will continue to look abroad for alliances. Just as Geely snapped up Volvo, expect other Chinese companies to do the same. For many years, China's auto industry has consisted of local-foreign alliances, perhaps a telling sign of what the rest of the world may soon see.