What happens now?
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Now Scania and MAN are both owned by Volkswagen, can they compete with Mercedes and Volvo? CM rings the bell for round one
Words: Oliver Dixon
VOLKSWAGEN HAS moved closer to toppling Daimler and AB Volvo and claiming bragging rights as Europe’s largest truck manufacturer.
While this saga has been going on for almost ive years, the last few weeks have been busy. On 9 May, VW raised its stake in MAN from 29.9% to 30.5%. In doing so, it triggered Germany’s Implementation Act, rendering necessary a mandatory bid for MAN. VW tendered €95 (£84) per share on 31 May, a bid which, at the time, fell 1.8% below MAN’s stock price of €96.69. At this point, various sources suggested that VW was aiming to achieve somewhere between 35%-40% of MAN, from which position it could have added to its holding at will. However, towards the end of the tender period, the German truckmaker’s stock dipped below the €95 offer, going as low as €91.82 on 28 June, and so take up of VW’s offer proved to be more eager than previously had been assumed. VW might not have been expecting to end up in control, but it did.
And now, what next? The regulators are going to get involved. A combined Scania-MAN would account for around 30% of the European heavy truck market, some way bigger than Daimler AG or AB Volvo. In 2000, when AB Volvo attempted a merger with Scania – the European Commission rejected the move as it “would have caused serious competition concerns by creating dominant positions” in several sectors, including the heavy truck and bus markets in Sweden, Denmark, Norway, Finland and Ireland. In these markets, the impact of a combined Volvo Scania would have given the new company market shares ranging between 50% and 90%, something that would have been anti-competitive. MAN-Scania exceeds a 40% market share in Austria, Norway, Sweden and Denmark, and gets close in Finland and Estonia. That said, on 2010 igures alone, these six markets accounted for under 4% of the total 27 EU member states plus the afiliated freetrade area sales, and so the true monopoly position of a combined operation is not quite as cut and dry as might previously have been imagined.
Movement at the top
However, VW is clearly mindful of possible regulatory complications. It had planned to name its own people – CEO Martin Winterkorn, CFO Hans Dieter Poetsch and VW’s CV chief Jochem Heizmann – to the MAN board last month. However, in a volteface seemingly caused by a quiet word from Brussels, it backed away and instead, shareholders re-elected Audi procurement chief Ulf Berkenhagen, legal counsellor at ThyssenKrupp AG Thomas Kremer, and elected Munichbased corporate lawyer Matthias Bruse to the MAN supervisory board. Regulatory approval is not a given here.
But let us assume that VW does achieve regulatory approval from Brussels, and is allowed to combine MAN and Scania as a single operation. Will it be any good?
Given that we’ve now had almost 60 months to speculate on possible outcomes, it’s unsurprising that a number of different views have been put forward in terms of the shape of a merged business. It seems unlikely that there will be any visible combining of the two marques, at least in the short term.
Despite competing in markets that are unconcerned with individual brand, the notion of a combined, single product line does seem fanciful. Arguably, VW’s LCV range could ind a home on the European forecourts of either or both of the heavy brands, but VW’s LCV business is held as a part of Volkswagen AG. That it hasn’t been rolled into the CV operation – owned by MAN – is perhaps noteworthy.
Looking further aield, Brazil proved to be Scania’s largest single market during 2010 and MAN is already committed to launching its TGS and TGX product there some time during 2011. Opportunities for front ofice collaboration seem minimal.
Similarly, MAN has ongoing projects in China – it owns a stake in Sinotruk – and India – it operates a somewhat underwhelming joint venture with Force Motors – and again, it’s a struggle to see where these might beneit from collaboration. On balance, what you will see, at least for the foreseeable future, seems to be very much a case of business as usual.
Much has been made of the industrial logic of a merged MAN-Scania, with various cost savings claims being made. In 2006, these were put at €500m per year, and, in 2008, then MAN CEO Hakan Samuelsson put the likely savings at €1bn per year. More recently, this number has dropped to €400m, leading to the most reasoned analysis being one of they’re making it up as they go along.
Whatever the eventual number, there is little doubt that the notion of scale and savings is raising its head once again. The industrial logic thesis appears to be predicated upon the notion of bigger being more proitable.
This argument is not as watertight as the popular wisdom would have us believe. If we take the operating margins of those OEMs competing within the European space, it is clear that scale does not equal proit. For the period 2004 to 2009, Scania posted the best average igure – 10.7% – whereas Daimler managed a 3.75%. Iveco managed 4.36%, AB Volvo 4.84%, MAN 6.63% and Paccar 8.83%. It's a heresy to argue against scale in the modern automotive industry, but big is not best.
So, what’s the plan?
VW got into the middle of this in order to get out of truck manufacturing. In selling its Latin American operation to MAN, it did just that. That it now controls – potentially – Europe’s largest truck manufacturing operation is therefore a peculiar result.
Much has been made of VW CEO Piech’s desire to be the biggest auto player on earth, pushing Toyota into second place. The bad blood that exists between Piech and the other German automotive manufacturers – Daimler and BMW – is similarly well documented.
The architect of the MAN-Scania merger – Ferdinand Piech – is the same individual who gave us the Phaeton passenger car. He is also the same individual who turned Skoda into a reputable automotive brand, rather than a bad joke. In Scania and MAN there is a certain amount of vision, but there is also a certain amount of vanity. Time will tell which will win out. ■