Foreign brands gain traction with GM’s dismantling-WEB ONLY

More foreign car brands could find their way into American garages under a plan
by auto racing magnate Roger Penske’s dealership group to snap up Saturn from
the ruins of General Motors Corp.

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The deal announced Friday is one more example of how the cataclysm that hit
Detroit’s three carmakers is reshaping the global automotive landscape in
profound ways, reducing their worldwide influence and – if Saturn turns out as
Penske envisions – opening new markets to smaller companies.

“There’s no doubt that the automotive deck chairs are changing,” said
Michael Robinet, vice president of CSM Worldwide, a Detroit-area auto industry
consulting firm.

In the shakeup, well-known brands are changing flags quicker than an oil tanker
in pirate-infested waters. Italy‘s
Fiat SpA is waiting for U.S.
courts to approve its acquisition of Chrysler LLC’s assets. GM has worked deals
to turn its German subsidiary Adam Opel GmbH over to a Canadian auto parts
company with Russian backing. And Hummer may be going Chinese, although state
media there reported Friday that the deal has hit regulatory hurdles.

Yet industry experts are doubtful that the flurry of mergers and alliances will
be any more durable than failed marriages of the past, proving to be just one
big distraction from the underlying issue that made them so vulnerable in the
first place: making more cars than people can buy.

Still, Penske, who already runs Penske Automotive Group Inc., the
second-largest U.S.
dealer network, thinks his business model is different enough to be successful.

GM and Penske expect to close the Saturn deal in the third quarter, with the
wounded Detroit
automaker continuing to build three models for Saturn to distribute.

Key to its success, though, will be the
ability to sign on other global manufacturers to make cars for Saturn, giving
it a diverse portfolio of vehicles that will sell whether gasoline prices are
high or low.

But by opening the door to automakers not
now in the U.S., such as France‘s Renault, Penske could alter the market
here, allowing smaller automakers to compete against Detroit.

Penske, in an interview with The Associated
Press, said foreign automakers would be key to his business model, but they
will have to match GM quality standards before Saturn’s 350-dealer network will
distribute their products.

“As people around the world look at
that, they have the opportunity to tap us on the shoulder and say ‘we have
product that we’d like to bring into the U.S.,'” he said.

Other foreign automakers that have succeeded
in the U.S.
began with a distribution network, then started manufacturing operations, he
said.

Honda Motor Co., for example, started
selling motorcycles at a few U.S.
dealerships in 1959, then imported cars as its dealership ranks grew. But the
Japanese company didn’t build vehicles in the U.S.
until 1979, when it opened a motorcycle plant in Marysville, Ohio,
that later grew to build the popular Accord sedan.

Penske said he expects to begin making money
immediately on Saturn, which has never been profitable for GM.

“I would expect that the model that
we’re putting together, the distribution model, will be profitable Day
One,” he said. “We’ll have less costs. We’ll not be in the
manufacturing side of it.”

Fiat’s takeover of Chrysler, in its final
stages, follows a more traditional logic. CEO Sergio Marchionne has been
studying U.S.
plants for ways to raise efficiency, and will retool one so he can start making
the stylish compact Fiat 500 and a sporty Alfa Romeo or two. Under terms of
Chrysler’s bankruptcy plan, it will close five more U.S. plants.

In Europe,
the Opel deal was reached under enormous political and union pressure to keep
open all four German plants – which appeared to be one of the things that
knocked Fiat out of political favor with early reports that it would close an
engine factory. The winning bidder, Magna International Inc., has pledged to
cut just 10,000 GM Europe jobs – a number eventually matched by Fiat.

But that deal is still not final. Fiat
restated its interest Friday, although German officials downplayed prospects of
Magna failing to complete the takeover.

Marchionne’s aim had been to combine
Chrysler and Fiat with GM’s European business to create a world automotive
powerhouse to produce up to 6 million cars a year, his threshold for surviving
toughening world market conditions.

Such strategies have raised the obvious
question among analysts: If the industry is being strangled by overproduction,
why not just let the gasping giants expire?

For years, the U.S. auto manufacturing base has
been too large for the market, forcing automakers to overproduce to keep plants
running and flooding the market with vehicles. As a result, the Detroit Three
especially have been forced to discount vehicles to sell burgeoning
inventories.

But Penske said the continued restructuring
by Chrysler, GM and Ford Motor Co. should solve that problem, at least in the U.S.

“I think there’s no question that this
re-engineering of the manufacturing base in the U.S. by the Big Three will take
capacity out,” he said. “But more important, the plants that will
survive will be the ones that are most efficient.”

Yet London-based Morgan Stanley analyst Adam
Jonas said he does not expect worldwide capacity to be significantly changed a
year from now. And he questioned the logic of gathering brands under one roof
without real synergies.

“Did we just hook up five or six
companies that don’t mean anything? To get common distributors, development,
common planning, common everything, it takes a lot of time, a lot more money
and a lot of risk,” Jonas said.

Worldwide, analysts say automakers have the
capacity to produce 18 million to 20 million more cars than the market demands,
leaving many plants grossly underutilized. To make money, automakers have to
run their plants above 90-percent capacity, but few are doing that in a
depressed global market.

Nearly 70 million cars and light trucks were
produced worldwide in 2007, when the latest figures are available from the
International Organization of Motor Vehicle Manufacturers.

Ferdinand Dudenhoeffer, director of the
Center for Automotive Research in Gelsenkirchen, Germany, said capacity will
need to shift to emerging markets such as India and China, not saturated
markets like the United States and Europe, where most of the deal-making is
centered.

All the changes brings to mind past unhappy
auto mergers: Ford with Land Rover and Jaguar, Chrysler with Germany‘s Daimler AG, and General
Motors with Fiat.

A big exception, Dudenhoeffer said, is
Volkswagen AG, which gathers multiple brands from Bentley to Lamborghini to
Skoda under one roof. “But it took 20 years to bring them onto the same
technical platforms,” he said.

Analysts say bigger isn’t always better, as
evidenced by GM’s efforts to shrink itself to become profitable.

“The story of consolidation is not the
story which drives the car world,” Dudenhoeffer said. “If you look at
a company like Porsche, the most successful car companies in the world are
small.”