Accelerating Toward Sales and Spin-Offs
The automotive industry is rethinking non-core activities and looking for ways to prepare for the future. Unlike their peers, German car companies are doing it in secret.
The world’s carmakers and suppliers have made their intentions clear: The introduction of new competitors in electric cars, the Internet of Things and an increasing distaste for aging technologies means companies have to re-evaluate what they do, and what they want to do in the future. Some companies, Italy’s Fiat and American supplier Delphi for example, have been specific about their plans, with investors revving at the prospects of profitable spin-offs and restructurings. Germany’s automotive industry, however, isn’t so forthcoming.
The supervisory board of Stuttgart’s Daimler, for instance, is currently preparing a “feasibility study” that will mull restructuring into a parent company that oversees Daimler’s activities, which stretch from tiny, two-seater Smarts to giant, over-the-road Freightliners. External consultants will spend a year considering whether the new structure makes sense. The management board has attempted to allay employee fears of sales, saying there are “no plans to split off any parts of the company,” and that the aim is not to “cut costs or staff.” But officially, Daimler has not commented on the issue.
“Companies need to become faster and more agile, and to do that they have to get rid of ballast,” said automotive expert Stefan Bratzel, head of the Center of Automotive Management, a research institution based in Germany. “The old automotive world, with its different areas of business that have evolved over time, is a heavy backpack”. The automotive industry is undergoing massive structural changes, with operations being hived off and sold. Diesel’s days are numbered and a phase of global consolidation is beginning. Investors now consider a company’s ability to transform more important than the old measures of success, such as margins and number of units sold.
Back in Stuttgart, Daimler has a market cap of about €72 billion ($84 billion). Analysts at Goldman Sachs believe this is relatively low and estimate that it is about a quarter below what the sum of the company’s parts would be worth. Arndt Ellinghorst from Evercore ISI calculates that a spin-off of the trucks business alone would generate added value of €32 billion.
But it’s not just about money: the aim is also to allow the subsidiaries to enter into independent partnerships. If, for example, the Mercedes car division wants to enter into a cross-shareholding arrangement with another automaker, it will have to be able to do this on its own, as a corporation in its own right. As things currently stand, the whole group would have to be involved – which would be ill-advised, following the disastrous merger between Daimler and Chrysler in 1998.
One thing that is certain is that employees will have a braking effect, forcing the German automotive industry to take a different path in the global transformation process. “The advantage is that we can think through our strategy in detail,” Mr. Bratzel, the analyst, said. He’s recently been looking at the plans of new competitors based in Silicon Valley. “The disadvantage is that we’ll lose time compared with competitors who are pushing into the mobility market at breakneck speed.”
However, German automotive giant Volkswagen (VW) has even greater potential. The group, which has 12 brands and 600,000 employees, has been plagued for the last two years by the diesel emissions scandal. Chief executive Matthias Müller told the Wall Street Journal at the beginning of September that a team was already looking at options for the spin-off and sale of peripheral activities. A possible IPO for the commercial vehicles subsidiary Truck&Bus, which includes the group brands MAN and Scania, is top of the list.
VW also has a broad portfolio of subsidiaries that it accumulated during the era when Martin Winterkorn was CEO and Ferdinand Piëch was supervisory board chairman. This includes the motorcycle brand Ducati, which has already attracted interest from potential buyers. Through the MAN subsidiaries Diesel and Turbo, VW is also a global player in diesel for ships and an equipment supplier to the gas industry. Renk, a company based in Augsburg, supplies transmission systems for wind turbines and Leopard battle tanks. These divisions together represent about one-fifth of the group’s total sales of €2 billion.
“We’re reviewing our portfolio,” another high-ranking manager recently confirmed in conversation with Handelsblatt. For the moment, however, all moves are on hold: Matthias Müller, like Daimler chief executive Dieter Zetsche, needs approval from employee representatives on the group’s supervisory board for any far-reaching changes. The employee representatives are in no hurry, as the group works council is due to be re-elected next spring and election campaigns are under way.