The much-advertised FCA – Renault merger didn’t come to pass after all. Very unfortunate in my view.
I was surprised to see however that other people were happy by this fact, citing concerns over the potential reduction in competition among carmakers. I believe such a view is flawed, and here’s why:
As things are at the moment, such a merger could only increase competition, not reduce it. There is a very distinct category of car manufacturers (the ones that I like calling the “big 4” — not too dissimilar to the infamous public accountancy firms that have been dominating the profession over the last 30 years or so) that are virtually “untouchable” by the rest of the pack: Toyota, VW, GM and Hyundai/Kia, have built such large economies of scale and expanded in so many different markets, that are for all intents and purposes, in competition only among themselves.
With the situation currently being effectively an oligopoly of four with the occasional interference of smaller firms, a potential merger between FCA and Renault would create the third largest car manufacturer in the world. Although such a move would reduce competition in terms of market participants, it would effectively increase it by putting an extra check on the market power of companies that command more resources than some of the world’s smaller national governments, thus creating a club of “big-5.”
In addition to that, let’s not forget that although car manufacturing is hardly the bleeding edge of technology in our days, it is still a field where innovative ideas can have practical applications in our daily lives. Indeed, car manufacturers still spend significant amounts on R&D, ranging from the very basic fields of combustion engine technology, all the way to the increasing of the connectivity between the various parts of a car and its electronic control chip. R&D, by its very nature, is a field were there can never be a bottleneck from having too many resources, as it is not demand-driven.
So, the real question in many cases isn’t how to prevent a company from becoming “too big” but rather, how to increase competition that it would prevent it “naturally” from becoming “too big.” Even if that means less choices for the end customers. As for the FCA – Renault love story? Given all of the above, I don’t believe this is the end of it…