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Daimler and BMW Step Back From the Merger Brink

Benjamin Hunting
by Benjamin Hunting
March 16, 2009

The automotive world is getting smaller - and not just in terms of sales. As unsold cars begin to pile up in dealer lots, major automakers are slashing their lineups, pruning out unsuccessful models and in the case of , even putting time-honored brands out to pasture. Smaller niche brands are finding it difficult to weather out the current financial storm, as their cash reserves are typically not at the same level as some of the other giants in the industry. This makes it tougher for them to fund daily operations or expand in to new market segments. Even some established car companies are starting to warily eye their ledger sheets, as brands like and are gobbled up by Indian industrial groups and and court major Chinese players. The general feeling in the automotive business is that unless sales can be measured well into the billions, things could get quite rocky. In a somewhat shocking turn of events, it was revealed this past month that both and had been negotiating for the better part of a year to see if the two companies might be able to enter into a partnership that would see stock exchanged between the two German powerhouses. Ultimately, the deal was nixed when the Quandt family, which owns 46% of BMW decided not to pursue talks any further. However, it does seem as though the two automakers will find other ways to combine their engineering and research talents, in the form of a four-cylinder engine development program as well as a small car design team. What kind of an impact would such a move have had on car buyers around the world? With both and representing two of the elite luxury and performance manufacturers, their decision to merge would definitely have sent ripples through the upper echelons of the market. BMW has never really been able to successfully market a small car in North America with the exception of the current , and access to Mercedes-Benz's fleet of city cars and other compact vehicles would have enabled them to compete on much more equal footing with and to a certain degree . BMW has been loathe to relinquish their image as a high cost, high performance car company but with current economic conditions favoring a balanced lineup, the extra push of the merger might have given them enough confidence to change their tune. On the other side of the table, Mercedes-Benz would be able to get their hands on some of the ultimate driving machine DNA that has made BMW cars so dynamically interesting to enthusiasts. Consolidation, while giving manufacturers greater resources and a better chance of surviving the recession, unfortunately does not always favor car buyers. Shared platforms and joint marketing schemes do not usually benefit consumers in the same way that they benefit the companies behind them. Less competition and more product duplication are the most common result of intensive cooperation between automobile companies, as was witnessed with the Daimler - merger. If ties between the two German giants had deepened, BMW would not have been as free to release new models - at least not without consulting the bigger gorilla in the deal first. The ability to choose is one of the greatest powers that a buyer can exercise while negotiating for a new vehicle, and any industry move that threatens to dilute the options that are on the table should be viewed warily.


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