EU Competition Law in the Automotive Industry

Abstract: The automotive industry is an oligopoly and the ten largest manufacturers account for close to 80% of the overall global production. The major markets of Europe, Japan and North America, have stagnated and remain stable and this has transformed the industry into a business of high costs and low margins. Somewhat ironically, as an attempt to increase the margins and adapt to the Japanese theory of lean production, car manufacturing suffers from severe overcapacity as a result of improved efficiency even though the barriers to entry are very high. This combined with a lack of potential competition results in tie-ups, joint ventures and other alliances as well as the struggle to balance large-scale production with product diversity. For this study, forms of cooperation above are gathered under the umbrella of mergers, the term used below. Mergers appear to be successful compared to other forms of cooperation especially when it comes to trades condensed to geographical areas and also for establishment and penetration of new markets. The former is predicted and the latter was one of the underlying motives behind the enormous Daimler-Chrysler merger. So far, mergers appear to suite the automotive industry well. Or, do they? On the other hand, research has shown that mergers often fail due to unclear or hidden motives behind the cooperation, lack of trust on the undertakings involved, opportunistic behaviour, and incorrect selection of form for the cooperation or miss-recruitment to the new organization. The problem is not the concept of merger itself, but the later implementation on the following stages. This will be further elaborated below. The overall purpose with mergers is to strengthen the competitive ability for the participating undertakings. Mergers are rarely aimed at general targets, but more frequently concentrated on specific parts of them. The cooperation is often directed towards an application, for example the development of a new car rather than the core competence itself. Economies of scale are good, but is merger the road to success? Minnie in Disney’s cars asked for directions. The question is whether anyone knows where to go.