German carmakers

Love of cars runs deep in the land of the autobahn, where speed is limited only by the engine’s size and the recklessness of its driver. Berlin has a list of no fewer than 14 conditions that Opel’s new owner will have to meet if it wants government aid for the mass market manufacturer owned by General Motors. Increasingly there is also talk – and some action – among German premium carmakers too. Porsche has bought control of larger VW, although VW may yet reverse over Porsche and buy it instead. But so far BMW and Daimler, the two top-selling luxury carmakers, have remained above the fray.

Strong balance sheets, supportive shareholders (the Quandt family owns almost half of BMW; sovereign funds in the Gulf own 15 per cent of Daimler), and deft manoeuvring have kept them out of trouble. BMW and Daimler have cleverly souped-up their banking arms to suck in deposits as a replacement for the cheap credit that once helped them finance car sales. Yet this is just a stop gap. Both face a longer term problem of scale, which inflates their costs, especially in research and development. BMW and Daimler spend some €4,300 per car, more than three times as much as VW, a benefit that VW then shares with its luxury subsidiary Audi. BMW and Daimler once addressed this strategic issue by merging with mass market brands. But Rover and Chrysler proved expensive mistakes.

Now there is talk that BMW might join a three-way tie-up with Fiat and Peugeot Citroën – the wild card in European car consolidation – if Fiat’s other merger plan comes to nought.

In the meantime, Daimler and BMW have stepped-up collaboration on hybrid engine technologies. Yet there is scope to go far further. Pooling R&D, capital expenditure and purchasing operations in a joint venture could save €4.5bn annually, Credit Suisse estimates. Taxed and capitalised, that would be worth over €30bn, two thirds of their combined market capitalisation. Conditions would have to get far worse before German regulators, let alone BMW’s Quandt family, countenanced such a move. But it would certainly turbocharge their share prices.

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