Acquisition Lessons from the 2009 GM & Ford Fire Sale

The Big 3 automotive unbundling is underway. In short order, GM will be shedding its Saab & Hummer niche brands while Ford will sell off its premium Jaguar and Volvo divisions.  These divestitures bring full circle a failed acquisition strategy that begun over a decade ago with great promise, fanfare and investment.  What can executives considering acquisition opportunities learn from this tale?

Realizing post-acquisition synergies is the sine non qua of acquiring new brands

In hindsight, cash-flush GM and Ford overpaid for their marquee brands and then failed to leverage their scale economies and expertise. Often, there are good strategic reasons to acquire niche brands.  However, making the investment pay out is dependant on the tricky business of getting certain things right such as operational integration, portfolio marketing and technology sharing.  After 10+ years of trying, GM and Ford never did exploit potential synergies across the company – if they were there in the first place – or improve each brand’s competitiveness and profitability.

Understand what needs fixing and leave the rest alone

GM and Ford did not seem to understand what they were buying or the importance of “strategic fit.”  They offered the niche brands a lot of what they really didn’t need at the time (e.g., distribution, strategic procurement) and little in terms of what they did need to accelerate their business (new technology, manufacturing etc.).  Complicating  integration and product planning was the challenge of getting high volume Middle America manufacturers to understand the culture and the nature of lower volume, craft-oriented European producers.

Reinforcing and leveraging unique brand positioning is critical

GM never did figure out what the Saab stood for other than being different and quirky. For example, when GM attempted to expand the Saab franchise by putting its nameplate on a Subaru – known  as “badge engineering” in industry parlance – consumers saw right through the gimmick and shunned the product.  Jaguar, plagued by quality issues, never regained its historical brand strength, falling further behind Mercedes and Lexus. Despite recently building some stylish cars, Volvo was unable to expand beyond its core safety positioning.  Meanwhile, others like BMW and Mercedes successfully encroached upon it. 

Build and design where you sell

Mercedes, BMW and Lexus build cars in North America, the largest premium car market in the World, in order to minimize the impact of currency fluctuations, improve delivery and design cars to suit local tastes. Strangely, Jaguar, Volvo or Saab never shifted significant operations to the US. When the US dollar weakened versus European currencies, GM and Ford ended up losing money on every car it sold in North America.  Furthermore, Saab, Volvo and Jaguar’s design and build quality never approached the appeal of equivalent North American models sold by German and Japanese producers.

Be wary of smaller but focused foes

This old adage has been said many times but is worth repeating.  Diversified producers like Ford and GM, challenged by competing portfolio demands, will often have difficulty competing against focused smaller players like BMW who can devote resources and management time to a few product areas.  Furthermore, neither GM nor Ford was able to fully leverage their considerable resources or expertise to improve the competitiveness of their acquired brands.

Hindsight is always 20/20 and it’s easy to be an armchair quarterback today.  Ford and GM’s acquisitions were not destined to fail.  However, the likelihood of a successful acquisition can be improved through better acquisition integration as well as less strategic hubris.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.


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