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Corporate finance

General Motors' Unconventional Acquisition Strategy: Joint Ventures over Mergers

Strategic Insights

— 2 min read

General Motors has taken a unique approach to expanding its automotive business by forming joint ventures with minority stakes in smaller rivals, instead of taking control. This strategy has yielded some benefits, including purchasing savings from extra scale and access to new technologies. However, the financial benefits remain uncertain, with over half of the invested money written off, and some partners struggling financially.

Key Takeaways:

  • GM's expansion strategy involves taking minority stakes in smaller rivals, instead of taking control, which has saved the company money and reduced integration complexity.
  • GM has invested $4.7 billion in the three years to 2001, taking stakes in Fuji Heavy Industries (Subaru), Isuzu, Fiat Auto, and Suzuki, and also taking control of Daewoo Motor.
  • The company has delivered important savings from joint projects with its new partners, including purchasing savings from extra scale, diesel engines from Isuzu and Fiat, and the new Saab 9-2.
  • Subaru believes GM took its stake in part to prevent Ford or Daimler from taking control, but GM chairman Rick Wagoner believes the strategy has been cheaper and easier than a full merger or takeover.
  • The biggest benefits of GM's strategy have gone to its smaller partners, which benefit from access to GM's size and negotiating power, but GM has gained access to new technologies and reduced development time.
  • GM has over 30 joint projects in progress with Subaru, with about 20 not working out, but the company believes that a handful of successful big projects can make up for the disappointments.
  • The use of one of Subaru's models as the base for the new Saab 9-2 cut development time to 14 months, from a typical two to three years.
  • Suzuki, one of GM's partners, has put only 5% of its purchasing bill through GM's worldwide procurement system, an insignificant gain for the world's biggest carmaker.

Statistics:

  • GM has invested $4.7 billion in the three years to 2001.
  • Over half of GM's investment in Fiat has been written off.
  • Fiat and GM have saved $410 million each annually since 2001 through their joint production of engines and joint development of new models.
  • Fiat hopes that the savings will rise to $1 billion by 2006.
  • GM has over 30 joint projects in progress with Subaru.
  • Saab's new 9-2 car took only 14 months to develop, from a typical two to three years.

Sources:

  • The Financial Times (2004): "General Motors' strategy helps it to save cash".
  • Katsuhiro Yokoyama, Subaru's alliance promotion office (cited in The Financial Times).
  • Rick Wagoner, chairman and chief executive of GM (cited in The Financial Times).
  • John Devine, GM's chief financial officer (cited in The Financial Times).
  • The Financial Times (2002): "General Motors invests $493m in Suzuki".
  • The Financial Times (2002): "General Motors buys control of Daewoo Motor".

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