Cross-Border Mergers Bind Europe While Treaties Stall

ACCELERATING UNITY

EUROPE'S big automobile manufacturers are demonstrating that cross-frontier company mergers rather than political treaties may offer the best route to long-term European integration.

Economic analysts see the planned link-up between France's giant Renault company and Sweden's Volvo - creating Europe's second-largest, and the world's sixth-largest, vehiclemaker - as a landmark development in the unifying process.

Mergers and alliances between companies, analysts say, are likely to accelerate as the European Community's ``single market,'' created at the beginning of 1993, develops, and businesses battling the effects of recession stand up to external competition, particularly from Japan.

Hopes that increased industrial cooperation will boost European integration have begun to rise at a time when the political goals of the Maastricht Treaty appear to be in jeopardy and the EC's exchange-rate mechanism is under severe strain.

John Major, Britain's prime minister, has often argued that Europe's manufacturers and traders are in a good position to offer a lead in the pursuit of unity.

The Renault-Volvo marriage, announced Sept. 6, follows a three-year courtship between the two companies. It will produce a corporation that edges Italy's Fiat motor company for sixth place in world carmaking rankings and offers stiff competition to Japan's Nissan (currently fifth) and Germany's fourth-ranking Volkswagen.

Douglas McWilliams, director of the London-based Centre for Economic and Business Research, calls the Renault-Volvo merger ``an instructive example of how industrial corporations sometimes are more able than governments to identify and pursue common interests and operate across political frontiers.''

Mr. McWilliams says the merger, to take effect Jan. 1, 1994, should be compared to that of Royal Dutch and Shell oil companies. ``I foresee that where full-scale mergers are not possible, cross-border company alliances will become much more common as the significance of the EC's single market comes to be better appreciated,'' McWilliams says.

He adds: ``In the case of the European motor industry, extra stimulus is being provided by the certainty of vigorous Japanese competition in the years ahead.''

IN 2000, under an agreement between the EC and Japan, existing limits on imports of Japanese vehicles will disappear, turning Europe into what Kumar Bhattacharyya, a manufacturing systems analyst at Warwick University, predicts will become ``a battleground'' for vehicle sales.

The European Vehicle Manufacturers' Association says European car sales this year will be down by 17 percent from $13.5 billion in 1992. Members worry that slow sales will last two or three years.

In 1990 Volvo, sensing problems ahead, agreed to a partnership with Renault involving minority cross-shareholdings. At the time, the agreement was not seen as a prelude to a full alliance.

In two of the last three years, however, Volvo has been losing money. Pehr Gyllenhammar, chairman of the Swedish company, could not see how the company would be able to survive without deepening its relationship with Renault, car industry sources say.

The outcome is a full merger, with the French company holding 65 percent of the shares and Volvo the rest. Louis Schweitzer, Renault's chairman, will be chief executive; Mr. Gyllenhammar will head a supervisory board. Mr. Schweitzer says the separate identities of Renault and Volvo cars and trucks will be preserved.

Garel Rhys, a motor industry analyst at Cardiff Business School, says the Volvo-Renault deal holds out the prospect of other mergers or alliances between Europe's ``big six'' vehiclemakers: VAG, GM, Renault, Fiat, Peugeot, and Ford. ``Consolidation of the single market and removal of tariff barriers means that more alliances among the big six are virtually certain,'' Mr. Rhys says.

McWilliams says he supports the view that cross-border link-ups between companies offer a useful route to European unity. ``Although companies compete with each other, they also tend to have a shrewd idea of how cooperation can be achieved,'' he says. ``In Europe there is ... quite a long tradition of either mergers or alliances being formed.''

Examples include Volvo's takeover some years ago of the Dutch carmaker Daf. Germany's Siemens and IBM have formed an alliance for the manufacture of computer disc-drives. IBM also is working closely with software manufacturers in EC countries.

McWilliams notes that the urge to merge involves small European companies as well as large ones. Cross-border mergers by smaller EC firms have risen from around 250 in 1987 to close to a thousand a year now.

Volvo's Gyllenhammar says his company's marriage with Renault has a good chance of succeeding because of the period of cooperation that has preceded it - ``a learning experience.''