Volvo Scania Merger

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Volvo - Scania Merger
October 8, 2003
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Rapidly consolidating truck industry forces Volvo
to react
EU truck producers are under enormous pressure

• ... soaring development cost
• ... incredibly fast, global consolidation of
  truck manufacturing industry
• dwindling barriers to entry in EU market

• Pressure to innovate...
• Incressing MA activity strategic alliances...
• Global convergence of standards

• Fuel efficiency, electronic truck controls
• Regulatory restrictions (e.g. emission limits)
• 1996 PACCAR (US) DAF (NL)
• 1998 PACCAR (US) Leyland Trucks (UK)
• 1999 Daimler-Benz (D) Chrysler (US)
• top 4 manufacturers had a combined market share
• of 44 in 1999 (Volvo 5.5, Scania 3.2)
• Global convergence of environmental standards
• manufacturing requirements
• Global players such as can standardize products
• Overcapacity in EU market (high fixed cost
  industry!)

Economies of scale are vital for Volvo as a
mid-sized player. We must grow through
acquisitions to remain competitive.
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Todays Trucking Business is European or even
Global
The geographical area of concern is the European
Economic Area and not the Nordic

• The European truck market is fragmented and any
  potential market power after the merger will not
  last for a long time
• High levels of truck imports exports
• Between EU member states
• To / from outside the EU
• So plenty of substitutes available to clients
• Main purchasers are price-sensitive private
  operators
• Little regard to brand
• EU-wide tender purchases
• Suppliers increasingly operate EU-wide
• Reduced dependence on individual truck producers
  
• Truck producers cannot exercise substantial
  market power
• EU law enables truck dealers to carry multiple
  brands
• Prevents exclusive dealerships

4
EU Market Share Calculations Overstate the
Volvo-Scania Market Power
EU Commission is wrong to simply add pre-merger
market shares

• The following considerations in fact lead to
  lower post-merger market shares
• No collusion among truck firms
• Low barriers to entry to our main markets
  competitors will aggressively react by increasing
  their imports to our main markets
• We believe that our competitors will in fact gain
  market share in our core markets
• If Scania/Volvo was to raise the price in a
  market by more than 5, substitution will take
  place (e.g. trains, light trucks, imports)
• EU allows parallel imports

5
If Daimler-Chrysler Acquires Scania, its Market
Dominance will be Worse
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Positive Social Impact from Volvo / Scania Merger
Positive innovation from combined RD gives
social benefits

• Safer trucks
• Less fuel consumption
• Less polluting emissions
• Better environment
• Ultimately, clients and society benefit from
  these positive externalities for free

7
The Americans are Ready to Buy us
Other considerations the Commission should take
into account

• Potential competition from outside the EU is
  large
• Volvo Scania will buckle under the pressure if
  not allowed to merge
• Clearly one of the American players will buy our
  companies
• If Scania is not bought by Volvo, then
  Daimler/Chrysler is likely to take over Scania
• In 9 countries this merger will lead to a higher
  market share than for the Volvo/Scania merger
• Trucking industry will end up like bankrupt
  Airline industry
• If Commission blocks such mergers, the Eurpoean
  truck manufacturers cannot remain competitive
• Governmental bail-outs likely in the long-run
  (cf. airline industry)
• Do you really want to spend tax money to bail-out
  our industry?
• ... OR ...
• Do you really want to see only American trucks on
  our roads?

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In Summary..
The European Commission should not block the
proposed merger

• Relevant market should be at a minimum be the
  whole of the European Union and therefore the
  proposed merger does not create a dominant
  position
• The proposed merger will result in safer roads,
  protection of the environment and will safeguard
  European jobs.
• The proposed merger will bring significant
  economic benefits to the European Union
• The proposed merger will ensure the survival of a
  European Truck manufacturer in the global market