The reporting season is upon us, and the news emerging from the world's family-owned car makers is grim writes Jane Simms. BMW recently reported a full-year loss before tax and interest of €718 million, much worse than the market had predicted. PSA PeugeotCitroen announced a net loss of €343 million and has been forced to accept a government bailout.
Ford reported a loss of $14.6 billion last year, the biggest in its 105-year history. Even Toyota is expected to announce its first net loss in six decades when it reports on its financial year ending 31st March.
These results perhaps come as no surprise given the sharp, credit-crunch-induced plunge in global car markets last autumn. However, while the families' continued presence as majority owners of their businesses is testimony to their resilience and survival skills, the crisis in the industry, which has been crying out for consolidation for some time, looks set to test their continuing involvement.
According to one automotive industry specialist: "It had been hoped that recession might facilitate consolidation and create a stronger industry, but the intervention by some governments in providing state aid to some companies might put paid to that. The industry has considerable over-capacity and there is no easy way to fix that."
Government intervention, he argues, might preserve jobs and family ownership and wealth in the short term, but could compromise the health of the industry in the medium term.
Meanwhile, falling dividend payouts will severely affect the income of sometimes hundreds of family members, whose ability to plunder their own coffers to help restructure their individual businesses is more limited today than it might have been five or 10 years ago.
"They have sold most of their non-core assets in order to focus on what they do best, which is in keeping with conventional management wisdom," says Philippe Houchois, head of European automotives research at UBS. "What's more, where families have diversified their investments, falling values mean those investments may be worth a fraction of what they once were."
The alternatives are either to sell out or to orchestrate some sort of alliance or merger with competitor companies. But while a family member might feel less emotional attachment to the business than their predecessors, particularly when their income has fallen so sharply, selling out is difficult when asset values are decimated and there is no liquidity in the market.
What's more, adds Panikkos Poutziouris, associate professor in entrepreneurship and family business at CIIM, the Cyprus Business School, and president of the International Family Enterprise Research Academy, "Dynastic families in business are not in the habit of cashing out."
More constructive, he argues, is to capitalise on the current crisis by revitalising their inherent competitive advantage by building synergistic co-operations with other companies. "Family shareholders are less interested in financial benefits than they are in survival and preserving the legacy for future generations," he says.
Survival might involve ceding a certain amount of control, he warns. "But if your shareholding goes down from 42% to 30% it's not the end of the world."
However, more people are beginning to question the value that the legacy of family ownership in such troubled businesses actually confers. With the notable exception of Ford, family involvement can hamper efforts to raise money in an industry with such huge capital requirements. Families are also loath to accept state handouts as it compromises their independence.
What's more, adds Peter Cooke, KMPG professor of automotive management at the University of Buckingham, family involvement makes it hard to take over or break up companies. The Ford family, for example, owns less than 5% of the stock, but has around 40% of the voting rights; the Peugeot family owns about 35% of the stock and has 45% of the voting rights; the Quandt family owns 43% of BMW and has 45% of the voting rights. "Families will increasingly have to justify their positions," says Cooke.
One family that is trying to do this is the Toyoda family behind Toyota, which has just seen one of its scions, Akio Toyoda, the founder's grandson, appointed as the first founding-family chief executive since the mid-1990s. Toyoda has promised to inject fresh energy into the company and revive its "founding spirit" of customer service and attention to the factory floor.
Taking on such a job in the current environment is a poisoned chalice; but living up to expectations that he can replicate the success of his founder grandfather is a huge burden to place on the new chief executive.
It seems that all founding families need to rethink their role in their car businesses. Ownership will continue to move eastwards, and Cooke predicts that either Tata or a Russian oligarch with a penchant for running a major car company could be the next great emerging family in the automotive sector.
Stock markets see family involvement as 'nice to have' but not essential, he continues, adding that the families need to ensure that their role continues to add value to their business and themselves, or look to realise their investment.
"Families have lost much of their wealth and, for the large part, their ability to run the business, but they still have a big say in how the industry will be shaped," concludes Houchois. "They need to use that power wisely."
Photo by Shuets Udono
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