As the first estimates of worldwide car sales in 2013 come in, it is clear that Toyota, when its production is combined with that of its affiliates Daihatsu and Subaru, is on the brink of becoming the first member of the "10 million club."
It will swiftly be followed by GM and Volkswagen, both of which are also enjoying continued growth, especially in the world's largest car market, China. Makers of luxurious models with strong brands, such as BMW and Jaguar Land Rover, can do well selling relatively small volumes of cars for handsome profits.
But despite rising sales in America and Britain, and the apparent end of a six-year downturn in continental Europe, life is getting more difficult for a squeezed middle, selling mainly mass-market models at margins that are slim at best.
There are plenty of reasons why size matters. Besides the obvious economies of scale and the strong bargaining power with suppliers, being big makes it easier, especially with today's flexible production lines, to offer an ample product range that can exploit every niche. And the biggest carmaking groups are better able to spread the heavy cost of complying with ever-tougher environmental regulation in the largest economies.
Carmakers are having to hedge their bets, at enormous cost, on a range of technologies they hope will help them comply with stricter emissions standards: battery, hybrid and hydrogen fuel-cell powertrains, as well as improved gasoline and diesel engines. In an announcement that may in part have been crafted to strike fear into the hearts of smaller rivals, VW said in November that it would invest a whopping $114 billion in R&D over the next five years, with two-thirds going to develop new vehicles and technology.
Size is in itself no guarantee of success, nor are those in carmaking's middle lane bound to fail. But they are under increasing pressure to find ways to compensate for their lack of scale. The most obvious is to get big by merging.
Mergers, alliances and partnerships
On Jan. 1, Fiat struck a $4.35 billion deal to buy the 41 percent of Chrysler it did not already own. Even the merged Fiat-Chrysler will produce "only" 4 million cars. Fiat will dip into Chrysler's cash pile to finance new models in the hope of boosting annual sales to 6 million vehicles and to increase the proportion of profitable premium cars it sells from its sporty Alfa Romeo and Maserati ranges. But Fiat will remain weak in car-hungry Asia and could do with another deal to make more inroads there.
Another way of bulking up is to stop short of a merger but to build a broad alliance. Renault and Nissan this year celebrate 15 years of their partnership (which recently took in AvtoVAZ of Russia). The combination of Nissan's technology and cash and Renault's management has kept both firms alive. But although they share some platforms and parts, the two have largely remained separate businesses.
