Case Study 2.2: The Failed Merger between Renault and Volvo

In 1993, merger talks finally broke down between Renault and Volvo. A merger between the two companies had seemed the inevitable consequence of a number of years of collaboration and the plans seemed well set.

Cooperation between the two firms had begun in 1990 when Renault took a 25 per cent share in Volvo cars and a 45 per cent share in their truck division. Volvo, for its part, took a 20 per cent share in Renault. The early collaboration took the form of an exchange of engines, the joint purchasing of components and joint developments in quality control. The cooperative arrangements between the two companies were a constant source of internal criticism, which focused on the highly bureaucratic procedures that had been established. In this sense, a full merger was seen by both parties as the more favourable option.

The strategic fit between Renault and Volvo seemed ripe for merger. Volvo had strengths in the large car market, where Renault had consistently failed to make an impact. Renault’s strengths lay in the manufacture of small cars and in diesel technology. In terms of market, Volvo was stronger in Northern Europe and especially North America and Renault had a larger market share in Southern Europe and South America.

Both companies were probably too small to survive in a globally competitive volume car market. In Europe and the USA, merger was a route for survival, particularly in the face of increasing Japanese competition. The major markets had stagnated and both companies had experienced a fall in profits. In the early 1990s, Volvo was the more vulnerable of the two companies. It had cut almost a quarter of its workforce and had closed manufacturing plants at Kalmar and Udevalla owing to excess capacity. Its focus on high-priced models made its sales variable with economic cycles. The