The Single Market

If you think globally, watch what you do locally. That was the message from Brussels last week as European Commission competition czar Mario Monti disallowed the takeover by Swedish truckmaker Volvo of its national competitor Scania. He banned the deal, not out of any concern that the resulting firm would dominate the European Union's total truck market, but because he believes it would stifle competition in Scandinavia. That argument seemed to fly in the face of the Commission's promotion of the E.U. as an integrated market--and its insistence that European firms have to adjust to a global marketplace. "We've always been told that there's a single market, but this ruling says it's national markets that matter," says Thierry Proteau, spokesman for the European Automobile Manufacturers' Association. "It's a disturbing paradox."

In reaching the controversial but widely expected decision, Monti argued that the customer rather than the producer has to define the relevant market. A merged Volvo-Scania would have controlled some 90% of the Swedish market for heavy trucks and roughly the same proportion of the city bus market in Finland and Ireland. The fact that it would hold only some 31% of the European market as a whole offers scant solace to Swedish truck buyers, suggested Monti. They tend to look no further than their local dealerships--overwhelmingly Scania and Volvo--when they buy, the Commission's investigation found. Leif Johansson, Volvo's CEO, said that by judging the deal on those narrow local standards, the Commission's ruling "seem[s] to go against the basic concept of the common market."

The decision leaves Volvo back where it was in January 1999 when it sold its passenger car division to Ford for $5.8 billion: cash-rich and keen to buy rather than be bought-- unless, of course, the price is right. Its bid for domestic rival Scania, of which it now holds 45.5%, was supposed to produce a Swedish national champion that would have taken the lead in the European truck market from DaimlerChrysler, as well as establish the new firm as a major player around the world. As Brussels' objection to the deal became obvious, Swedish Prime Minister Gran Persson appealed personally to Monti. Volvo offered to open up its dealer and service networks in Scandinavia to rival products like Mercedes and Iveco. All in vain.

Although Volvo is the big loser, Monti's real goal was to signal his frustration with the tendency for European firms, whether banks or manufacturers, to consolidate nationally before looking across borders. "Economically speaking, there's no reason for that," says Daniel Gros, director of the Centre for European Policy Studies, a Brussels think tank. Monti's decision may actually accelerate the drive for further consolidation in the truck business. "You block one deal and you open the way for at least two more," says John Lawson, an analyst with Salomon Smith Barney. Volvo could launch bids for American competitor Navistar, Germany's MAN or Renault's truck operations, RVI. And Volvo could itself become a takeover target. Fiat, whose Iveco truck division has seen its European market share decline throughout the '90s, is an obvious potential predator. The most unlikely outcome is the status quo.