Alstom, Siemens to merge rail businesses to counter China's CRRC

[DavidB-AU]

German industrial group Siemens AG and French rival Alstom SA agreed to merge their rail operations, creating a European champion to better withstand the international advance of China’s state-owned CRRC Corp Ltd

 

https://uk.reuters.com/article/uk-alstom-siemens-stocks/alstom-siemens-to-merge-rail-businesses-to-counter-chinas-crrc-idUKKCN1C118S.

[DIW]

Let's imagine here ... the next series of TGV to undergo refurbishment gets fitted out with Siemen's seating from the class 450. That'll show'em!

[mdvle]

And the EU rejects the merger

https://www.ctvnews.ca/business/eu-nixes-deal-to-create-rail-giant-able-to-stand-up-to-china-1.4284683

[jjb1970]

Crikey, I thought I was reading quotes from Nigel Farage and UKIP in that article!!  

[Rods_of_Revolution]

Presumably that whilst stopping the merger in the interests of internal competition within the EU, the EU will place tariffs on any Chinese rollingstock being imported into the EU to protect Siemens and Alstom. This means Siemens and Alstom may struggle in markets outside of the EU. I know China has started making inroads into the parts of the Balkans which fall outside the EU's jurisdiction.

 

Perhaps post-Brexit we'll get some good deals on Chinese trains!

[dvdlcs]

Some Chinese made locomotives are running in Australia. In addition, a whole heap of rolling stock is too - not sure what, if any, new build wagons don't emanate from China these days.

[Mike Storey]

4 hours ago, Rods_of_Revolution said:

Presumably that whilst stopping the merger in the interests of internal competition within the EU, the EU will place tariffs on any Chinese rollingstock being imported into the EU to protect Siemens and Alstom. This means Siemens and Alstom may struggle in markets outside of the EU. I know China has started making inroads into the parts of the Balkans which fall outside the EU's jurisdiction.

 

Perhaps post-Brexit we'll get some good deals on Chinese trains!

 

Guess so, if you don't mind losing the jobs and industries in Derby, Loughbrough, Newton Aycliffe and the new CAF plant in South Wales, along with many of the support industries and design teams around the UK (and in Europe) . I am sure the Chinese would deign to allow some domestic assembly etc, but they have poor history in that .

 

A key argument used against the merger is that CRRC are not a serious player within the EU. But they are seriously bidding for the HS2 train fleet (albeit we probably won't be part of the EU by then), and some European railways are already experimenting with small numbers of their products, especially private operators in Eastern Europe,and in Germany.

 

You might have noticed (in the final para) that the UK was one of the countries arguing against the merger. I guess the issue for new Britain will be about whether to ensure a heavily subsidised, monolithic enterprise, who offers us the moon initially, will be allowed to compete on a level playing field with otherwise properly commercial entities, who obey the usual rules of competition and domestic & international policy.

 

 

['CHARD]

CRRC are in the process of supplying engineers' wagons to London Underground.

[Mike Storey]

9 minutes ago, 'CHARD said:

CRRC are in the process of supplying engineers' wagons to London Underground.

 

Indeed - worth reading the very final para of the attached......

 

http://www.crrcgc.cc/en/g7389/s13996/t284499.aspx

['CHARD]

3 hours ago, Mike Storey said:

 

Indeed - worth reading the very final para of the attached......

 

http://www.crrcgc.cc/en/g7389/s13996/t284499.aspx

 

Oh aye.  This is the result of a dedicated sales and product strategy that has taken them several years.

[Rods_of_Revolution]

5 hours ago, Mike Storey said:

 

Guess so, if you don't mind losing the jobs and industries in Derby, Loughbrough, Newton Aycliffe and the new CAF plant in South Wales, along with many of the support industries and design teams around the UK (and in Europe) . I am sure the Chinese would deign to allow some domestic assembly etc, but they have poor history in that .

 

A key argument used against the merger is that CRRC are not a serious player within the EU. But they are seriously bidding for the HS2 train fleet (albeit we probably won't be part of the EU by then), and some European railways are already experimenting with small numbers of their products, especially private operators in Eastern Europe,and in Germany.

 

You might have noticed (in the final para) that the UK was one of the countries arguing against the merger. I guess the issue for new Britain will be about whether to ensure a heavily subsidised, monolithic enterprise, who offers us the moon initially, will be allowed to compete on a level playing field with otherwise properly commercial entities, who obey the usual rules of competition and domestic & international policy.

 

 

 

The UK is a pretty big consumer of EU designed/built trains, given the prevelance of Desiro and Electrostar trains. If these companies were to stop building trains in the UK, they'd risk losing one of the biggest buyers of their trains. I also don't think that the rail industry will be hit by Brexit in the same way the automotive industry might, as the vast majority of trains being built here are not built for export. The worst case scenario (aka Hard Brexit) is a 10% tariff on trains/cars being exported to the EU, but over the last 3 years the pound has been devalued against the Euro by more than 10%, so if it was financially viable three years ago, it will likely be financially viable even with a Hard Brexit.

 

As for jobs in the railway sector, I think they will be pretty safe for the forseeable future, as the UK has a rollingstock shortage and EU rollingstock manufacturers still want to sell trains. The British government could even put a sufficient tariff on EU rollingstock to make sure that it's only financially viable for Siemens and Alstom to manufacture trains for the UK in the UK.

 

It seems to me that one side says it'll be all milk and honey after leaving, the other side says it'll be an economic apocalypse. I think the reality is that, come April, everything will be much the same as it is now.

[Talltim]

NR were very much against the  merger as it would reduce their signalling suppliers. Alstom and Siemens don’t just make trains

[RJS1977]

Ultimately, two companies merging may well be very good for the companies involved, but not necessarily as good for the suppliers as it reduces the level of competition (so prices go up), and can create a single point of failure (i.e. if the merged company collapsed, or had industrial difficulties, there may be a shortage of alternative suppliers).

 

I'm sure most of us would be concerned if Bachmann and Hornby were contemplating merging...

[Mike Storey]

1 hour ago, Rods_of_Revolution said:

 

The UK is a pretty big consumer of EU designed/built trains, given the prevelance of Desiro and Electrostar trains. If these companies were to stop building trains in the UK, they'd risk losing one of the biggest buyers of their trains. I also don't think that the rail industry will be hit by Brexit in the same way the automotive industry might, as the vast majority of trains being built here are not built for export. The worst case scenario (aka Hard Brexit) is a 10% tariff on trains/cars being exported to the EU, but over the last 3 years the pound has been devalued against the Euro by more than 10%, so if it was financially viable three years ago, it will likely be financially viable even with a Hard Brexit.

 

As for jobs in the railway sector, I think they will be pretty safe for the forseeable future, as the UK has a rollingstock shortage and EU rollingstock manufacturers still want to sell trains. The British government could even put a sufficient tariff on EU rollingstock to make sure that it's only financially viable for Siemens and Alstom to manufacture trains for the UK in the UK.

 

It seems to me that one side says it'll be all milk and honey after leaving, the other side says it'll be an economic apocalypse. I think the reality is that, come April, everything will be much the same as it is now.

 

Sorry? I think you have missed my point entirely. It is nothing to do with whether European manufacturers want to continue to sell in the UK, it is all about their ability to do so (and to compete within the EU too), given the size and state subsidy of the Chinese firm they will be increasingly competing with.

 

That is why Siemens and Alstom sought to merge, but it would seem they will need to find a way to merge just certain aspects of their operations, so that there is no dominant player in signalling or certain other facets where they would have dominance. They certainly do not have the dominance they once had, in traction and rolling stock, given the increasing activities of Stadler, Hitachi and CAF, plus some of the growing Polish and Czech players. But CRRC would dwarf them all, as Hitachi has been finding out in Asia and Australia.

 

Someone needs to think again, as both the German and French governments have been suggesting.

 

 

[Mike Storey]

17 minutes ago, RJS1977 said:

Ultimately, two companies merging may well be very good for the companies involved, but not necessarily as good for the suppliers as it reduces the level of competition (so prices go up), and can create a single point of failure (i.e. if the merged company collapsed, or had industrial difficulties, there may be a shortage of alternative suppliers).

 

I'm sure most of us would be concerned if Bachmann and Hornby were contemplating merging...

 

I am not sure Bachmann and Hornby have been competing in the same markets for many years, bar a few product lines perhaps. But let's assume they are....

 

 If a new, multi-billion dollar funded, heavily state subsidised, conglomerate, let's call them Rapidacraft, emerged in the model railway market, ready to compete with all of Hornby's and Bachmann's market segments, at much reduced prices, with a strategy to dominate the UK MR market, would you still resist a merger between Hornby and Bachmann? Or would you just let them go to the wall, enjoy the lower prices from Rapidacraft, until they had a total monopoly, and just churned out complete rubbish for ever after, at increasing prices. In effect, the Chinese are already doing that to the model railway market, whether by design or default, and there is little that Hornby and Bachmann can do about it.

 

Translate that to the real world, where this is very close to happening, and it leads me to believe this merger should not be prevented in some form, if we value any sort of UK or European design and manufacturing capability at all, and most certainly if we want some element of competition to continue.

 

[jjb1970]

China would probably argue (with some justification) that all they've done is help domestic industries climb over the huge barriers to entry into many sectors which were occupied by companies who in many cases were in those spaces based on government assistance and support. In many cases Western penetration of the Chinese domestic market remains significantly higher than Chinese penetration of Western markets.

[Coryton]

17 hours ago, RJS1977 said:

Ultimately, two companies merging may well be very good for the companies involved, but not necessarily as good for the suppliers as it reduces the level of competition (so prices go up), and can create a single point of failure (i.e. if the merged company collapsed, or had industrial difficulties, there may be a shortage of alternative suppliers).

 

So far as I know, mergers more often than not aren't good for the companies involved - a lot of time and energy is spent integrating the two companies and the expected benefits tend to be somewhat less than predicted.

 

 

[Coryton]

17 hours ago, Mike Storey said:

That is why Siemens and Alstom sought to merge, but it would seem they will need to find a way to merge just certain aspects of their operations, so that there is no dominant player in signalling or certain other facets where they would have dominance. They certainly do not have the dominance they once had, in traction and rolling stock, given the increasing activities of Stadler, Hitachi and CAF, plus some of the growing Polish and Czech players. But CRRC would dwarf them all, as Hitachi has been finding out in Asia and Australia.

 

 

Maybe European companies will move their manufacture to China...

[jjb1970]

4 minutes ago, Coryton said:

 

So far as I know, mergers more often than not aren't good for the companies involved - a lot of time and energy is spent integrating the two companies and the expected benefits tend to be somewhat less than predicted.

 

 

 

Merged companies do tend to end up as less than the sum of their constituent parts. And ultimately merging may do nothing to address underlying issues if the drivers are defensive as in this case. 

[Mike Storey]

On 09/02/2019 at 13:23, Coryton said:

 

So far as I know, mergers more often than not aren't good for the companies involved - a lot of time and energy is spent integrating the two companies and the expected benefits tend to be somewhat less than predicted.

 

 

 

There are numerous cases where that has been true, but isn't it quite ironic that CRRC Corp. is itself the result of a merger, as recently as 2016, to become the largest railway rolling stock player in the world?  Whilst CRRC is publicly traded, its parent company (CRRC Group) is the Chinese State. CRRC Corp shares are majority owned by CRRC Group and by other state entities. Fewer than 10% of shares appear to be foreign owned, mainly by US firms, including Blackrock. Free capital is not patriotic.

 

CRRC Corp already own several foreign companies, in the UK, Australia, Malaysia and by using a joint stock operation with a Hong Kong investor, in the USA, where they have picked up at least four major new fleet renewals contracts. To be fair, they have invested in new plants in the USA (almost certainly a condition of the contracts), one of them again ironically, at an old Westinghouse site, and in Malaysia.  Maybe that offers some possibility for the UK, along the lines of the Hitachi entry to the market, we shall see. 

 

There are many cases of very successful, defensive mergers - Glaxo Smith Kline, Renault Nissan, FIAT Chrysler and so on. Even BAe would now be part of EADS if the UK, French and German governments had not stopped it. The two key opportunities for Siemens and Alstom are the sharing of common platforms (as is now common in the auto industry) and the ability to stop wasting money competing with each other, and concentrate on longer term threats. Clearly that is unacceptable to customers in the areas of signalling and some other specialised activities in which they are dominant. They really need to re-think this and go for it again.

 

 

[Mike Storey]

On 09/02/2019 at 12:55, jjb1970 said:

China would probably argue (with some justification) that all they've done is help domestic industries climb over the huge barriers to entry into many sectors which were occupied by companies who in many cases were in those spaces based on government assistance and support. In many cases Western penetration of the Chinese domestic market remains significantly higher than Chinese penetration of Western markets.

 

CRRC and its two predecessor constituents (prior to merger) have gained 90% of all new rolling stock contracts in China since 2012. Not sure what areas of commerce you are referring to these days - I believe that may have been true some 30 years ago.

 

[Coryton]

2 hours ago, Mike Storey said:

Renault Nissan, FIAT Chrysler and so on. Even BAe would now be part of EADS if the UK, French and German governments had not stopped it.

 

 

Or Airbus, as it's now called...

 

(Which does seem a bit of an odd name for a company that makes satellites among other things)

 

Airbus did come to mind as an example of a defensive merger and one which seems to have worked out.

[jjb1970]

4 hours ago, Mike Storey said:

 

CRRC and its two predecessor constituents (prior to merger) have gained 90% of all new rolling stock contracts in China since 2012. Not sure what areas of commerce you are referring to these days - I believe that may have been true some 30 years ago.

 

 

If looking at trains, China has bought a lot of GE diesel electric locomotives and European designed high speed trains whereas Chinese diesel electric locomotives in US service and Chinese designed high speed trains in Europe are far from common. However I was talking about trade in general, not just trains (not well worded I admit). There are far more European and US airliners in China than vice versa. Ditto aero engines. China is a major market for European automotive manufacturers, Chinese automobiles are still quite rare here with the exception of those made by Chinese owned companies like Volvo. Large diesel engines are another.Software platforms are another one, China is a major market for the big US software platforms (Windows, Android, Apple).

[jjb1970]

People in China could quite legitimately point to Airbus as possibly the best argument as to why European companies shouldn't be pointing fingers at Chinese industry given the history of Airbus airliners.

[Mike Storey]

2 hours ago, jjb1970 said:

 

If looking at trains, China has bought a lot of GE diesel electric locomotives and European designed high speed trains whereas Chinese diesel electric locomotives in US service and Chinese designed high speed trains in Europe are far from common. However I was talking about trade in general, not just trains (not well worded I admit). There are far more European and US airliners in China than vice versa. Ditto aero engines. China is a major market for European automotive manufacturers, Chinese automobiles are still quite rare here with the exception of those made by Chinese owned companies like Volvo. Large diesel engines are another.Software platforms are another one, China is a major market for the big US software platforms (Windows, Android, Apple).

 

Most of the GE locos now in use in China, were built there, under a joint venture. CRRC is rapidly pushing its own locos, but if they are all like this:

 

https://www.news24.com/SouthAfrica/News/exclusive-transnets-new-chinese-locomotives-fail-first-test-20170123

 

then they have a long way to go......apparently they used their own design of alternator, to save money, instead of the ABB version specified in the contract.