MONTI SAYS, KEEP ON TRUCKIN´

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 buy- ers, 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 boughtunless, 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 Gbran 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, Germanys 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.

With reporting by Greg BurkelRome, Joseph R. SzczesnylDetroit and Christine Whitehousel and James Graffl Brussels Family patriarch Gianni Agnellu said he had been advised by Enrico Cuccia, the secretive head of Italian investment bank Mediobanca, to sell Fiat to Daimler Chrysler, cash in his Daimler shares and forget the car business. "What can I say? I trust the Americans more than the Germans," Agnelli told La Stampa of Turin, his family's newspaper. There was a collective sigh of relief in that Fiat will remain independent, at least for the time being. Industry Minister Enrico Letta noted that Fiat "is not a normal private company, but an important part of the system of production and history of Italy."

The initial benefit to the two companies will be cost savings: joint production of engines and drive trains should shave expenses by over $450 million annually in the first three years, rising to more than $2 billion by 2005. Fiat, which has withdrawn from the key U.S. market, also stands to gain by such initiatives as selling its sleek Alfa Romeo sports car at selected GM dealerships. Karl E. Ludvigsen, an auto industry analyst based in London, noted WHEELER DEALERS

By CHARLES P. WALLACE

Making cars is one of Europe's last great family businesses. Names like the Peugeots of , the of Germany and the Agnellis of Italy are inextricably linked with their cars. "In some ways, they seem like the last vestiges of feudal Europe," says Garel Rhys, an economist who specializes in the auto industry at Cardiff Business School in Wales. Although immensely rich, the families have walked a tightrope, struggling to keep their firms profitable while avoiding being devoured by king-sized global competitors.

It hasn't been easy. Last week, two families from Europe's élite auto club took drastic steps to ensure the survival of their independent firms. The Agnellis, padroni for more than 100 years of the automaker Fiat, agreed to a share-swap alliance with General Motors, the world's biggest carmaker. The deal will initially focus on reaping savings in such things as engines and transmissions for the European and Latin American markets, while leaving the Italian firm independent.

At the same time, the Quandt family, which controls 48% of the shares of Germany's upscale automaker BMW, stunned the auto world by deciding to walk away from their money-losing British car operation, Rover, which some BMW insiders have dubbed the English Patient. BMW will recoup most of its $3.06 billion write-off by selling the main jewel in the British firm's crown, four-wheeldrive specialist Land Rover, to Ford, which has already gobbled up such famous British marques as Jaguar and Aston Martin.

The painful scramble in the auto business was touched off when Germany's Daimler-Benz snapped up Chrysler, the No. 3 U.S. automaker, in 1998. Carmakers suddenly realized that the coming struggle for global market share was going to be dominated by giants. Shortly thereafter, France's Renault extended its reach by buying a chunk of 's failing Nissan, while 's tiny Volvo decided it couldn't afford to compete against the majors and sold its car division to Ford so it could focus on making trucks.

The introduction of the euro last year has also shaken Europe's autornakers. The Continent's single currency has given consumers a better handle on price levels and that is beginning to cut into profit margins. The euro's weakness against the dollar thus far has helped boost European exports, but the strength of the British pound con- tributed to Rover's demise by making its cars too expensive on the other side of the English Channel. Despite huge gains in productivity-thanks to investments of over $2.9 billion-since being acquired by the Germans in 1994, Rover racked up losses of $1.6 billion last year and was headed for more of the same in 2000. BMW chairman Joachim Milberg told reporters that the pound's rise against the euro has depressed Rover sales by nearly $1 billion. harsh medicine, which could result in 7,500 job losses, might now force many of Britain's euro-skeptics to rethink their opposition to joining the common currency.

For the Agnellis, keeping control of Fiat has always been a paramount concern. In 1990, Chrysler under the leadership of the legendary Lee Iacocca came close to buying the Italian carmaker, but the Agnellis balked at the last moment. Fiafs current chairman Paolo Fresco said the linkup with General Motors "permits us to become more competitive on a global scale, be a leader on the cost front, and master of our own destiny." Under the plan, GM is buying 20% of Fiat stock and the Italian company will own 5.1% of GM, making it one of GM's largest shareholders. Fiat also has an option to sell the remaining 80% to the Americans.