WOLFSBURG: European car consolidation is proceeding apace and VW has beaten volume rival Fiat to the punch by agreeing to merge with 51% shareholder Porsche. Fiat is currently trying to win backing from the German government to tie up a deal to acquire Opel.

Porsche originally set out to control the much larger VW but its bigger rival is protected by the so-called ‘VW law' in its home state of Lower Saxony, which allows the government there to fend off predators with its 20% stake. Porsche has also spent €23bn ($30bn, £20bn) buying shares in VW, stretching its finances.

A merger, which has been agreed by warring Porsche owners the Porsche and Piech families, will leave VW in the driving seat and be a blow to Porsche chief executive Wendelin Wiedeking, Germany's best-paid manager on €60m a year.

If the deal goes through it will create a company owning some of the world's famous sports car brands as well as the mighty VW. In the stable would be Volkswagen, Audi, Bentley, Bugatti, Lamborghini, Porsche, Scania (trucks), Seat, Skoda and Volkswagen commercial vehicles.

It will also create more pressure on luxury car competitors BMW and Mercedes which have already had to fend off competition from VW's luxury Phaeton model but are under more pressure from Audi, which itself competes with Porsche via its R8 ‘supercar'.

BMW and Mercedes have both reported first quarter 2009 losses as the downturn has hit the luxury car sector hard.

With VW now consolidating its position as the world's No 2 car company behind Toyota (a position which will be challenged if Fiat's Sergio Marchionne gets his way and merges Fiat with General Motors' Opel, Saab and Vauxhall and his 20% of Chrysler), the pressure is on the two famous German marques to collaborate more, although a full merger doesn't seem on the cards at this stage.

Data sourced from Reuters; additional content by WARC staff