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NINETY EIGHT REGENCY

Partners key for carmakers despite pitfalls

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Partners key for carmakers despite pitfalls

March 4, 2010 06:01 CET

GENEVA (Reuters) -- Carmakers need alliances, but as PSA/Peugeot Citroen SA and Mitsubishi Motors Corp.'s failure to agree a financial tie-up demonstrates, anything beyond a simple partnership is hard to pull off.

When the crisis hit the car industry governments were forced to step in to bail out manufacturers. Two U.S. carmakers were pushed into bankruptcy, and industry watchers forecast extensive consolidation to deal with the industry's chronic overcapacity.

But aside from stakebuilding moves on Chrysler by Fiat S.p.A. and Suzuki Motor Corp. by Volkswagen AG, the expected wave of full-scale M&A has not arrived.

Carmakers are turning instead to technology-focused partnerships to help them share the costs of new technologies and gain access to key new markets.

Carlos Ghosn, CEO of both Renault SA and Nissan Motor Co., the French and Japanese carmakers that form the cross-shareholding-based alliance that is often cited as an example of a successful car industry tie-up, said carmakers could not hope to cope with the burgeoning list of must-have areas alone.

"Scale helps but there are no magic numbers because it depends what you do with the scale," he said.

Renault itself is discussing cooperation that could include electric vehicles or small cars with Germany's Daimler AG, among others, but the two companies are tight-lipped on when they might reach any deal.

Daimler signed a technology deal this week with China's BYD to develop electric cars for the Chinese market.

Dividing roles

"Every carmaker cannot be present everywhere -- with alliances you divide the roles," said Ghosn, explaining that each carmaker can focus on a different market, piggy-backing on its partner's presence when the time comes for it to be there too.

A deal between PSA and Mitsubishi would have boosted the French carmaker's footprint in Asia, one of its current goals, but the two companies failed to agree on a capital tie-up, saying financial and value-related conditions could not be met. It would have given the Japanese carmaker much needed infusion of cash.

They said they would continue to boost their joint projects, including a possible small car project, however.

The announcement fueled speculation that PSA could look for another partner, but "in reality the pool of potential partners is small," Citigroup analysts said in a research note.

Renault and Nissan's Ghosn said he didn't believe in full-scale mergers: "Company A buying B trying to transform into company C with one culture - I don't buy it in the car industry," Ghosn said, adding that the need to keep distinct brand identities were an obstacle.

BMW CEO Norbert Reithofer said there was no danger of diluting the brand's identity through its cooperation with Mercedes-Benz, "but we are competitors and you must not forget that."

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20100304/ANE/303039933/1193#ixzz0hDswqOns

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