International auto alliance shifts gears

Economic headwinds force restructure of Renault-Nissan-Mitsubishi Alliance operations.

Nowhere is the saying “go big or go home” more appropriate than the automotive sector, where the huge development costs of new vehicles and notoriously skinny profit margins mean economies of scale are vital to achieve profitability. 

From the Volkswagen Group throwing its corporate umbrella over multiple brands including Audi, Bentley, Lamborghini, Porsche, and Skoda; to the streamlined Italian-American Fiat-Chrysler Automobiles, plenty of brands have entered mergers or formed alliances in recent decades, in a bid to generate more bang for their buck.

One of the newer such alliances, that of Renault, Nissan and Mitsubishi, has announced details of a new business model, designed to “enhance efficiency and competitiveness in products and technologies”. 

Analysts interpret this as a move to streamline the businesses in the face of the global collapse in new vehicle sales caused by the coronavirus pandemic, and an attempt to salvage the still relatively young alliance at a time when it is most needed, given dynamics that have previously threatened to prise it apart. 

French car maker Renault and its Japanese counterpart Nissan have been in bed together since 1999, but it was only in September 2017 that Mitsubishi’s name was added to the shingle as a junior partner, after Nissan acquired a controlling interest in its former Japanese rival. 

The resultant Renault-Nissan-Mitsubishi Alliance, which is described as a strategic partnership, sees each company retain individual brand identities and corporate structures while holding substantial shareholdings in each other, which in turn is meant to encourage cooperation and technology sharing. 

But there have long been tensions between the culturally different management boards, particularly the dominant Renault and Nissan Alliance partners, with the resultant divisions causing some analysts to calling for the companies to merge fully, or move on. 

In 2018 the newly expanded Alliance beat VW Group and Toyota to take the crown for global passenger car sales, with a total of 10.6 million sales. 

But the arrest that same year in Japan of Alliance boss Carlos Ghosn, on charges of financial impropriety, highlighted tensions between the parties, with Ghosn reportedly an advocate for a full merger, while Renault was in turn reported to have been investigating a merger with another European automaker. 

Now, after a difficult year in 2019, which saw a significant drop in Alliance sales and profitability and criticisms that it lacks a clear direction and cohesive strategy with regards critical electric car development, the Alliance has announced an overhaul of its operations, designed to streamline its operations in the face of growing economic head winds. 

Reductions in global production, plant closures, and deep cuts to its workforce of about 450,000 had all been foreshadowed as ways the Alliance could cut costs in a bid to ride out the crisis, with this latest  announcement confirming the approach.

Heading the list of changes is a reduction in the Alliance’s vehicle range by up to a fifth, along with greater sharing of manufacturing resources by region, and more cooperation in terms of the design and development of new models. 

 

" The new business model will enable the Alliance to bring out the most of each company’s assets ...

The moves are designed to generate efficiencies in a global new vehicle market that is already tough but which is set to get a whole lot tougher.
  
A prepared statement said the member companies planned to build on existing Alliance benefits, in areas such as joint purchasing, by leveraging their respective leadership positions and geographic strengths. 

“The Alliance is a unique strategic and operational partnership in the automotive world and gives us a strong edge in the ever-changing global automotive landscape,” said Jean-Dominique Senard, Chairman of the Alliance Operating Board and Renault. 

“The new business model will enable the Alliance to bring out the most of each company’s assets and performing capabilities, while building on their respective cultures and legacies. The three companies of the Alliance will cover all vehicle segments and technologies, across all geographies, for the benefit of every customer, while increasing their respective competitiveness, sustainable profitability and social and environmental responsibility.”

The companies have endorsed the principles of the “leader-follower scheme” for vehicles, in which they will cooperate to push the Alliance’s standardisation strategy further, from the current platform strategy to also include upper bodies.

What this means, in effect, is that in each vehicle segment the partners will focus on one mother vehicle, or leader car, with sister vehicles engineered by the leading company, with the support of the followers’ teams. 

The partners also agreed to continue to build on product sharing in light commercial vehicles, where the leader-follower model is already being applied. The statement said the leader-follower scheme is expected to deliver new model investment reductions of up to 40 per cent for vehicles fully developed under the scheme, in addition to other existing synergies

The Alliance also agreed to name different parts of the world as “reference regions,” with each company focusing on its core regions with the aim to be among the most competitive and to serve as a reference for the others brands to enhance their competitiveness. 

Under this part of the scheme, Nissan will be the reference for China, North America and Japan; Renault in Europe, Russia, South America and North Africa; and Mitsubishi Motors in ASEAN and Oceania.

The companies’ product portfolio updates will also now adhere to the leader-follower scheme, with Nissan to lead renewal of C-segment SUVs such as the Nissan Qashqai post-2025, and Renault to lead the development of B-segment SUVs like the Kadjar. 

The leader-follower scheme will also be extended from platforms and powertrains to all key technologies, with Nissan taking leadership in autonomous driving; Renault handling responsibility for what’s known as E-body, meaning the core system of the electric-electronic architecture; and Mitsubishi handling PHEV development for the C/D segment.

While Nissan is the biggest contributor to the Alliance’s global sales, followed by Renault, then Mitsubishi, here in Australia, Mitsubishi leads the group’s sales with 7.8% market share or 83,250 vehicles in 2019, followed by Nissan on 4.8% (50,575) and Renault on 0.8% (8634).