Euro-Japan auto alliances, good & bad

Mergers and acquisitions have been a feature of the auto industry since the beginning of the 1900s, when General Motors took over dozens of small carmakers. While takeovers have continued to be a part of the industry, the end of the 20th century bore witness to the rise of the alliance: intended to be a complementary coming together of partners greater than the sum of their parts.

Companies from Europe and Japan — two of the three centres of the global auto industry — have formed a range of alliances, with varying degrees of success.

The alliance between then-DaimlerChrysler and Mitsubishi Motors Corporation (MMC) that ran from 2000 to 2005 was a sorry tale, neither side emerging with much credit. Shortly after the deal, MMC was raided by the Japanese police over allegations it had covered-up defects, leading to a million-vehicle recall. Rolf Eckrodt, the CEO installed at MMC from Daimler, also failed to turn around the troubled carmaker. DaimlerChrysler’s stake eventually found its way, via JPMorgan Chase and Goldman Sachs, back to the Mitsubishi keiretsu (loose conglomeration of firms sharing common denominators).

The experience didn’t seem to put MMC off alliances completely. The company established a joint venture with PSA Peugeot Citroën in Russia in 2008, and has limited arrangements with Renault-Nissan and Volkswagen. And this June, MMC announced a deal to supply cars for the Asian market to Fiat Chrysler.

Swedish truck-maker Scania had a decade-long business alliance with Hino Motors, Japan’s biggest manufacturer of medium-sized and large trucks. The arrangement involved Hino selling the European maker’s trucks in the domestic market, until shortly after Scania Japan was established in 2009. The company has no plans for a further alliance with a Japanese truck-maker, according to a spokesperson from Scania Japan.

The undisputed poster-child for auto alliances is Renault-Nissan, which celebrated its 15-year anniversary in March. When former state-owned Renault bought a 36.8% stake in Nissan in 1999, the Japanese auto-manufacturer was fighting for its survival. Carlos Ghosn famously turned Nissan around after becoming the first foreign boss of a Japanese company of that scale. The figures speak for themselves: the two companies’ combined sales went from 4.8 million vehicles in 1999 to 8.3 million units in 2013.

Much has been written about why Renault-Nissan has been such a success, with the alliance becoming something of a case study in cross-border cooperation.

“It’s a combination of Nissan’s capabilities and potential in the areas of R&D and manufacturing, and the disciplined management of Renault,” says Tatsuo Yoshida, managing director of equity research at Barclays in Tokyo, who was previously with Nissan for 16 years.

“To be honest, the alliance has been more successful than I’d expected,” concedes Yoshida, who spent his final two years at Nissan in one of the teams working towards bringing the two carmakers together.

One of the keys was “a respect for each other’s strategy, corporate culture and identity”, according to Tsuyoshi Yamaguchi, recently appointed vice-president for alliance technology development at Renault-Nissan.

“It was clear from the beginning that Renault and Nissan would seek synergies that would benefit both companies,” says Yamaguchi.

“The fact is, interdependence between the alliance partners has been steady and cautious … the brands remain separate, the company cultures are separate. Yet we are collectively better, faster and more capable,” he adds.

In April this year, the Renault-Nissan alliance began to implement convergence in four key areas: engineering, manufacturing and supply chain management, purchasing, and human resources, with the goal of €4.3 billion in annualised synergies by 2016.

The fact that Nissan was relatively internationalised before the alliance, with many staff having worked overseas, helped it work smoothly, suggests Yoshida. However, he believes that things may not be quite so perfect below the surface.

“There is no such thing as an alliance in the real world. At the top, they can conceptually agree on things, but the implementation is another matter. There are always conflicts of interest,” says Yoshida. “Nissan’s R&D and manufacturing departments are pretty independent, so their face and pride were saved; and those are the people who really create value for a car company. But the central nervous system — areas such as human resources and finance — they are dominated by managers sent from Renault.”

Takeshi Miyao, managing director of automotive analyst Carnorama-Japan, also believes that there may be tensions brewing.

“I think that while these last 10 years have been very good, the next 10 will not be so good. In the early years, Ghosn, who is a very charismatic leader, led both companies as one,” says Miyao. “But since 2008, when he went back to being chairman of Renault, that balance has changed.”

“In the early days, Nissan employees were very motivated because they respected Ghosn,” says Miyao, who believes that elements of Nissan’s senior management have now become frustrated with the Renault chairman’s lack of recent presence in Japan.

Whatever concerns there may be, almost nobody would argue that Renault-Nissan isn’t the longest and most fruitful auto alliance to date. At the other end of the spectrum has been the relationship between Volkswagen (VW) and Suzuki Motor, which could almost be a case study in how not to engage in a cross-border alliance.

Announced in 2009, when VW took a 19.9% stake in Suzuki Motor for €1.7 billion, the alliance showed initial promise, with engineers from the two companies reportedly cooperating successfully with the aim of developing small cars for emerging markets. However, things deteriorated rapidly and came to a head in 2011 when Suzuki Motor announced it was using engines from Fiat. The Japanese carmaker said it was an agreement that predated the alliance, but Volkswagen called it a breach of contract. When famously outspoken CEO Osamu Suzuki went to the media to announce the deal was off before informing VW, the final nail appeared to have been driven in.

“From day one, Suzuki and Volkswagen had different objectives. Volkswagen wanted to use Suzuki to expand in India; but for Suzuki, India is a jewel, and they won’t let anyone touch it,” says Yoshida.

Carnorama’s Miyao suggests, “Osamu Suzuki made a good decision in dissolving the alliance with Volkswagen, as there were conflicts when the two companies tried to rearrange their purchasing and sourcing systems; they didn’t gel together well.

“If either side had been weak, the alliance might have worked better. Volkswagen viewed Suzuki as weak, but Suzuki didn’t see itself that way,” says Miyao.

A lack of mutual understanding between VW and Suzuki was at the heart of their problems, suggests Miyao.

“For example, Volkswagen engineers might emphasise the importance of quality, while Japanese engineers will wonder why they are talking about that, because quality is a given in Japan. On the other hand, Suzuki engineers might talk about the importance of price, while the Volkswagen engineers think that is just common sense,” says Miyao.

“Even when they actually believe the same thing deep down, conflicts can arise.”

VW has refused to sell its holding in Suzuki Motor, ignoring demands from the Japanese side to do so, and there were rumours last year that chairman Ferdinand Piech and Osamu Suzuki had resumed negotiations. However, the two sides have remained tight-lipped since.

Beyond confirming that VW still held the 19.9% stake, a spokesperson from Suzuki Motor’s Hamamatsu city headquarters in Shizuoka would only add, “We have nothing else to say; that’s it.”

Volkswagen Japan also declined to comment for this article.

The key to resolution of the issue may lie with the end of the five-decade career of Suzuki Motor’s 84-year-old CEO.

“If Osamu Suzuki steps down, the younger generation may think differently,” suggests Yoshida.

© Japan Today