Why Automakers Are Increasingly Entering Alliances



It's only a question of how deeply the knife will slice as Mazda's desperate cost-cutting measures take aim at its U.S. workforce this week.

The maker has signaled it will post a $1.2 billion loss when the Japanese fiscal year wraps up on March 31, its worst performance in 11 years, and only by offering more than a billion dollars in new stock is it likely to head off a more serious crisis. For now, anyway.

With long-time partner Ford Motor Company slashing its stake in its Japanese affiliate from 33 to just four percent since Alan Mulally was named CEO, even Mazda's top executive Takashi Yamanouchi admits it will be difficult to go it alone, Yamanouchi recently acknowledging his company is "actively" looking for new alliance partners.

Of course, Mazda is not alone. General Motors confirmed this month that it would enter into a far-reaching partnership with Paris-based PSA Peugeot Citroen. And Germany's Daimler AG has repeatedly expanded the coalition it formed two years ago with the Renault-Nissan Alliance.


Paul EisensteinPaul A. Eisenstein is Publisher of TheDetroitBureau.com and a 30-year veteran of the automotive beat. His editorials bring his unique perspective and deep understanding of the auto world to Autoblog readers on a regular basis.



Even Toyota has recognized it's better off sharing advanced powertrain technologies with other potential leaders.

"It's partner or die," insists Dr. David Cole, chairman-emeritus of the Center for Automotive Research, in Ann Arbor, Michigan.

Alliances fall into a variety of different categories and may be motivated by very different goals. But what experts like Cole stress is that they all must be entered into carefully and nurtured much like a marriage in order to survive.

To underscore the changes in the automotive world, consider Toyota, a maker that, with the rarest exception, has always preferred to go it alone. It entered an alliance with GM in the mid-1980s only to gain experience in U.S. manufacturing. But suddenly, Toyota is inking all sorts of deals: with BMW, with Ford, even with the little California start-up Tesla Motors, which is taking a lead in developing the RAV4 EV.

The changing realities of the auto industry, driving by tough emissions and mileage mandates, make it difficult for even the biggest and wealthiest makers to do everything on their own – and though Toyota is generally seen as a – if not "the" – leader in green technology, it has recognized it's better off sharing development efforts in the most advanced powertrain technologies with other potential leaders.

The tie-up between Nissan and Renault was clearly one of necessity. As the new millennium approached, the Japanese maker was rapidly failing. The French manufacturer saw an opportunity to expand its global reach and significantly improve economies of scale. But the $6 billion price tag was staggering, leading former GM Vice Chairman Bob Lutz to famously suggest that Renault might do better and "take $6 billion in gold bullion, put it on a boat, take it to the middle of the Atlantic and sink it."

Time has proven otherwise. Last year, the Euro-Asian alliance collectively passed Toyota to become the globe's third largest automaker, behind only GM and Volkswagen AG.

Ironically, GM's $2 billion ultimately positioned Fiat to step in as the white knight to save struggling Chrysler.

The tie-up between Renault, Nissan and Daimler led many others to scratch their heads when it was announced in mid-2010. After all, Daimler had just emerged from its unhappy marriage to Chrysler. Why would it want to shack up again? Precisely because of the failure of the more expansive DaimlerChrysler deal.

That "merger of equals" never lived up to expectations – in part because the two partners never clearly worked out their specific goals, admits Daimler CEO Dieter Zetsche.

"What we did there (with Chrysler) is the exact opposite of what we're doing here," he explains. Only after completing the merger in 1998 did Daimler and Chrysler really get down to the specifics of seeing what they could do together and how. It resulted in plenty of resistance and the eventual failure of their partnership. The new alliance is more limited and focused on individual projects, the German executive insists, so "We have a clear understanding of what we want to do together."

Like a good marriage, chemistry is clearly important, and Rick Wagoner thought he'd found that elusive formula when he approved an expansive partnership with Fiat in 2000. The deal was supposed to save the two makers significant amounts of money by sharing work on platform and powertrain programs and on parts purchasing, where volume clearly can make a difference.

"The problem is that you have to stay on top of these things," Lutz told me during a recent conversation. "You have to set specific targets and timelines or nothing will get done."

That's precisely what happened – or didn't happen, if you prefer – with the GM-Fiat Alliance. While there were vague targets, there was little motivation to move on them and no one clearly accountable to ensure things happened. But there was plenty of infighting between the two makers. No one wanted to give up their platform or their powertrain – which translated into jobs – and let the other partner take over.

It ultimately cost GM $2 billion to exit the Fiat partnership, money it clearly couldn't afford to give away as its finances continued to crumble in the run-up to a 2009 bankruptcy. Fiat, on the other hand, was handed salvation. Though the promised savings from the alliance didn't materialize, GM's cash was a lifesaver at a time when its own survival was uncertain.

Ironically, that $2 billion ultimately positioned Fiat to step in as the white knight to save struggling Chrysler, after its own 2009 bankruptcy. Will that partnership pay off? So far, the signs are positive but it will likely take several more years to find out.

Alliances can be as destructive as the most painful divorce.

GM is perhaps the poster child for what not to do in an alliance. Along with the Fiat deal it has walked away from partnerships with Suzuki, Isuzu and Subaru parent Fuji Heavy Industries, none of the deals generating the promised returns.

So, why believe the new partnership with PSA Peugeot Citroen will work? Let's face it, there are plenty of skeptics. But company officials, including Opel chief executive Karl-Friedrich Stracke, insist the maker has learned hard lessons. "I lived the good life," he says, a bitter twist to the attempt at good humor, having been part of the team that had to unravel the GM-Fiat deal.

With the new alliance, "It's very clear we're looking for synergies," Stracke stresses, but this time, he insists, GM is going in with its corporate eyes wide open, goals clearly laid out and managers clearly to be held accountable.

Considering the U.S. maker's history, there's plenty of reason to remain skeptical. But few doubt that GM needs help in Europe. And there's a growing industry consensus that alliances provide a way to deal with such serious problems. But like a marriage, they can't be entered into lightly. And they can't be ignored along the way. Otherwise they can be as destructive as the most painful divorce.


Paul EisensteinPaul A. Eisenstein is Publisher of TheDetroitBureau.com and a 30-year veteran of the automotive beat. His editorials bring his unique perspective and deep understanding of the auto world to Autoblog readers on a regular basis.




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    • 1 Second Ago
  • 50 Comments
      Steve
      • 2 Years Ago
      OK Sergio. Here's your chance at getting a shot into the Chinese market with Chrysler and Fiat products. Contact Mazda and get going on joint ventures, etc. This is an opportunity you do not want to miss out on. Mazda has great products and needs help and so does Chrysler/Fiat. I hope you decide to start neogotiations with Mazda.
      Avinash Machado
      • 2 Years Ago
      Hope Mazda will survive.
      scott3
      • 2 Years Ago
      In the future there will only be a few main corperations and many smaller companies partnered in different ways with them. Some will be full partners and others just on development of parts, platforms or drivelines. The cost of development is so high you will see some companies you never thought work together in the future. The fact is at is dance everyone will need a dance partner or they will never survive. More so now with the cost of meeting the 54.5 MPG and CO levels. Those with the best engineering staffs will sell technogy to the highest bidders.
        Rico Suave
        • 2 Years Ago
        @scott3
        I'm wondering how a small car company like Honda has survived without any major alliances.... ... Honda would be an IDEAL target for an alliance... or even takeover! Don't be fooled by Honda's presence in North America..... globally, and overall, they are not that big a company as ompared to other Japanese auto manufacturers... they are tied with Mazda behind Toyota and Nissan.
      Drew
      • 2 Years Ago
      Isn't Volvo looking for a partner to develop smaller platforms? There you go. Keep the Ford stepchildren together.
      Ed
      • 2 Years Ago
      I hope Mazda goes out of business. I'm tired of looking at the happy crap styling on every damn vehicle they make. If they die, nothing would be lost. Who would really want to buy their sh-t over superior products from Chrysler and GM?
        Meh...
        • 2 Years Ago
        @Ed
        LOL! I get it, you said "superior products from Chrysler and GM"! You my friend are hilarious! Keep the jokes coming please and please do quit you day job! :-D LOLOLOL!!!
        AlphaGnome
        • 2 Years Ago
        @Ed
        You, sir, are an idiot. You can thank Mazda next time you get into a sporty compact. If it weren't for them showing everyone how a compact could behave, the Sonic would probably be just as awful to drive as the Aveo and the Caliber would drive like a school bus.... Oh, wait, scratch that last example..
        Chris
        • 2 Years Ago
        @Ed
        Careful what you wish for. I am as big a fan of GM and Chrysler as the next guy, but I can't help but wonder what has you so convinced all of those Mazda loyalists and customers are going to come GM and Chrysler's way when neither of those companies are known for building cars like Mazda does. If you are looking for a sporty hatch, you will be hard pressed to find anything from GM and Chrysler. With that said, I suspect most of those folks will look at other import brands such as Subaru, Honda, and even VW.
      TaoGuy
      • 2 Years Ago
      The world would be a sad, sad place without Mazda.
      artso06
      • 2 Years Ago
      Hopefully someone bites. Mazda is one of the most soulful companies and would hate to see them die.
      cooker263
      • 2 Years Ago
      A consequence of the bailouts is that the established firms entrench themselves as too-big-to-fail. To whatever extent, they aren't fully responsible for the consequences of their actions. Not only are these the largest players in the industry, but they are granted some type of special privilege. The end result is that small competitors have to compete with firms that have these privileges - so if you can't beat em, join em. Same as the banking industry, healthcare industry, etc. In the long run, it's surely not a good thing.
      Dvanos
      • 2 Years Ago
      This is really disappointing to read, Mazda really has some great products(skyactiv 3) which are fun to drive. I would hate to see them merge with another company and lose their identity. Mazda really needs design a midsize sedan with great looks that is a hoot to drive. I feel the last 6 was a failure, seems like they tried to go after the Camry and the Accord with it. The previous 6 was more Mazda especially the MS6.
      Dan
      • 2 Years Ago
      I think Ford should join back up with Mazda. I think it was good for both companies...
        blatinotop4u
        • 2 Years Ago
        @Dan
        Dan, you surely can dream. Thinking isn't your strength when Ford clearly showing they have no interest in doing so.
        guyverfanboy
        • 2 Years Ago
        @Dan
        Considering that Ford sold off its considerable stake in Mazda, I highly doubt they will ever invest the equivalent amount again.
        • 2 Years Ago
        @Dan
        [blocked]
        sdn
        • 2 Years Ago
        @Dan
        i don't think it's as unreasonable as the guys below. Ford sold their stake to raise money for their restructuring. now that they're on solid footing and profitable, maybe they'd enter into a partnership, but not like the last time. it would have to make business sense to Alan Mulally.
      A. Harlan
      • 2 Years Ago
      i've got a 2007 Mazda RX8 with low mileage on it about 22,500 as of today. About half are 5 highway long trip miles the other half are suburban and local freeway traffic miles. No dings, no dents, (knock wood) all the recommended shop services and oil and other fluid changes or top offs. It's got a 10 year engine warranty and I plan to keep it forever. One of my granddaughters wants it, but I think it's too much car for her and she couldn't afford to keep it up, and anyhow I'd probably get cranky if she didn't This is the only Mazda I've ever owned but one of the funnists cars out of the 25 or 30 new and used from Camaros and Thunderbirds to ordinary commute cars.... I've owned over the years. I also have an old Ford F150 truck and a Taurus for family use. But I would hate to see Mazda go under or lose its identity, and I can't think of any other car I would replace the RX 8 with that would give me as much driving pleasure or bang for the buck...and when I occasionally pick up my teen g-kids after school with the RX8, it gets a lot of thumbs up from the highschoolers....and a secret smile from me.
      blatinotop4u
      • 2 Years Ago
      ...and Honda still stands alone by it self why almost everyone needs to join.
        throwback
        • 2 Years Ago
        @blatinotop4u
        Honda's non-car business also brings in a lot of money. They make motorcycles, generators, lawn equipment, jets etc. Mazda is tiny in comparison.
        Adorable
        • 2 Years Ago
        @blatinotop4u
        plus Honda is traded on the NYSE which gives it huge American investments whereas Mazda is not
        sdn
        • 2 Years Ago
        @blatinotop4u
        Honda is a huge company - market cap is over $70 billion. Mazda is only $4.6 billion.
          axiomatik
          • 2 Years Ago
          @sdn
          Market cap is not a measure of size, it is a measure of it's stock value. Revenue is a much more accurate measure of size.
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