Renault Wins Van Bonus, Nissan’s Infiniti Gets Big Diesels
Investors Worry About French Government Influence
Daimler’s Zetsche Says Lessons Of Chrysler Debacle Learned
“Dangers of auto-industry empire building haven’t been laid to rest”
Investors aren’t convinced yet that Daimler’s link with Renault-Nissan will do what it says on the tin; help Mercedes make small cars profitably, while raising production runs to more profitable levels at some of the French-Japanese alliance’s factories. They worry about Daimler’s shaky record of past collaboration, and wonder that the linking of such disparate manufacturers might be a sign more of desperation than practicality.
The belief that Mercedes has talked with BMW, VW and Fiat in recent years but failed to find agreement, adds to the suspicion that desperation is the more likely motivation. And the elephant in the room is Audi. Mercedes, and probably BMW too, is under huge pressure from VW’s Audi subsidiary, which is making huge profits in traditional Mercedes territory because it can use components in its luxury cars from Volkswagen’s huge mass production runs.
The Economist magazine described the deal this way.
“This new alliance will focus on sharing resources in four main areas: platforms for small cars and light-commercial vehicles; small petrol and diesel engines; technology for fully electric and hybrid cars; and bigger diesel engines. The first fruit of the collaboration is likely to be the development of a new platform for the little Renault Twingo that will also be used by Mercedes for the next two and four door Smart cars, due in 2013,” the Economist said.
Investors have flicked back into their history books to remind themselves of Daimler’s poor record with alliances, while also getting nervous about the French government’s 15 per cent stake in Renault and noting France’s recent more aggressive role as a shareholder.
Think of Daimler’s ill-fated merger with Chrysler, or its earlier attempts to link up with Mitsubishi and Hyundai. Renault has cooperated closely with its Nissan alliance partner for about 10 years, but doubts over its judgment were raised when it sought to do a deal with GM, even as the then world’s biggest carmaker crumbled into bankruptcy. Also, the French state had been a hands-off shareholder in the past, but it has recently become more active – lending €3 billion to the company and forcing it to curb rationalisation plans. Renault wanted to move production of its Clio to Turkey, but that was vetoed by the French state.
Marriage made in heaven
Daimler CEO Dieter Zetsche tried to assuage the fears of those who remembered the bragging by his predecessor Juergen Schrempp that the Daimler Chrysler merger was a marriage made in heaven.
“That was a marriage in heaven but didn’t end up in heaven,” Zetsche told reporters after the announcement. “We start on earth this time and stay there,” Zetsche said.
The 5-year deal calls for the swapping of 3.1 per cent equity stakes. This was said by Daimler to be “symbolic”, rather than signalling a more complicated link that might suggest a future merger.
Daimler’s Mercedes car-making subsidiary needs to make small cars without losing huge amounts of money, not least because of upcoming European Union regulations forcing carmakers to downsize. Mercedes was said to be losing almost €4,000 on each Smart car sale before the model line-up was cut back. According to Bernstein Research, Mercedes has lost up to €7 billion over the last 10 years making the Smart, A and B class cars.
Renault of France will benefit from more economic production runs for its small cars like the Twingo, and help to invest in a new one. Mercedes will buy small engines from Renault-Nissan for its small cars, and sell big motors back. Japan’s Nissan will be able to use Mercedes diesel engines in its luxury Infiniti range of cars. The three will work together on hybrids, electric cars and small vans.
Deutsche Bank viewed the deal as positive, while warning about French government interference.
“Overall, a good deal, which could be the beginning of a much bigger alliance. We just hope that the French government will not intervene in the way Renault manages its business,” said Deutsche Bank.
Morgan Stanley believed the deal showed that Mercedes had fallen behind its premium rivals in Germany in terms of costs, and the need to produce more fuel-efficient vehicles.
“The Renault deal helps Daimler play catch-up to BMW and Audi,” said Morgan Stanley analyst Adam Jonas.
“It did not make sense for Daimler to develop its next generation compact vehicle line on a stand-alone basis,” he said.
The Wall Street Journal’s Heard on the Street column was relieved that at least Daimler seemed to eschew a closer alliance.
“That should reassure investors they aren’t seeking scale for the sake of it, a fatal weakness in Daimler’s ill-fated takeover of Chrysler,” columnist Matthew Curtin said.
Morgan Stanley’s Jonas wondered about the motivation behind a deal which brings together two such disparate companies, one mainly a premium carmaker and the other a much bigger mass car manufacturer.
Not an alliance
“Investors may be more concerned about why these two very different automotive groups have reached out to each other and if this foreshadows a more difficult time ahead,” Jonas said.
The Financial Times’ Lex column said the parties were determined not to call the deal an “alliance”, and reckoned it was more of a “strategic cooperation”, with a symbolic share swap to somehow encourage rival engineers to drop their mistrust.
“The omens might seem inauspicious. Daimler had the Chrysler debacle. The Renault-Nissan alliance, though more successful, has still never fully lived up to its promise. Targeting very specific fields of collaboration increases the chances of success. Daimler gets the scale and expertise it has lacked in small cars – though also the risk of brand dilution through too close an association with more down market Renault. Renault gets a lot more volume for its factories, including, for example, producing a new entry level van for Mercedes in France,” Lex said.
Ghosn not listening
Daimler’s Zetsche might have been at pains to downplay the possibilities of getting more closely entangled with Renault. But Heard on the Street’s Curtin wasn’t so sure if the message had got through to Renault-Nissan CEO Carlos Ghosn.
“Carlos Ghosn already is looking ahead to what a second phase of deeper cooperation might bring, possibly involving a bigger cross shareholding. The dangers of auto-industry empire building haven’t yet been laid to rest,” Curtin said.
Neil Winton – April 15, 2010