Once burned, twice shy. It’s a phrase one often hears after a painful divorce. Unless, of course, you’re talking about Daimler AG, whose nearly decade-long marriage to Chrysler ended bitterly, three years ago. Now, the German company is back at the altar, ready to try again.
Daimler, it seems, has lined up a new paramour — two, in fact: French-based Renault and the Japanese carmaker Nissan. Together, they’re forming a motoring menage a trois that some observers see as the way of the future for the auto industry. Others wonder if history will repeat itself for Daimler.
When Daimler did the corporate equivalent of getting down on one knee back in 1998, former CEO Jurgen Schrempp proposed a “merger of equals” between the Stuttgart-based automaker and Detroit’s Chrysler. Officials at both companies were betting on economies of scale. Neither Daimler’s Mercedes-Benz brand, nor Chrysler’s three divisions, individually had the volumes necessary to compete in the increasingly global auto industry.
What was good in theory, never really worked as planned. Nine years later, the increasingly indifferent partners agreed to go their separate ways. For Chrysler, the divorce set in a motion a chain of events that ultimately led to last year’s bankruptcy and subsequent takeover by Fiat. Daimler came out of the deal well-off, by comparison, but worth a fraction of its pre-merger value.
Worse, current CEO Dieter Zetsche has fretted that despite its image as an industry benchmark, Daimler was steadily losing ground. And with the industry facing an assortment of new emissions and fuel economy rules, “business as usual” was no longer possible.
His thoughts were echoed by Carlos Ghosn, the Brazilian-born executive who led the seemingly impossible turnaround at Nissan a decade ago and who more recently took on dual roles as CEO of both the Japanese maker and its French partner in the Renault-Nissan Alliance.
That partnership involves not only stock cross-holdings — Renault holds a controlling 44 percent stake in its Japanese affiliate, while Nissan holds a 15 percent stake in its European partner — but extensive cooperation on product development programs. It has reportedly saved the makers billions, while making it quicker and easier to bring new products to market.
Nonetheless, "The lesson from the last crisis in the auto industry in 2008 and 2009 is that you better be global and you cannot do it alone and you better have friends," Ghosn said, during a conversation with U.S. journalists on Wednesday.
While the Euro-Asian partners have had a more successful relationship than the former DaimlerChrysler, Nissan and Renault have, until now, had little success achieving a sort of corporate open marriage Ghosn has long envisioned. In recent years, at various times, he has either courted or been rumored to be interested in a relationship with each of Detroit’s Big Three. Perhaps the most serious opportunity arose several years ago with General Motors, but was rejected by that maker’s former Chairman Rick Wagoner.
For Nissan and Renault, the Daimler deal — more limited than their existing alliance, with cross-holdings ranging from 1.6 percent to 3.1 percent — will help them pump up the long-struggling Infiniti brand, an after-thought in the global luxury market, expand the line-up at Renault, and provide access to some of Mercedes’ vaunted powertrain technology.
The German maker will, first and perhaps most importantly, get some help saving the steadily weakening Smart car brand. Renault will take lead in developing a new version of the aging smart fortwo, while also working up a 4-seater likely to be dubbed the forfour. Both will be useful in Europe and essential in the U.S., where Smart has been spiraling downward after a brief period of success when U.S. fuel prices were nudging $4 a gallon.
Mercedes will get some of the various Nissan-Renault powertrains, with their emphasis on fuel-efficiency. And still other projects, Zetsche hinted, are under study — possibly including the sharing of assembly plants in the U.S. and other parts of the world. And that’s the big difference, he responded, when asked why Daimler would risk another corporate nuptial.
"After nine years in Detroit we had less on our hands compared to what we have at the start" of the new alliance, he explained, adding that with Renault-Nissan, "Our skills complement each other very well.”
Collectively, the new partners will achieve the sort of volumes that only a few other automotive manufacturers can claim, notably Toyota, Volkswagen and GM. That should help drive down parts costs and make it easier to absorb the punishing expenses involved with developing battery cars and the other technologies required to compete in the years ahead.
Gaetan Toulemonde, auto analyst with Deutsche Bank, generally agrees, declaring the new partnership, “Overall, a good deal which could be the beginning of potentially a much bigger alliance.” The biggest worry, cautioned Toulemonde, is Renault’s controlling stakeholder, the French government, which has had a history of meddling in corporate strategy. “We just hope (it) will not intervene,” Toulemonde added.
There are, of course, other issues that raise flags for industry observers. There is the potential for some serious cultural clashes at the national and corporate levels. And one can’t ignore the powerful egos of the two CEOs. There’s also the poor track record on the Daimler side, though insiders say the company has taken significant steps to avoid a repeat of its previous, failed marriage.
Despite all their optimism, the new partners are exhibiting a bit more caution than they did in years past. While the new stock cross-holdings “show we are serious,” according to Zetsche, their relative size suggests that if this were indeed a romance, the partners are starting out sharing quarters rather than actually walking down the aisle.
If things don’t work out as planned — and industry analysts note that the vast majority of automotive partnerships ultimately fail or fade away — it will be easier to say adieu, sayonara and auf Wiedersehn. If, on the other hand, things work out better than expected, there could be the opportunity for an even deeper alliance going forward.