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Daimler and Renault-Nissan: a modern relationship

After much deliberation and amid much media speculation, Daimler and Renault-Nissan have finally gone public with their intentions to form a partnership. The question is: what are we to make of this deal?

Clearly, the arrangement that gives Daimler a 3.1% stake in Renault-Nissan, and gives Renault-Nissan a 3.1% stake in Daimler falls far short of a genuine merger. In itself this is not surprising. Shareholders in Daimler in particular will be wary of such a step given the recent difficult experience of the merger and subsequent de-merger with Chrysler. Renault-Nissan have the relatively successful example of their own (albeit more extensive) cross-share-shareholding to point to.

Instead what we have here is a thoroughly modern relationship that is pragmatic, targeted and limited in scope. The minor cross-shareholding is intended to act as the mutual self-interest glue that will secure the benefits of co-operation, without either side betting the business on a speculative future.

As ever, the key lies in whether or not brand identities will remain intact when powertrain, vehicle architectures and other items are shared

At the same time, this arrangement helps to reduce some key costs and some evident risks for both OEMs. For both parties, the challenge of the future is to make profits out of small city cars, be they electric or otherwise.

Daimler needs more volume for Smart and, tie-ups with Tesla not withstanding, needs to do something dramatic to reduce average fleet CO2 emissions. Renault-Nissan has major ambitions for electric vehicles as well, but has to drive down platform costs to accommodate higher powertrain costs.

Both parties face the perennial problem of trying to make money in the light van segments, where again electric powertrain is likely to be a key theme in the future, at least in European markets. While there is some overlap between the product ranges of the OEMs, there is also sufficient brand distinction to allow this sort of arrangement to be contemplated.

This dalliance is the logical result of such considerations. It hardly amounts to a massive change of strategic intent, and falls well short of previous Daimler ambitions to create an integrated multi-brand global business. As such, the new realism is to be applauded.

As electric powertrain and other technological developments in the car come to market, how is brand character to be both retained and developed?

As ever, the key lies in whether or not brand identities will remain intact when powertrain, vehicle architectures and other items are shared. This is not a question that can be answered yet, because it all depends upon execution, which in turn will depend somewhat on other financial pressures.

The ever-present danger is that short-term financial expediency will result in recklessness in the preservation of brand identity, which could be fatal for a narrowly-based but distinctive brand like Smart. Indeed, it is probably the case that the risks are higher for Daimler and in particular for the ‘problem child’ that is Smart. Smart has been a product and a brand ahead of its time, and of course fell victim to low-grade brand extension in the past with the infamous Smart ForFour based on the Mitsubishi Colt.

Ultimately, this tactical convenience throws up a more fundamental question for the global automotive industry. As electric powertrain and other technological developments in the car come to market, how is brand character to be both retained and developed? We will see much more of this pragmatism in the future – that much is certain. Whether brands can be preserved in all cases is rather more in doubt.

Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com’s sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.