Posted by: David Welch on April 15, 2008
When Nissan and Chrysler announced a deal yesterday that they will build more cars for each other, it naturally fueled speculation that some bigger merger or alliance isn’t far off. On paper, a long-term merger or alliance between Renault-Nissan—or an outright buyout—would make sense for Chrysler. Without a big partner like Daimler AG (even though that was a truly bad marriage) Chrysler is missing some huge pieces needed to be a competitive carmaker. That became more apparent yesterday when Chrysler forged a deal with Nissan to get a subcompact car from the company.
Beyond some help in small cars, Chrysler needs the cash and credit rating of a bigger healthier player. Without a big infusion of fresh cash, Chrysler will have a tough time affording the new technology needed to meet both future fuel economy rules and to make efficient vehicles that consumers are demanding as our gasoline prices inch toward the stratospheric pump prices Europeans have endures for years. Already, Chrysler relies on Daimler for clean diesel engines and General Motors for hybrid technology. Even making a new engine is costly. Owner Cerberus stocked Chrysler with a slug of money, but new technology can eat that up quickly, especially when the company’s day-to-day operations are burning cash.
Next, it is becoming tougher and tougher to compete against bigger global players like Toyota, Honda, GM, Volkswagen and Ford, all of whom can spread development costs over big sales volumes across the globe. Chrysler is, by comparison, a small regional carmaker. It doesn’t sell much outside the U.S. and doesn’t have the resources to quickly expand into growth markets. A deeper, more permanent tie-up with Renault-Nissan, or even just Nissan, could go a long way toward solving all of that. Chrysler could piggy back the sales volumes of Renault-Nissan to get lower prices on parts, steel, aluminum, you name it. Nissan also has its own diesel engines and a hybrid system developed in-house that both hit the market around 2010. Chrysler could get a crack at that hardware.
But like the late, great author Kurt Vonnegut wrote, there are “Booby Traps Everywhere.” Renault-Nissan CEO Carlos Ghosn has managed to get a French company to work pretty well with a Japanese company. What happens when you pull a distinctly American culture into the mix? Can they work together? It won’t be easy. The good news is that English is already the business language at Renault-Nissan. But getting two or three big companies to work together will present a whole host of problems.
That said, in the long run it may be Chrysler’s best option. Former Chrysler President Thomas Stallkamp has said several times that Chrysler wasn’t capable of standing alone in 1998 when the deal was done with Daimler. These days, competition is tougher, the U.S. market is more mature and the need for technology is greater. Chrysler is under even more now than it was a decade ago to find a savior.