Key Facts Surrounding the Nissan-Mitsubishi Alliance

If you were one of those people concerned that the latest Mitsubishi scandal would do this automaker in, take heart: the company has been saved by a competitor and current collaborator, Nissan Motors.

On Thursday, the two Japanese automakers signed a Basic Agreement forming a strategic alliance between the two companies. To that end, Mitsubishi is issuing new stock shares, enabling Nissan to claim a 34 percent stake in the company. In effect, the move gives Nissan controlling interest in Mitsubishi, allowing the two automakers to cooperate on a new level.

Here are the key facts surrounding the Nissan-Mitsubishi Alliance:

Nothing comes cheap. Following Mitsubishi’s latest scandal (see The Rise and Fall of Mitsubishi), the parent company saw its valuation plunge by US$3 billion. Nissan is paying 237 billion yen or approximately $2.174 billion for a stake in its junior partner.

Other partners are present. Nissan will hold a large stake in Mitsubishi, but three other major stakeholders will also be present: Mitsubishi Heavy Industries, Mitsubishi Corporation and the Bank of Tokyo. Although all three yield much power, they’re expected to cede to Nissan’s wishes once the deal closes by year end. French automaker Renault is also tied in as part of the original alliance forged 17 years ago.

The current collaboration will expand. Greatly. The current Mitsubishi scandal started when Nissan disclosed that its partner fudged on the fuel economy for the tiny “kei” cars supplied to it by Mitsubishi. Later, it turned out that Mitsubishi had lied on all of its fuel economy figures, but not for cars marketed in the US. That’s a good thing too — with the EPA slapping and fining automakers such as Ford and Hyundai for exaggerating their fuel numbers and slamming Volkswagen for its own emissions scandal, it is doubtful Mitsubishi would survive a US-backed hit. Then again, is there another shoe about to drop here in the states?

It goes beyond cars. Building cars and sharing platforms are one thing, but other synergies are present. The automakers will share technologies, purchasing, jointly utilize plants, and collaborate in growth markets. How this relationship unfolds will yet be determined.

Mitsubishi is over as we know it. The alliance between the two manufacturers mean that Mitsubishi is effectively gone as an independent company. That doesn’t mean the Mitsubishi brand will fade away, but it does mean the two companies will cooperate on platform sharing. The cooperation will probably be heavily skewed to Nissan, except for the tiny cars it has bought and rebadged from Mitsubishi for the past five years.

The US market is in doubt. Platform sharing can mean Mitsubishi’s weak US offerings will go through a renewal. By accepting badge-engineered Nissan Versas, Sentras, and Altimas, along with a handful of SUVs, Mitsubishi may soon fill out its entire product line. But is that a good thing? Nissan doesn’t need to compete with itself, especially in the hard-fought, but profitable US market. Mitsubishi’s strength lies elsewhere, especially in emerging markets. Throwing in the towel in the US might be the best course of action to take, allowing Mitsubishi to follow Daihatsu, Isuzu, and Suzuki through the exits.

The Alliance is now the world’s fourth-largest automaker. Cars sold by Nissan, Renault, and Mitsubishi currently account for 9.6 million units annually, putting this group immediately behind the top leaders. Toyota is still on top with 10.1 million units sold in 2015, followed by Volkswagen at 9.9 million and General Motors at 9.8 million. What an amazing turn around from the late 1990s, when Nissan was on life support and Renault jumped in with a rescue plan.

Is Further Consolidation Possible?

With Nissan snapping up Mitsubishi and Toyota completing its acquisition of Daihatsu, the global auto industry is seeing consolidation continue. Fiat Chrysler wants a partner, but there are no takers. Still, if the right alliance is forged, then even FCA may soon find itself in the arms of a new suitor.