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.
Will Renault Models Replace Fiat Chrysler Products?
French automaker Renault may have the solution to FCA’s product needs.
If you want to buy a French-built model in the US, you probably know that Renault, Peugeot and Citroen have no presence in the market. Instead, you’ll only be able to consider the Toyota Yaris, the lone model currently built in France and exported to the US.
Exit…Stage Right
Both Renault and Peugeot-Citroen once had a presence in the US. Indeed, Renault had controlling interest in American Motors for several years, but exited the market in 1989, two years after selling those assets to the Chrysler Corporation. In 1991, Peugeot made its own exit from the US market, ending Citroen sales too. Some twenty-five years later, few Americans under 40 can recall cars built by French manufacturers and sold in the United States.
Neither manufacturer is poised to return to the US, a market that is immensely profitable, but is also brutally competitive. Beyond domestic manufacturers such as Packard, Checker and Studebaker, a host of foreign makes have thrown in the towel too, including Isuzu, Yugo, Daihatsu, and Suzuki.
However, one of the two French manufacturers could make a return, especially if partnered with a company already present in the US. Renault’s logical partner is Nissan, as both companies own a slice of each other and are jointly led by Carlos Ghosn, the Brazilian-born CEO for the two automakers. Its a successful alliance that has produced numerous cars for the two companies since the confederacy was forged in the late 1990s.
On the other hand, Peugeot-Citroen is not so lucky. A brief partnership forged with GM in 2012 was ended less than two years later as Peugeot sought assistance from Dongfeng, a Chinese manufacturer to support its operation. Of the two French companies, Peugeot’s financial picture is the weakest.
Renault to the Rescue?
Turning back to Renault, this automaker could very well find its way back across the Atlantic, especially if Fiat Chrysler works out an agreement for the French automaker to supply it with vehicles. Indeed, FCA CEO Sergio Marchionne announced last week that his company would no longer build its compact Dodge Dart and midsize Chrysler 200 sedans, choosing instead to devote plant capacity to build more Jeeps and Ram pickup trucks. That move means FCA should become more profitable as well as more attractive to a potential suitor.
At the same time, Marchionne said it would turn to its competitors to supply these models, but the likelihood that a Ford, Toyota or a Hyundai would dilute their own model lines to accommodate FCA seems very unlikely.
Renault may be the most logical supplier for FCA as it has two models — the midsize Latitude and the compact Mégane — that might possibly be rebadged and sold in the US. Both models are underpinned by platforms shared with current Nissan products (Altima and Sentra), but otherwise the cars are all Renault.
The downside in choosing the Mégane is that it isn’t a sedan — Renault builds hatchback, coupe and wagon variants, but no four-door sedan. That said, the hatchback might be a fit for a market that is finally accepting this body style again. Currently, Renault builds the Mégane at four plants scattered across Europe and might be in a position to supply the next generation Dodge Dart.
The second model is the Renault Latitude and this one is already sold in Mexico, where it is known as the Renault Safrane. Interestingly, the Renault Latitude/Safrane is built in Korea by Renault Samsung Motors, a minor car manufacturer operating in a market dominated by Hyundai and Kia.
Busan Plant Capacity
Although the Korean company has built more than 2.4 million cars since its 2000 introduction, its Busan manufacturing plant has the capacity to build 300,000 vehicles annually. Supplying the Latitude as the Chrysler 200 in the US and Canada would keep the Busan factory humming and give Chrysler a much-needed product.
Will Renault respond if Marchionne comes calling? There is a good chance that they would. In 2013, Mitsubishi sought a similar tie up with Renault to supply it with a midsize sedan for the US market, but that deal collapsed. In any case, Mitsubishi is barely hanging on in a market where demand for Renault-supplied vehicles would be much smaller than that of a network composed of Dodge and Chrysler dealers.
At the same time, any Fiat Chrysler and Renault relationship could push out further, perhaps including Nissan and forming at least one kind of a business relationship Marchionne desires.
These are interesting times in the auto industry. Then again, the industry is always fascinating.