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Key Facts Surrounding the Nissan-Mitsubishi Alliance

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Will Nissan help Mitsubishi bring a new face to the US market?
Mitsubishi Lancer Final Edition

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.

See Also — Emerging Alliances Point to Further Auto Industry Consolidation

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.

See Also —- Isuzu, Toyota Part Ways…Sort Of

Diesel Resurrection: How Volkswagen Might Win Back Customers

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Five ways Volkswagen might salvage its US operation.

Volkswagen is in a world of hurt, but that pain is entirely of the company’s own doing. While some have been making pronouncements that the automaker as we know it is finished, others believe that something can be salvaged. I, for one, stand in the latter camp. To that end, there are several conditions Volkswagen must meet in a bid to win back customers. It all begins with transparency and continues by building trust.

1. Never deflect blame. Thus far, Volkswagen has accepted blame for the emissions scandal, although it does not yet revealed who is to blame. Affected customers don’t care — they want to be made whole. There will come a point when we’ll learn precisely how the cheating scandal was conceived — a clear and unequivocal response from Volkswagen is the transparency required at this point.

five2. Buy back the affected cars. Unless the fix Volkswagen creates preserves both performance and fuel economy, diesel customers will always feel that they were deceived. Drivers operated their vehicles under the impression that their cars were clean and efficient. Volkswagen breached that trust. Therefore, providing a buyback program is a start with customers, then free to buy a heavily discounted new Volkswagen or take their check to a competing manufacturer. Unless Volkswagen offers an aggressive program in the United States, its hopes of ever improving beyond a market toehold here will be set back, perhaps permanently.

3. Drop the price of new diesels across the board. Volkswagen is the largest seller of diesel cars in America. Shoppers spanning all brands will wonder if any diesels are worth the cost. Volkswagen cannot do much about general perceptions, but they can begin to change impressions for the Volkswagen brand. One way to do that is to offer diesels as a no extra cost option, perhaps for one year. Certainly, Volkswagen will take a hit with each sale, but they’ll build goodwill and allow owners to reap the highest residual values.

4. Extend the powertrain warranty. So far as we know, the diesel scandal has nothing to do with the engine’s long-term durability. The problem has everything to do with manipulating emissions testing to deliver results that are a flat-out lie. Volkswagen can build customer confidence by matching the Hyundai-Kia 10-year, 100,000 mile warranty on all of its models, regardless of the engine type. Also, they should back date the warranty coverage to 2009 for the affected diesels that customers choose to keep. Chances are expanding the warranty coverage won’t cost Volkswagen much, but it could earn the brand much-needed respect and the sales edge that has eluded it in the US for decades.

5. Back strong emissions standards worldwide. The Volkswagen scandal exposes the weak and inconsistent testing practices of the EPA and other government environmental agencies around the world. A related matter that will need to be tackled is just who should be doing the testing. Likely, we’ll witness all automakers consenting to government testing instead of being allowed to submit their own tests for approval. This change should include the EPA mileage testing. As a result, Volkswagen must back tough emissions testing or at least provide evidence that their vehicles don’t contribute to smog and climate change, at least at elevated levels. Certainly, this a topic rife with political posturing and gamesmanship, but Volkswagen lost whatever edge it had before the scandal was made known. It would be best to back tougher emissions and find other ways to demonstrate environmental leadership than to give any appearance that they’re not sorry for polluting with abandon.

Time Will Tell

For Volkswagen, time is of the essence, especially as they restructure the company, determine the cause behind the scandal, and work diligently to regain the trust of their customers.

There is a chance Volkswagen will remain a permanent “also ran” player in the US market, but they dare not abandon it. The company is heavily invested with its lone US manufacturing plant in Tennessee and also has two other important brands to protect, Audi and Porsche.

Speaking of the other brands, maintaining a safe distance apart from the Volkswagen brand is critically important. In addition, Audi A3 owners with the 2.0-liter TDI engine will also need to be made whole.