Daimler AG and the Renault-Nissan auto alliance agreed on a partnership to share development costs, engines and small-car technologies to take on Volkswagen AG and Toyota Motor Corp.
As part of the linkup, Daimler will swap a 3.1 per cent stake, valued at ¤1.17 billion ($1.6 billion) for holdings of the same size in Renault SA and in Nissan Motor Co each, the carmakers said today. Daimler Chief Executive Officer Dieter Zetsche and Carlos Ghosn, who heads France’s Renault and its 44 per cent-owned Japanese affiliate, will lead a 12-person committee overseeing the partnership.
The alliance, projected to generate savings and revenue of ¤4 billion in total over five years, will bring Daimler’s Mercedes and Smart brands closer to Renault’s small cars and Nissan’s Infiniti range. The deal is the biggest for Zetsche, 56, who spent the first years of his tenure unmaking predecessor Juergen Schrempp’s attempt to turn Stuttgart, Germany-based Daimler into a global auto giant with takeovers in the US and Asia.
The deal is “important for Renault-Nissan and Daimler to compete against Toyota and Volkswagen-Suzuki,” said Tatsuya Mizuno, director of Mizuno Credit Advisory in Tokyo. “The alliance will help the companies lower costs in emerging markets, and in green technology.”
Under the accord, the automakers will develop common parts and architecture for a new generation of Renault Twingo and Smart subcompacts to go on sale in 2013 with conventional and electric powertrains.
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Cooperation on engines and transmissions will extend further, with Renault-Nissan providing powertrains for a future range of Mercedes-Benz compacts, as well as the Smart and Twingo models. Daimler in turn will make its larger gasoline and diesel engines available for Infiniti.
At a joint press conference in Brussels, Daimler’s Zetsche said his company expects gains and savings of the “same magnitude” as Renault-Nissan’s, which Ghosn said would top ¤2 billion over the first five years.
“We’ve based our analysis on very conservative assumptions,” Ghosn said. “If there is any surprise, it’s going to be a positive one.”
Renault will also supply Daimler with a small delivery van, to be assembled in Maubeuge, northern France, as well as engines and transmissions for the mid-sized Mercedes Vito.
“On the face of it, Daimler seems to gain more because it gets access to Renault’s economy of scale in small cars,” said Mike Tyndall, an automotive specialist with Nomura Securities in London.
While Daimler, Renault and Nissan will remain separate companies, the alliance has the potential to challenge the world’s largest automakers. Combined sales of the three manufacturers totaled 6.7 million cars and light vehicles last year, which would overtake Volkswagen’s 6.3 million, according to Pete Kelly, a senior director at JD Power & Associates in Oxford, England.
Toyota, the world’s largest carmaker, had global sales of almost 7 million last year, and including the Hino Motors Ltd and Daihatsu Motor Co affiliates, the figure was 7.8 million, according to the Japanese company.
“We aren’t looking for size,” Ghosn said in an interview. “We can transform the size into synergies. Our weakness is their strength and their weakness is our strength.”
Renault and Nissan will each receive 1.55 per cent of Daimler’s treasury shares. Daimler will get a 3.1 per cent stake in Renault in new shares and 3.1 per cent of Nissan’s existing stock. The Daimler stake and combined Renault and Nissan holdings are each worth about ¤1.2 billion at market prices.
The swap is a one-time transaction and the carmakers don’t plan to increase the stakes, Zetsche and Ghosn said.
Daimler traded at half a cent lower at ¤35.30 at 12:36 pm in Frankfurt, after rising as much as 1 per cent. Renault fell 1.2 per cent in Paris, while Nissan lost 0.4 per cent at the close of Tokyo trading.
France will purchase 0.55 per cent of Renault to maintain its 15 per cent holding in the company, Finance Minister Christine Lagarde said in a statement.
Daimler is seeking to boost its compact-car operations to meet tougher environmental regulations. It has fallen behind BMW, the top luxury vehicle manufacturer, in rolling out models that burn less fuel. Daimler needs to reduce carbon-dioxide emissions of its vehicles by 19 per cent to avoid fines by European Union regulators, compared with 13 per cent for BMW, according to the companies.
EU emissions legislation was “an important driver” of today’s agreement, Ghosn said.
Prompted by falling demand and mounting costs to meet tougher environmental regulations, automakers are jostling for new alliances. Volkswagen, Europe’s biggest carmaker, paid $2.5 billion in January for 19.9 per cent of Suzuki Motor Corp, the Indian market leader.
PSA Peugeot Citroen, which supplies engines to Bayerische Motoren Werke AG’s Mini vehicles, is pursuing deeper cooperation with Mitsubishi Motors Corp, even after talks on an equity swap failed last month.
Renault-Nissan is still pursuing discussions with other carmakers over opportunities for cooperation in other markets and product areas, Ghosn said today. “Don’t be surprised if we continue to add scale.”
Daimler’s joint production of larger vans with Volkswagen and talks on parts sharing with BMW are unaffected by the accord with Renault-Nissan, Zetsche said.
The Renault-Nissan deal comes weeks after Daimler extended Zetsche’s employment contract to 2013. Under Schrempp, Daimler acquired Chrysler in 1998 to form DaimlerChrysler, followed by a controlling stake in Mitsubishi Motors in 2000. Mounting losses forced the German carmaker to sell Mitsubishi in 2005 and dispose of Chrysler two years later.
Daimler intends to have three models for its Smart brand, which currently consists solely of the two-seat Fortwo. The automaker is also building a new factory in Hungary as part of a ¤1.4 billion expansion of compact-vehicle production.
Nissan and Daimler may also manufacture vehicles at each other’s existing factories in the US, Ghosn, 56, said in the interview. There are no plans to build new facilities in the partnership, he added.
Smart sales fell 18 percent in 2009 to 114,000 vehicles, while Mercedes A- and B-Class models declined 14 per cent to 215,000. Government incentives helped Renault increase sales of smaller models such as the Twingo subcompact, which gained 34 per cent in Europe even as the carmaker’s global sales fell 3.1 per cent to 2.3 million vehicles.
A cross-shareholding underpins Renault and Nissan’s 11-year-old alliance. Renault owns 44 per cent of Nissan, which in turn owns 15 per cent of the French carmaker.
Renault, France’s second-biggest carmaker, bought a controlling stake in Yokohama-based Nissan in 1999 when the Japanese automaker was nearing bankruptcy.
Renault and Nissan, Japan’s third-biggest automaker, tried to form an alliance with the former General Motors Corp in 2006 to save costs by sharing production, development and purchasing. Talks between Ghosn and former GM CEO Rick Wagoner ended without an agreement.