Joint ventures are usually a wizard way of conjuring up some large scale project out of a collection of smaller parts. As such they are usually a sign of some kind of weakness, whether in the partner companies, the technology they are sharing or the market they are targeting. Somewhere along the line each of them has found to its horror that it wasn’t big enough, or clever enough, to survive so they have been obliged to combine their powers. The latest joint venture to emerge is between Renault-Nissan and Mitsubishi.
The Need for a Mate
Mitsubishi has been limping along ever since a series of disasters struck from around 2000 onwards. Despite one of the highest R&D budgets in the industry it seemed as if the company could do nothing right, being caught out covering up defects, embarking on panic fuelled marketing campaigns in the US and releasing a poorly received car in Australia. Only the rest of the Mitsubishi keiretsu, and principally the bank at the centre of the corporate web, have held the motor division aloft. Mitsubishi Motors has staggered along over recent years but has never recovered enough strength to be independently sustainable. Its iMiEV electric car has been a technological marvel but also a vanity project it could ill afford. The company needs mainstream models to fund its ongoing existence.
If Mitsubishi’s craving for a partner is obvious, that it is Renault-Nissan that should volunteer is much more curious. While joint ventures usually only last as long as the weakness underlying them, Renault and Nissan seem to have hit on a partnership style that can endure. Most importantly the two companies have baked into their partnership a freedom to pursue their own projects while sharing cost savings where they can. Instead of being bound together they have the flexibility to exploit their individual strengths and share their common weaknesses. In the main this means they have joint procurement programmes and the odd shared platform strategy. Since they can work together, or not, as they see fit the new alliance with Mitsubishi has no obvious advantages.
The Relation in the Basement
In the shadows, though, Renault has an offspring that has brought it nothing but shame. This is Samsung, one of the car manufacturers that at one time had seemed to be part of the rise to global prominence of the South Korean automotive industry; in fact, only one of them, Hyundai, ever made it to the top. In retrospect it is clear that Samsung was very much the junior member of the South Korean automotive industry. Although it got by assembling Nissans, when the parent chaebol was looking to abandon its motor car experiment it was Renault that swooped on the remains by snatching an 80% share.
Sadly, neither was Renault able to make sense of its purchase, the latest failure being to make Samsung models the basis of the Renault Safrane and Talisman. Renault has never been strong with luxury sedans but handing responsibility over to Samsung smacks of sheer desperation. Last year it is reported that 130,000 units left a plant designed to produce 300,000 a year. The new plan is for Samsung to manufacture two sedans for Mitsubishi to be sold in the US. It is doubtful that there is much pent up demand for such cars in the American market but when you are starving you will take what is offered.
Making Electric Lemonade
Another part of the joint venture deal is for Mitsubishi to share its electric vehicle technology. Although Mitsubishi has a global lead in small electric cars, so far this has meant that it is the leader in a market segment with almost no buyers in it. Lacking the financial muscle to subsidise its cars it has been obliged to market the iMiEV at a price that reflects its real costs, and that means a very high price indeed. It turns out there weren’t as many sandal wearing millionaires looking for a city runabout as Mitsubishi originally thought. This means that in order to find the funds to follow-up on the iMiEV the company needs a partner.
The mystery is why Renault-Nissan should be that partner. As a world leader with the mid-market Nissan Leaf anyone would think that entry to the mass market was imminent. Indeed, in Norway the Leaf already is considered mainstream. But then it should, considering the government incentives it receives while conventional cars are taxed off the roads. Elsewhere, with only government incentives worth a few thousand per car, the Leaf has struggled to make any impact with consumers.
And there’s the rub. Like Mitsubishi, Nissan has gained technological leadership in a product that is failing to find market favour and is struggling to repay the company’s financial commitment. So Nissan faces a stark choice between cutting its losses on electric cars, or stiffening its resolve by offering further models in the hope of achieving some critical weight in the market. Severely chastened by the experience with the Leaf the only answer is to form a partnership on the next electric model and share the risk, even it if means dividing any possible profits. Considering that electric car sales are unlikely to reach economic levels for another ten years we can expect the collaboration with Mitsubishi to last at least a decade.