Something strange is going on. Recent months have seen some unlikely unions in the international automotive sector with a succession of hitherto unthinkable partnerships becoming commonplace. What we’re seeing is a highly strategic game of musical chairs with no OEM wishing to be the last one standing when the music stops.
Alliances in the OEM world are not new. Remember the Ford/Volkswagen/SEAT collaboration which resulted in the three brands entering the fledgling MPV market with the lookalike Galaxy, Sharan and Alhambra? Toyota and PSA did something similar with their city car project resulting in the Toyota Aygo, Citroen C1 and Peugeot 108. More recently Toyota’s plan to revive its much missed Supra was dependent on a deal with BMW resulting in a shared engine and underpinnings with the latest Z4; with both brands making colossal savings in the process.
Other relationships have gone deeper. Until recently the three-way alliance between Renault, Nissan and Mitsubishi, including formal shareholdings, was the benchmark for what OEMs choosing to pool their resources could achieve. That was until the fallout surrounding the arrest in Japan of its architect and leader Carlos Ghosn. The alliance is now strained and we have yet to see how that will play out.
Automotive partnerships are born out of a necessity to significantly reduce costs which have risen exponentially in recent years as regulatory factors and changing consumer behaviour come into play. Global carbon neutrality targets have forced OEMs to accelerate the transition to electrification, with time effectively being called on internal combustion engines.
At the same time OEMs are also moving to future-proof themselves by investing in new mobility services, including autonomous vehicles, while tackling the more immediate challenges of the collapse on the global market for diesel-engined cars and to recalibrate ambitious sales expansion plans in light of the slowing down of the Chinese economy.
Speaking to DriveTribe Owen Edwards, Business Consultant at Grant Thornton, said: “More alliances between OEMs will be needed in the coming months and years in order to minimise the cost required to invest in new technological changes, autonomous vehicles, EVs and Mobility as a Service (MaaS). These collaboration are expected to be broad, from traditional partnerships between OEMs to OEMs partnering with smaller emerging technology companies.
“The automotive industry has not traditionally been good at partnering, but now with the cost burden facing OEMs, and the requirement to have this new technology quickly, they have no choice,” he said.
BMW Group and Daimler AG
In terms of the least likely of bedfellows, the prize goes to German arch-rivals BMW and Mercedes-Benz who announced in March 2018 ambitious plans to work closely together to deliver “sustainable urban mobility services”.
The carmakers are jointly investing over €1bn to develop a digitally driven “mobility services portfolio” spanning five branded areas: REACH NOW for multimodal services, CHARGE NOW for EV charging, FREE NOW for taxi ride-hailing, PARK NOW for parking and SHARE NOW for car-sharing.
So, no shared metal and a clear focus on addressing the emerging MaaS demands. However, this proved to be just the first step. In July 2019 the two groups signed a long-term contract to work together on autonomous cars.
This agreement will see the joint development of next-generation technologies for driver assistance systems, automated driving and automated parking; all to Level 4 where cars can operate without driver input. A joint statement opened the door for further collaborations between the marques, other OEMs and other technology partners.
Earlier this year Ford and Volkswagen started collaborating on shared platforms for vans and pick-ups, promising future joint development on EVs and autonomous vehicles.
Sure enough further details were released in July with Ford and VW announcing a joint $7bn investment in Argo AI, the autonomous vehicle platform. The agreement will see both brands independently integrating Argo AI’s self-driving system into their own vehicles. Ford will also use VW’s EV architecture and Modular Electric Toolkit (MEB) to design and build at least one high volume EV in Europe for the European market starting in 2023.
BMW might already be playing away with Mercedes-Benz but that has not stopped it from snuggling up with Jaguar Land Rover.
In June 2019 the two marques announced a joint collaboration based around next generation electrification technology, specifically Electric Drive Units (EDUs).
This agreement will enable both to take advantage of efficiencies arising from shared research and development and production planning as well as economies of scale from joint procurement across the supply chain.
The collaboration will see a team of Jaguar Land Rover and BMW Group boffins jointly engineering EDUs with both partners developing systems to deliver the specific characteristics required for their respective ranges.
Chinese car giant Geely (owner of Volvo, Lynk & CO and Lotus and holder of a 49.9% stake in Proton) is a brand in a hurry and sees no boundaries to achieving its global ambitions. While it is building capacity in China it is also entering alliances to broaden its global reach.
Last year Geely took a 10% stake in Daimler, which gave it a strategic seat at the table. In March 2019 it ramped up its presence by taking a 50% stake in Daimler’s struggling Smart brand. As a result Smart will transition to an electric brand with cars assembled at a new purpose-built factory in China and global sales starting in 2022.
Renault Group/Fiat Chrysler Automobiles – the merger that didn’t happen
Not all mergers go to plan. FCA’s recent move to merge with Renault and be the senior partner was always going to be a challenging deal to pull off with Renault’s biggest shareholder being the French government. Ultimately, despite FCA’s assurances, the politicians were nervous of sanctioning a deal which had the potential to lead to job losses in France somewhere down the road.
There was also the matter of buy-in from Renault’s strained alliance partners Nissan and Mitsubishi.
PSA/Jaguar Land Rover – the merger that hasn’t happened (yet)
PSA is a key OEM to watch. In 2017 the French giant acquired General Motors’ troubled Vauxhall/Opel operations and the following year returned the business to profit for the first time in two decades.
Since then talk of PSA making a move on Jaguar Land Rover has been mooted. Although the marque had been turned around by Indian giant Tata Motors, it is now dragging down its parent as a result of falling diesel sales and declining demand in its all-important Chinese market. JLR would provide the aspirational PSA with a luxury brand.
OEM pockets are not as deep as they were, so going it alone is no longer feasible, even for the biggest players, so we can expect to see more alliance, partnerships and mergers over the coming months and years.