Chrysler and Nissan in Team-Up Talks
Nissan could build Chrysler's small cars, and it's not unlikely that Chrysler could build Nissan's trucks
by David Kiley
In a deal that auto industry analysts believe could point to an eventual formal alliance between Nissan (NSANY) and Chrysler, the two automakers are in talks that would lead to Nissan supplying Chrysler with small cars and the American automaker taking over manufacturing of Nissan's full-size pickups.
Citing sources close to Nissan, Japanese broadcaster NHK reported on Jan. 10 that the carmakers are in final negotiations on a deal for Nissan, which is controlled by France's Renault (RENA), to supply Chrysler with a small, fuel-efficient car that could be sold in North America, as well as in other markets.
The other half of the negotiations, not reported by NHK but confirmed by sources close to Chrysler with knowledge of the company's plans, would have Chrysler produce a full-size pickup for Nissan at one of its U.S. plants now producing the Ram. The pickup would be derived from the Ram and replace the Titan pickup Nissan currently builds in Canton, Miss.
Collaboration is Key to Cost-Cutting
Manufacturing alliances like these are becoming more common in the auto industry. Chrysler is building a Volkswagen (VLKAY) minivan at its Canadian assembly plant alongside its own Town & Country minivan. Chrysler also builds Mitsubishi's Raider pickup alongside its Dakota small pickup. Suzuki has announced that Nissan will build a midsize pickup truck based on the Frontier model at its plant in Tennessee, to be sold under the Suzuki badge in North America. "These turbulent times in the auto industry make for strange and more bedfellows," says Jeff Schuster, J.D. Power's head of global forecasting.
Renault-Nissan Chief Executive Officer Carlos Ghosn has said repeatedly that he would like to strike a formal alliance with a North American automaker. Ghosn was in talks with General Motors (GM) in 2006 for such a deal (BusinessWeek.com, 10/31/06), but nothing came of it. On Jan. 10 a Nissan spokesman said, "Regarding our interest in working with other manufacturers, we have been consistent in our belief that under the appropriate conditions, extending the Renault-Nissan Alliance to include a North American partner could be beneficial. Further, we have a successful track record of working with many manufacturers for the exchange of products on an OEM basis."
Chrysler was purchased by private equity firm Cerberus Capital Management last August from DaimlerChrysler, which retained a small minority stake in the U.S. automaker. The firm has made lowering costs and improving Chrysler's profit outlook a top priority. One of the principal paths toward profitability is to share as many product-development and engineering costs as possible, and to maximize production at its assembly plants. “Chrysler’s new owners see that they are behind in cost reduction and new products and they are taking the shortest routes they can to accomplish both,” says J.D. Power’s Schuster.
Poor Prospects for Pickups
Chrysler is introducing a new Ram pickup truck at the North American International Auto Show next week. Sales of the Ram run a distant third to trucks from GM and Ford (F). The company has two plants dedicated to the Ram, which sold 359,000 units in 2007. The pickup truck market is continuing to soften as recession and a housing downturn dampens demand. Meantime, Toyota, (TM) which sold 196,000 pickups last year, has just launched a new pickup plant in Texas. Nissan, by contrast, has struggled with its Titan pickup, which sold just 66,000 units in 2007. "There is a lot of pressure in the company to make the full-size pickup program less costly and more rational without getting out of the category altogether," said one high-ranking Nissan executive who said he could not comment officially on Chrysler negotiations.
Chrysler is also trying to figure out what to do with its midsize Dakota model, and Nissan could eventually help on that front, too. Chrysler CEO Robert Nardelli and Vice-Chairman Jim Press are evaluating Chrysler's entire product lineup and distribution. The Dakota, said an industry source with knowledge of the company's plans, has already been targeted for elimination. The other models on the firing line include the Chrysler PT Cruiser, the Dodge Magnum, and the Dodge Caravan. (Chrysler would sell just one minivan as the Chrysler Town & Country.)
If Nissan can supply Suzuki with a midsize pickup, it could also build one for Chrysler. Nissan sold 65,000 Frontiers last year, Dodge 51,000 Dakotas, and Mistubishi just 8,200 Raiders. Suzuki would be hard pressed to sell more than 15,000 pickups a year. With the small and midsize pickup category in steep decline, a consolidated engineering and manufacturing effort by those companies would be far more efficient.
Kiley is a senior correspondent in BusinessWeek's Detroit bureau
Nissan And Chrysler In Small Car/Big Truck Alliance
Vivian Wai-yin Kwok, 01.10.08, 8:10 AM ET
Nissan Motor, Japan's third-biggest automaker, is preparing to produce fuel-efficient small vehicles for Chrysler, taking a different route to enhance its presence in American market despite concern about a slowdown there.
The two auto firms are in the final stages of negotiation on a deal for Nissan (nasdaq: NSANY - news - people ) to supply Chrysler with small car models with an engine displacement of around 1.8 liters, Japanese broadcaster NHK reported on Thursday.
The pact is expected to boost Nissan’s sales in the U.S. market and to help Chrysler make a turnaround from its recent weakness, attributed in part to an overdependence on light truck sales, the report said.
A Nissan spokeswoman confirmed the ongoing talks with Chrysler but stressed nothing has been decided.
Talk of Nissan-Chrysler cooperation has been circulating around the auto industry since last fall. And the synergy of allying Japanese small car technology with U.S. big truck expertise seems evident.
Nissan, which rolled out its Altima Hybrid in 2006 and is developing electric cars that will be introduced in America by 2012, could bring Chrysler into the hybrid car market quickly and cheaply. Chrysler, in turn, could provide one-ton pickups, commercial vans and heavy truck components for Nissan, which has been struggling with the poor sales of its second-generation Titan full-sized pickup.
Chrysler, which was acquired by U.S. equity firm Cerberus Capital Management, inked a deal with China’s Chery Automobile in July 2007 to sell a rebranded version of the Chinese-made Chery A1 hatchback in North American market starting around the first quarter of this year.
After failing to reach a comprehensive three-way alliance with its French partner Renault (other-otc: RNTSY - news - people ) and General Motors (nyse: GM - news - people ) more than a year ago, Nissan has been seeking an alliance with other U.S. automakers to maintain its U.S. sales amid fresh fears about a recession.
Nissan's North American division revealed last week that December unit sales slipped by 2.4%, to 89,555.
-- Reuters contributed to this article.