• Can Nissan Rescue Chrysler?

Can Nissan Rescue Chrysler?
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The deal which Nissan and Chrysler cut last week – one in which Chrysler will undertake to build Nissan’s next pick-up truck to Nissan’s designs and Nissan will build a small car for Chrysler to Chrysler’s design is leading to rampant speculation that the futures of the two companies may become even more intertwined.

Chrysler has been desperately searching for a way to find foreign sales, rightly viewing emerging markets as the future of the auto industry. Unfortunately for it, it has virtually no presence in any of these markets.

Chrysler has also been desperate to get a small car on the market in the United States, seeing that market as one that will have the highest rate of growth in production and profits, as energy prices rise.

Nissan appears to be the solution to both problems.

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Meantime, Nissan has become a non-entity in the full-size pick-up market. Yet, it can’t justify leaving that market. Apart from the desire to retain its credibility as a full-line manufacturer, the market is simply too large to abandon. Though sales have been disappointing for Toyota’s new Tundra, there are still a lot of new trucks sold. Indeed, in some areas, the rising energy costs don’t appear to have dented pick-up sales.

Chrysler is Nissan’s solution to that problem.

What makes these deals interesting, however, is that they are manufacturing deals, not nameplate engineering deals. Unlike Chrysler’s deal with Volkswagen, under which a version of the Chrysler minivan is produced by Chrysler as a Volkswagen, these involve manufacture by one company of the designs of the other, and for the showrooms of the other.

Both companies end up with production capacity being used for manufacture of products for which that company’s production facilities are best suited and its manufacturing techniques are best adapted. Chrysler gets the added bonus of being able to move some of its Dodge pick-up production back to the States, from Mexico, to make way for the Nissan production lines. That ought to placate the UAW, at least a little.

But, though both companies are denying it, speculation abounds that this is only the first step toward much greater cooperation between the two companies. Nissan released a statement saying that there were no discussions ongoing with Chrysler – but they said the same thing after it was announced that Chrysler would build a version of the Nissan Versa for South American distribution. That denial preceded the latest announcements by a mere two months.

What might the future bring for the two?

Well, for one thing, more clout in purchasing and lower costs. For another, the use of the Nissan-Renault alliance to break into non-American markets.

In all, it’s actually quite easy to see what further ventures with Nissan might gain Chrysler: survival. It can use all the money it can get. It needs cash from building vehicles for others, and it needs a small car. It gets both in this deal. Any further deals between the two companies can only benefit Chrysler.

But what’s in it for Nissan is a bit more difficult to fathom. In effect, Nissan will be manufacturing a car that Chrysler will use to compete with Nissan’s own products in markets in which Nissan must succeed to remain competitive. Similarly, in a market that is crucial to Chrysler – light trucks – it is assisting a potential rival for market share.

That being the case, there is reason to believe that Nissan would not have made this deal, or the one that preceded it, were it not part of a longer-term plan. Nissan CEO Carlos Ghosn, pictured, has been looking for an American partner in his automotive “alliance” with Renault for several years, and it appears that he’s now found one. It may not be the prettiest girl at the ball, but at least he’s found someone with whom to dance.

What’s in this for Nissan is size.

While United States manufacturers, particularly General Motors, have focused on world markets as the key to their future growth, Ghosn has always looked upon the United States market as the key to the future growth of his companies, Nissan and Renault. Whatever may be said about emerging markets in the total automotive sales picture, the United States remains the largest market in the world for motor vehicles and will remain the second largest even if Chinese auto sales grow as exponentially in future years as some pundits predict. Taking a large share of that market would benefit Nissan, which has already made the investment in image and distribution that is the upfront cost of entering new, emerging markets.

It might just work.

Ralph Kalal
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