O Lord, I’ve bought me …

… a chunk of Mercedes-Benz

So Renault-Nissan and Daimler have agreed a cross-shareholding and cooperation on future technology. Here at Vox Sapiens we are not optimistic about this alliance.

Firstly, this seems very one-sided. New emissions standards is forcing Daimler to develop its small-car models (smart, A-class, B-class). So far it has made a right pig’s ear of anything below its C-class range, and is desparate for a partner that can help it. So this deal, if successful, helps to dig Daimler out of a big hole.

But Renault-Nissan have no similar burning platform. Both businesses will need to continue to cut costs to remain competitive, and one route is co-development of technology and even shared production. This agreement supports this option, particularly through Daimler’s engine technology contribution. But Renault-Nissan already has a lot of the necessary expertise in-house. Daimler’s engineers will add value, but not to the extent that Renault-Nissan adds value for Daimler in the small-car areas.

Second, the management’s comments don’t sound too confident about making the alliance work.

“The main difference is … that with Chrysler, we agreed on a merger but had no ideas about areas of collaboration, … This is just the opposite of what we did with Chrysler and I am very optimistic that the outcome will be the opposite as well,” Dieter Zetsche, Daimler’s chief executive, said.

OK, so this time Daimler is out of first grade. But second graders are not that mature. Will a 3.1% equity stake really be enough to influence Renault or Nissan as a shareholder? Probably not. And does a change in the value of a 3.1% shareholding in Renault and Nissan have a major financial impact on Daimler? Once markets recover, probably not. So getting value out of this deal is all about being able to influence the technical guys to work together. Daimler couldn’t do this when it owned all of Chrysler. What has happened in the intervening period to show that it can do it now, especially when it doesn’t have the management control to force cooperation?

And thirdly, and this concerns us greatly as another unknown for Daimler, the French government is able to control this agreement. Just this week, Christian Estrosi, the industry minister said: “It is a very strong undertaking of the French president that from now on the state will take part … in the industrial strategy of Renault.”

Wow ! Not much requirement to read between the lines there.

Although a senior government official tried to assuage concerns by saying “We will have our say about Renault, but not about Daimler,” we don’t see how having a say about Renault’s participation in this agreement can not impact Daimler.

Earlier this year the French government appeared to alter Renault’s manufacturing strategy by blocking the transfer of Clio production from France to Turkey. What happens if the Daimler-Renault-Nissan alliance plans to produce a co-developed engine outside France during the next economic downturn?

And the French state will buy 0.55% of Renault as this agreement dilutes its stake and it drops below the 15% required to meddle to the degree that it wishes.

We will sit, watch and wait for the tears.

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