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Automakers shift gears, embrace joint ventures

Few products have done more to transform the shape of the auto industry as the compact Toyota Prius, which routinely accounts for half of the worldwide sales of hybrid-electric vehicles. Yet when it came time to develop the maker’s new battery-electric vehicle, a lithium-ion-powered version of the RAV4 crossover, Toyota decided to go outside, tapping California-based start-up Tesla Motors for help.

It was a striking shift in strategy for a company that, “in the past… liked to do things its own way,” acknowledges Yoshi Inaba, President and COO of Toyota Motors North America.  But no longer.  Over the last several years, Toyota has also formed a series of joint ventures with partners as diverse as BMW and Ford, Intel and Microsoft, and, hints Inaba, “You will see more auto alliances” coming.

There was a time when manufacturers measured their strength by how much they could do alone.  Henry Ford’s vast assembly complex on suburban Detroit’s River Rouge was designed to take in raw materials like sand, iron ore and coal at one end and spew out finished automobiles at the other.

But these days, manufacturers like Toyota are paring back.  They’re turning to outside suppliers for parts they don’t need to produce in-house and, in many cases, are curtailing the basic research that once set brands apart, forming alliances with major universities instead.  But even more striking is how erstwhile competitors are now finding it critical to team up on projects where they can’t afford to go it alone.

While Toyota may be considered the world leader in conventional gas-electric hybrids, it has lagged behind when it comes to more advanced, lithium-based powertrain systems and is “now playing a game of catch-up,” says Aaron Bragman, a senior analyst with IHS Automotive.  While Tesla is helping launch the RAV4-EV, later this year, Toyota is turning to Ford for help on hybrid trucks and BMW for assistance developing other advanced powertrain systems.

Of course, Toyota is by no means unique in shifting gears.  “The fact is, nobody has all the resources they need anymore,” says David Cole, chairman-emeritus of the Center for Automotive Research, in Ann Arbor, MI.  “So, the idea of collaborating to speed things up and reduce costs makes sense.”

These days, it’s difficult to find any manufacturer, large or small, that hasn’t formed at least one significant alliance with a potential competitor.  One of the more expansive partnerships pairs the Euro-Asian Renault-Nissan Alliance with Germany’s Daimler AG.  Three years ago, they agreed to cooperate on a series of modest projects, including the development of new powertrains and a platform they could share for their smallest products.  By splitting costs they hoped to find a way to staunch the losses on minicars like the Renault Twingo and Daimler’s Smart fortwo.

Since then, however, they have rapidly added a series of additional joint ventures: 

  • Production of a new 4-cylinder engine at Nissan’s Decherd, TN engine plant will be used in both Infiniti and Mercedes products, including the next-generation C-Class sedan, which will go into production at the German maker’s Alabama assembly plant in 2014. 
  • The next-generation Mercedes small car platform, dubbed MFA, will be used for products as diverse as the next A- and B-Class models as well as the new Infiniti Etherea.
  • And as TheDetroitBureau.com recently reported, Mercedes is expected to set up a new assembly plant alongside one being built in Aguascalientes, Mexico by Nissan. It would produce a range of products for both makers.
    “We probably haven’t seen as much change in our industry in decades as we have to face now,” explains Daimler CEO Dieter Zetsche. So, “By doing (things) together in certain areas we will get even stronger.”

While the recent wave of industry alliances involves virtually every aspect of automotive design, engineering and production, most makers are following the same strategy as Toyota, which is focused on three specific areas: manufacturing; high-tech hardware and software, everything from in-car infotainment systems to advanced safety technology; and advanced powertrains, especially those using batteries, hydrogen and other cutting-edge technologies.

When it comes to tomorrow’s engines and drivetrains, partnering is all but essential, contends CAR’s Cole. “We don’t know who the winners and losers will be in terms of advanced powertrain technology.  But the costs are huge…so it just makes sense to work cooperatively.”

Not all partnerships work.  General Motors abandoned a series of alliances with Japanese makers Isuzu, Suzuki and Fuji – the maker of Subaru products – and was forced to pay $2 billion to exit another partnership with Fiat.  But it continues to seek out other joint ventures, nonetheless.

In many cases, makers limit their work to what’s referred to as “pre-competitive” efforts, the very early development stage where they might come up with some basic hardware or software strategies and then move off to finish parts or components individually.  That was how a hybrid development project worked for General Motors, Chrysler, BMW and Daimler.  Eventually, each came up with a distinctly different system -- but collectively, they saved both time and money by pooling manpower and technical resources.

“Some of these projects would have been considered heretical a few years ago,” says Cole.  Today, they’re rapidly one of the norms of doing business.