Daimler-Renault-Nissan deal puts spotlight on scale

TOKYO/DETROIT (Reuters) - The link-up between Renault-Nissan and Daimler (DAIGn.DE) shows the urgent need for scale in an industry still reeling from a collapse in demand and gearing up for massive investment in green-car technology.

Under intense pressure to shave costs, automakers just outside the top global sales ranks are certain to face calls to develop or expand alliances or to explain to their shareholders why they are betting off going it alone.

That will mean renewed scrutiny of growth strategies by the likes of Japan's Mitsubishi Motors (7211.T), France's PSA Peugeot Citroen (PEUP.PA), Germany's BMW (BMWG.DE) and even Italy's Fiat (FIA.MI), analysts say.

"We are going to see some significant mergers, acquisitions, restructurings and spinoffs," said David Cole, director of the Center of Automotive Research in Ann Arbor, Michigan.

Just three years ago, Daimler moved to unwind one of the least successful deals in the history of the auto industry, dumping its Chrysler unit for a $30 billion loss.

Now, the Mercedes-maker has decided a more limited deal with the Renault-Nissan (RENA.PA) (7201.T) alliance headed by Carlos Ghosn will give it the small-car technology and scope it needs in the face of tighter emissions and fuel economy standards.

In return, Renault-Nissan will get access to Daimler's engines for Nissan's luxury Infiniti brand and the opportunity to share vehicle platforms and bring down costs at a time when its own alliance has been seen as sputtering.

Cole said the deal could be a blueprint for future collaboration in a high-cost area: developing the engine, transmission and now battery-drive systems that power vehicles.

"The historic view is that the powertrain defines the personality of the vehicle in the eyes of consumers. That's probably not true anymore," he said.

FIAT TO FOLLOW?

For smaller players such as Japan's Suzuki Motor Corp (7269.T), developing technologies such as a complex hybrid system on its own was not an option, which is why it aligned itself with Volkswagen AG (VOWG_p.DE) late last year.

Similarly, last month, Mazda Motor (7261.T) struck a deal to buy hybrid technology from market-leader Toyota Motor (7203.T).

Elsewhere, Italy's Fiat last year teamed up with bankrupt Chrysler, and analysts said it could look for further partners in Asia after having formed joint ventures with Tata Motors Ltd (TAMO.BO) in India and others in China and Russia.

"I could easily see Fiat shopping for another alliance in Asia," said Logan Robinson, a professor at the University of Detroit Mercy School of Law and former auto executive.

China is likely to be a key. Its emergence as the world's largest car market has been a boon to sales for U.S., European and Japanese car makers, but it has also created competitors such as Geely (0175.HK) -- fresh off its acquisition of Sweden's Volvo -- with deep pockets and global ambitions.

Still, after the numerous false starts over the past two decades -- most notably with the spectacular break-up of DaimlerChrysler after nine years -- some analysts remain skeptical that alliances can deliver as promised.

"I'm hoping that others don't go down this path" taken by Renault-Nissan and Daimler, said Erich Merkle, analyst at Autoconomy.com. "If you look at the history of alliances...they have a very checkered past. Most of them haven't worked.

While financial markets tend to price progress in quarters, it can take four years or longer to capture the full cost savings from collaboration in developing a new vehicle even if everything goes as planned, analysts say.

TOUGH EXECUTION

Even Nissan and Renault, lauded as a rare example of an alliance that has worked, has had a mediocre start.

After a decade together, the partners admitted last year to needing deeper integration, putting in place a more formal structure to squeeze out synergies that engineers had resisted. The partnership saved near-bankrupt Nissan from demise, but Renault has fallen into a slump Ghosn has struggled to reverse.

That could be a lesson for Fiat CEO Sergio Marchionne, who faces the daunting task of integrating Chrysler after taking a 20 percent stake in the weakest U.S. carmaker out of a U.S.-government funded bankruptcy.

Marchionne has said that automakers need global sales of at least 6 million cars and trucks to be competitive on cost. The Daimler-Renault-Nissan alliance would just clear that hurdle with global sales of just over 6 million units.

Fiat-Chrysler remains short of the mark, closer to 4.5 million units. But size alone is no guarantee of success.

General Motors Co GM.UL is a case in point. After its own 2009 bankruptcy, GM, like crosstown rival Ford Motor Co (F.N), is struggling bring the focus back to its core brands, led by Chevy.

Even Toyota, the world's top automaker, has proven that the bigger the ship, the tougher it is to steer. Rather than seek tie-ups, Toyota has said it would slim down its vehicle line-up to become more nimble and efficient.

FLYING SOLO

Having failed to agree terms on a capital alliance with Frances PSA, Japan's Mitsubishi Motors is seen by analysts in need of a partner to offset the cost of developing advanced technologies in areas like battery-powered cars.

But Mitsubishi President Osamu Masuko told Reuters last month that equity-based tie-ups were no guarantee of success.

"We have to remember that a capital alliance is no panacea," Masuko said. "If it were, then why didn't it work for us with Chrysler? Or with Daimler? What happened with all the capital ties that General Motors had?"

Honda Motor Co (7267.T) also believes it can find new efficiencies in-house will as Japan's second-biggest automaker continues to shun alliances, much like BMW.

"The key now is figuring out how to efficiently develop and produce cars," Honda executive Fumihiko Ike said last month. "And if the company becomes too big, efficiencies will also fail."

Honda, which prides itself in being the world's top engine maker and one of the few carmakers to produce its own transmissions, says it is open to tying up with battery and other components makers to develop next-generation vehicles.

BMW, meanwhile, has project-based ties, including with PSA in small engines, and expects its cooperation on sourcing with Daimler will continue, notwithstanding the latter's deal with Renault and Nissan.

"We don't want to give up our independence," BMW Chief Financial Officer Friedrich Eichiner said. "I don't see a big problem if a manufacturer like Daimler is now cooperating with Nissan. They must have reasons to do that."

(Additional reporting by Soyoung Kim in DETROIT; Irene Preisinger in MUNICH; Jo Winterbottom in MILAN; John Bowker in MOSCOW; Helen Massy-Beresford in PARIS; William Rigby in SEATTLE; Editing by Lincoln Feast)