Nissan and Chrysler Continue to Court

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Comments: 0

April 16, 2008

The relationship between Nissan and Chrysler continues to develop. It was recently announced Chrysler would supply large pickup trucks to Nissan and in return Nissan would supply a small car to Chrysler. This is the second deal signed by the two companies. The first was agreed upon in early January 2008, Nissan would supply a version of its Versa small car to Chrysler to sell in South American beginning in 2009.

Prior to the agreements with Nissan, Chrysler has signed a deal with China’s Chery to supply a small car to the US and will soon be supplying a version of its minivan to Volkswagen as the Routan. There are also reports circulating that Chrysler may provide manufacturing capacity/support to Fiat as the company attempts to reestablish Alfa Romeo in the US.

I believe the situation at Chrysler is becoming very interesting. However, I suspect there is not much to read into the latest speculation concerning a Nissan and Chrysler formal alliance beyond the product swapping agreement right now. Given the fuel economy regulations in the US and the limited success of the current fullsize Nissan Titan pickup truck, it makes little sense for Nissan to develop a replacement for that vehicle.

For the first 3 months of 2008, the Titan sales have dropped close to 40% compared to 2007. The Chrysler built fullsize Dodge Ram pickup sales have dropped 25% year-to-date. All things being equal, the deal on paper appears to be a win-win.

Nissan gets large pickup truck to sell and Chrysler has the capacity to fill the orders. Nissan is struggling with excess capacity and it can reallocate production at the Mississippi plant that currently builds the Titan, and slow selling Armada/QX56 fullsize SUVs. Cash strapped Chrysler also will benefit from not having to develop the small car it needs as the market shifts to smaller vehicles as fuel prices continue to rise.

Based upon all the deals Chrysler has signed with global manufacturers and the rumors of deals to come, I get the impression the vultures are circling and just waiting to see if Cerberus can turn the company around. I have been consistently bearish that Chrysler’s days may be numbered and I do not see in the near term any deal formally bringing Chrysler into the Renault-Nissan alliance. However, I do see companies positioning themselves to take over needed US production capacity and other assets if Chrysler does not remain viable.

Given the structural problems with the US economy and the devaluation of the US dollar, production capacity in the US is becoming more attractive as an export base. Right now, I just do not see Renault-Nissan's CEO Carlos Ghosn making a move for Chrysler. Definitely not for the $7 billion Cerberus still owes the banks.

Note: Sales data from Automotive News (Jan - March 2008).



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