Renault sniffs around Chrysler

JANUARY 15, 2008

Renault sniffs around Chrysler

The Renault company is ticking along at the moment. It has been very successful in Formula 1 in recent years, although last year was very disappointing. The company has a strong and successful alliance with Nissan, which constrasts markedly with what happened with DaimlerChrysler. A year ago Renault-Nissan tried to engineer an ambitious three-way alliance with General Motors in order to gain a strong presence in the US market and to build a competitor to match Toyota. This failed but Renault-Nissan boss Carlos Ghosn said he would continue to look for a US partner.

An agreement between Nissan and Chrysler for the US company to sell rebadged Nissan models in Latin America has set tongues wagging in automotive circles. Chrysler is emerging from its failed merger with Daimler-Benz and is now controlled by the venture capital company Cerberus Capital Management. While the Nissan-Chrysler deal is a long way from being a full-scale alliance with Nissan and Renault it does create the potential for such an arrangement.

Chrysler remains in essence a regional car company with a strong dependence on the US market. It cannot therefore compete with the low costs achieved by firms such as Toyota, GM and Ford that can develop models examples of which can be sold millions of times across the globe. It is also burdened by high pension and health costs and has a declining market share. It thus needs to have production outside the United States, more international markets and in a world of rising fuel costs a good fuel-efficient small car. Nissan is very good at small cars.

Venture capital firms are involved in the automotive business to make money and so it is fair to say that Cerberus will sell its shares in Chrysler - which cost $7.4bn - if there is a deal that makes sense. A smaller shareholding in a truly global alliance might be just the thing.

This is of interest in F1 circles only because such an alliance would inevtably lead to reassessments of the alliances involvements in motorsport. F1 is an obvious place for a global player to be if they have the products to live up to the F1 image.

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