The global alliance between Renault-Nissan and Daimler AG is likely to add one more car to the list of small cars jostling for market share.
As part of the agreement, Renault-Nissan and Daimler will jointly develop the next generation of Renault's Twingo, a new four-seater Smart (a Daimler model) and also a successor to the current two-seater of the same model. These products will be rolled out after 2013 and the companies can sell these separately.
"It is likely that some years down the line, we would manufacture the high-end small cars, like the Twingo, from our plant in Chennai as we develop India as our manufacturing hub for small cars," said a top executive of Renault India.
The Twingo is a 1.2-litre hatchback sold in Europe, amongst other countries and could be the fourth small car model from the Renault-Nissan stable in India if the alliances takes off.
Renault-Nissan has already put up a comprehensive strategy to make India its production hub for small cars.
As part of the global agreement, Renault-Nissan will pick up 3.1 per cent stake in Daimler while Daimler will acquire 3.1 per cent each in Renault and Nissan.
Competitors say the move by the two European giants is a clear indication of how the world market is changing towards small cars. Says R C Bhargava chairman of Maruti Suzuki, the largest car maker in India: "The alliance clearly reflects the global movement towards smaller cars. The 12-cylinder cars are now history. And, it also shows that India which is one of the largest small car markets, is increasingly an attractive base for production".
Bhargava, however, said Daimler's Smart might be a small one but it is an expensive car and it is not clear what the makers of Mercedes will bring to the table in terms of knowhow for making small cars.
Renault-Nissan already has two alliances in the country. It has a tie-up with two-wheeler giant Bajaj Auto for a low cost car which will offer the most attractive fuel mileage and is expected to be on the roads in 2012.
It also has an ongoing joint venture with Mahindra & Mahindra for the manufacture of Logan.
The joint venture has been under fire because sales of the car have fallen quite substantially. Talks are on between the partners to restructure the joint venture and come up with a new version of the Logan.
Carlos Ghosn, chairman and CEO, Renault-Nissan, has also recently announced talks for a tie-up with Ashok Leyland for anther small car, to be positioned between the ultra low cost Bajaj car and the upcoming Micra, a hatchback with a 1.2-litre engine which will be rolled out by Nissan in India in the middle of this year.
Ghosn has made public his desire to to make India a key country in its global strategy. "The Chennai plant (400,000 capacity by 2015) will play an important role in the global strategy of the alliance. This will be one of the four major export hubs for a few global models, the first of which will be the Micra," Ghosn had said in a press conference on his visit to India last month.
"Daimler has tremendous experience in technologies and products, while Renault specialises in small cars. Hence, through this arrangement we will look at sharing small car insight on the common platform that the three partners will jointly develop," Ashish Sinharoy, vice president, corporate affairs, Renault India said.
Analysts say the rub-off effect of the alliance could be many for India. "While in the short term, the alliance may result in higher sourcing of components by all three partners and increasing R&D of the new platform in India, eventually, we may see some of the new small cars by the alliance partners being rolled out from India because of the huge domestic potential and low cost manufacturing capabilities here," Kapil Arora, partner (automotive practice), E&Y points out.
Meanwhile, the alliance will help Daimler strengthen its small car portfolio globally. However the company made it clear that it had no plans to bring the Smart to India. "Daimler has no plans to bring the Smart or the new LCVs into India at this point of time," Florian Martens, senior manager, Daimler AG said in an e-mailed reply.
Prompted by falling demand and mounting costs to meet tougher environmental regulations, automakers are jostling for new alliances. Volkswagen AG, Europe's biggest carmaker, recently picked up 19.9 per cent stake in Suzuki Motor Corporation for $2.5 billion. Even PSA Peugeot Citroen, which supplies engines to BMW AGs mini vehicles, is pursuing deeper cooperation with Mitsubishi Motors Corporation.
