Over the last few months, there have been periodic updates from two emerging partnerships in the Indian automobile landscape: Toyota-Suzuki and Mahindra-Ford.

Their periodic news bulletins highlight how the alliances are coming along while offering details on product swaps, platforms, fuel initiatives, etc. In the process, what comes through loud and clear is that the partners are dead serious about their respective relationships and are obviously keen to strengthen them even further.

Partnerships in India

Beyond these two, there is India 2.0 from the Volkswagen Group where Skoda will lead a platform sharing initiative. This will see VW and Skoda jointly roll out competitively priced products that will be retailed through their individual dealerships.

India 2.0 is an ambitious programme for the VW Group that has been conceived for price-sensitive markets with immense growth potential. The country could be on its way to becoming the third largest producer of cars after China and the US but is brutal when it comes to being a participant in a complex ecosystem.

For those who intend to make a mark, it is important to get the costing structure right, which means tremendous emphasis on localisation and then playing the waiting game. After all, it is not easy to dislodge a monarch like Maruti Suzuki that has a near 55 per cent market share and continues to push the envelope aggressively. Now here comes Toyota, whose standing in India is much smaller in comparison, and still teams up with Suzuki. The two decided to come together three years ago and have clearly been making quick progress on product swaps, new projects, global initiatives, etc. Suzuki is a giant in India but much smaller elsewhere in the world while the converse is true for a global giant like Toyota with little headway in India.

At one level, it may seem that Toyota is getting the better deal given Suzuki’s dominance in the subcontinent but that is not quite true. What Suzuki lacks is scale and access to the latest technologies, which its ally has in plenty. Suzuki also knows very well that in the new emerging landscape, it makes sense to have a strong partner especially after previous efforts with General Motors and VW yielded precious little.

What better way than to team up with a fellow Japanese counterpart for greater levels of compatability? Toyota is also aware that the challenges ahead are going to be gargantuan in nature and the best way forward is to leverage competencies with another partner. Hence, it has Mazda for North America, Daihatsu for the ASEAN region and Suzuki for India, the most competitive market in the world.

Ford focus

Likewise, Ford has been around for two decades but has little to show in terms of market dominance. It has come a full circle and joined hands with its partner of the mid-1990s, Mahindra & Mahindra, to work on joint SUV programmes as well as initiatives in the clean air space like electric mobility. Reports doing the rounds also indicate that Ford will transfer its India assets to a new company in which M&M will hold the majority stake but there has been no official confirmation on this news. What is significant is that the M&M-Ford partnership will cater to a host of global markets in the ASEAN region and South Africa.

From Ford’s point of view, this is a positive step forward and clearly welcome especially when its American counterpart, GM, shut down its India innings in 2017. Its presence is now confined to a plant near Pune that makes cars for a handful of Latin American countries. How long this will continue remains to be seen since it is hardly a viable/sustainable plan in the long run. Quite clearly, Ford does not want to go down the GM route in India even if it has cut back on operations in markets like Russia.

Three big partnerships — Skoda-VW, Mahindra-Ford and Toyota-Suzuki — will, hence, unfold in the new decade and it will be interesting to see how they evolve in the coming years.

The next decade will present a host of challenges especially in the emissions sphere where there could be surprise interventions coming in from green lobbies, the judiciary and so on. After all, the whole world is becoming extra vigilant and paranoid about the environment and this has been evident in India too where there have been dramatic verdicts like the near overnight transition from BS III to BS IV a couple of years ago as well as the Centre’s own ambitious vision on jumping directly to BS VI norms in 2020 while bypassing BS V.

What about Renault-Nissan?

Does this mean that some of the standalone automobile entities will be disadvantaged in these new partnership dynamics? Hyundai and Kia Motors will fight fiercely in the market as individual brands but there are no two ways about the fact that there will be significant synergies happening at the back-end.

Renault-Nissan is, of course, the first case of a global partnership that has created a manufacturing footprint in India. Yet, there are grim realities to be reckoned with. Neither company has made a big impact in terms of market share and the Chennai plant’s capacity is still woefully underused. The need of the hour is to launch competitively priced products that will be a successful encore of brands like the Duster and Kwid. Getting a potentially promising brand like Datsun back on track will be the other challenge. Beyond all this is the ability to cope with all the drama happening globally following the arrest of former Chairman, Carlos Ghosn, and the restructuring of leadership responsibilities.

The partners have been reiterating their commitment to the alliance that has worked successfully for two decades now. What seems amply clear is that a merger is definitely not on the cards right now. Can the bonding continue in the post-Ghosn era? It is not going to be easy and the recent bearish outlook on profits by Nissan does not augur very well either.

Mitsubishi is also part of the three-way alliance and there is no telling if Nissan will forge even stronger ties with its fellow Japanese ally. Renault continues to be the larger partner in the alliance, at least from the viewpoint of its 43 per cent stake (to Nissan’s 15 per cent) and voting rights, but Nissan will demand its pound of flesh going forward.

The reverberations of this alliance will be felt in India and it is to everyone’s interest to keep it going. It was in Chennai where Renault-Nissan created their first manufacturing base globally and this became a reference point for another operation in Tangier, Morocco.

With the kind of work that went into India, especially after the Logan debacle, in terms of creating a supporting cerebral infrastructure like engineering, design and R&D, the Renault-Nissan alliance just cannot afford to let things go adrift.

French connection

Fellow French auto-maker, Groupe PSA has clearly done its homework well on India and is ready to meet the challenges of localisation when it launches its Citroen brand two years down the line. Will it also go in for a partner like Toyota-Suzuki or Mahindra-Ford? There have been reports doing the rounds that it may look at collaborating with Fiat Chrysler Automobiles (FCA) globally.

Neither company has confirmed the news and, in fact, the denials have been more vocal. Yet, the automobile industry has the tendency to throw up surprises and the two may just end up joining hands on some specific initiatives like electric mobility. PSA has already been on overdrive through its recent acquisition of Opel and Vauxhall from GM while FCA has hinted that it is open to exploring new partnerships. In fact, it is no secret that its late CEO, Sergio Marchionne, was keen on a merger with GM but that never materialised. Will his successor, Mike Manley, bite the bullet with PSA? If the marriage does happen, there will be some interesting implications for India where FCA will benefit from having a strong partner on board and take on the new challenges post-2020.

Singles lose out?

What about Tata Motors which, in the past, has had its share of allies like Mercedes-Benz and Fiat (before the Chrysler acquisition and the emergence of FCA)? There was a lot expected from its tie-up with VW but the two figured out that things were not going according to plan and did not pursue matters any further. Tata Motors will still be on the lookout for an ally even while it has its hands full putting Jaguar Land Rover back on track.

Likewise, Honda is the other solo player and there is really no indication if any global alliance is on the cards. Going by the recent pace of consolidation in Japan (Toyota-Mazda, Toyota-Suzuki and Nissan-Mitsubishi), it will be interesting to see if Honda will follow the same route. Perhaps it will look at an European auto-maker but for now the company is going it alone.

Daimler and BMW are teaming up for new initiatives globally but there is perhaps no compelling reason to replicate this in India simply because there is no challenge of scale. Nearly two decades earlier, Daimler had its share of partners in the form of Chrysler, Mitsubishi and Hyundai. There were talks of an Asia car that was to be developed jointly with Mitsubishi. Eventually, all these partnership stakes were diluted and Daimler is pretty much on its own.

There is of course the big Chinese influence being felt across the world especially with Geely, which has carved out a success story of Volvo Cars and is now on to some interesting initiatives with Daimler and Volvo AG. In India, the Chinese presence is restricted to SAIC Motor Corp, which has a British front in the form of MG. Yet, the following decade could see a host of car-makers from China being on the prowl for acquisitions which, in turn, could have implications for India too.

What is happening in the subcontinent is just a reflection of the challenges ahead in the global automobile arena where companies are coming together to pool competencies and costs. After all, the following decade is typically about the ‘big unknown’ where there will be huge mobility disruptions emanating from new technologies, changing customer behavioural patterns, legislative interventions, possible trade wars, new geopolitical equations, environmental issues and a host of other factors.

CEOs are preparing for a period of chaos where there is no telling what new surprises will be thrown up from time to time. Who would have thought a few years ago that a formidable brand like VW would be embroiled in a huge global scandal? The impact of ‘dieselgate' is still being felt in terms of a near paranoid approach to emissions, a clear apathy to diesel and the increasing hold of regulatory authorities on the auto industry.

In India, there is perhaps only a ripple effect thus far but things could change rapidly in the coming years with changes in emission regulations as well as the growing reality of urbanisation. Young buyers in cities may not want to own cars any longer and manufacturers will have their work cut out in looking for new mobility solutions. Electric could also become the buzzword and even though the pace of change is slow thus far, it could just gather momentum in the coming years. There could be more intriguing alliances as a result while the new global order in automobiles gradually comes into force. It will eventually be the survival of the fittest.

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