Renault-Nissan-Daimler alliance - the real motivating factor

So the biggest news this week is the le cost killer Carlos Ghosn and Walrus Deiter Zetsche have inked a new deal expanding the existing Renault-Nissan alliance that already includes brands like Renault, Nissan, Infiniti and Samsung (Motors) to include Mercedes-Benz and Smart. There is no mention of Maybach though.

Most articles in mainstream media tend to mention that the reason behind this is to keep the Smart brand afloat, keep Mercedes small cars range of A-class and B-class viable and impending EU fleet average CO2 regulation that seriously puts predominantly large and RWD car makers like Daimler at disadvantage.

Personally, I believe the motivating factor can all be summed up with 2 words - Volkswagen Group. VAG's threat is not to be taken lightly. Back in 2007, Volkswagen announced its ambition to make VW the largest car maker, overtaking Toyota. Part of the plan includes making Audi the most successful luxury car brand in the world, implying that it would overtake BMW and Mercedes-Benz, by 2015. In 2009, Audi shot up from somewhere nobody bothers to remember, into the 3rd best selling luxury brand behind No.1 BMW and No.2 Mercedes-Benz. In the first quarter of 2010, Audi officially overtook Mercedes to take No.2 spot in the sales global tally. In currently trails behind BMW but looks set on closing in the gap.

Unlike Daimler, VW has a very large model and brand portfolio under it, allowing it to greater spread costly development of new platforms, transmissions, engines and other components. VW Group's Small FWD architecture can be adapted for sale in at least 4 different market segments under the Audi, Skoda, Volkswagen and Seat brand. What's more, technologies and designs used in outgoing Audi models can be "recycled" for use by Skoda and Seat. Being part of VAG, Audi has far greater flexibility to spread its average CO2 emission to other VW models and benefit from more fuel efficient FWD platforms currently used by VW.

Factor in the dominance of Volkswagen and Audi brand in China, now the world's largest single car market, and Skoda's relative strength in India, you can understand the need for guys at Stuttgart to shore some strategic alliances. Both the Smart and A-class and B-class have been a financial black hole for Mercedes-Benz. The Smart ForTwo's costly Tridion safety cell and the A-class "sandwich" platform looks ingenious on paper, but when the Smart is compared to the Toyota iQ, the Smart doesn't seem that "smart" after all. As for the A-class and B-class, Mercedes is still struggling to shift enough volume and squeeze enough margin out of them. A problem compounded by their very costly construction method.

Building profitable small cars have always been an Achielles heel for Daimler. Contrary to popular perception, the first "compact" Mercedes-Benz is not the W201 190E. Way back in 1934, Mercedes launched the Type 130H, a compact rear engined model, designed by someone named Dr. Hans Nibel. Nibel was known as one of the most talented engineers of its time but his name was often forgotten in history because he worked for a towering figure named Dr. Ferdinand Porsche, who started his career at Austro-Daimler. At Daimler-Benz, Dr. Porsche have been championing a mass market car that the average man could afford, but his bosses at Daimler-Benz could not agree to it, saying that the project is too radical and Daimler making much better profits at building large high end cars. Porsche called it quits and went on his own.

Soon by then the Nazi party Fuhrer Adolf Hitler was championing the idea of a people's car and German car companies were given the mandate to design one. With the departure of Dr. Porsche, Dr. Nibel took over and created the Type 130H. But the Type 130H had a reputation for dangerous handling due to its odd engine location. At the same time, Ferdinand Porsche had started out on his own and built the Type-30, which we would later know as the original VW Beetle. The German Fuhrer Adolf Hitler decreed that Dr. Porsche's design would be chosen and is to be built at Daimler's Sindelfingen plant (before later moving to VW's Wolfsburg plant) to fulfill the Nazi party's mandate of a people's car. And the rest is history. The Type 130H and its variations (Type 150H and 170H) were forgotten. Dr. Ferdinand Porsche would later build a sports car called 356 that bears his name. His son Ferry Porsche would again later built an even better car called 911....The story is one of the lesser known greatest what-ifs in automotive history.

Decades later Daimler-Benz AG (later known as DaimlerChrysler and then Daimler AG) would attempt to enter the small car market, by build the Smart ForTwo under partnership with Swiss watch maker Swatch and the A-class and B-class models. None of which made any money for the company.

During the press conference, Ghosn revealed that Renault was first approached by Daimler to jointly develop the next generation Smart. Zetsche revealed that Daimler needs to strengthen its small cars base to avoid penalties under the new EU CO2 regulation. Nissan just went along for a ride, really. There is little synergies to be found between Infiniti and Mercedes. Infiniti is a more US centric brand and targets a more sportier image, compared to the Merc's more corporate image.

Put aside the details and complex analysis of the alliance aside for a moment and consider the current and future standing of the Mercedes brand.


Gran Turismo 5 is set to be launched this year. Looking at the demo videos, I noted inclusion of Audi R8 V10 and Mercedes AMG SLS Gullwing. And then it dawned upon me - this tells how different are the future direction of these two company. Mercedes drew inspiration from its illustrious history, the legendary W196 300SL Gullwing that the great Stirling Moss and Denis Jenkinson won the Mille Miglia in 1955. Audi did not have such illustrious road racing cars other than the ill fated Streamliner that Bernd Rosemeyer died in, so it had to look forward.


On the GT5, between the R8 and SLS, it becomes very obvious which car would a 15-year old on his PS3 decide to use. Of course Mercedes have their reasons to give the SLS a retro feel, because actual buyers of the SLS are not 15-year olds but 60-year olds who lived through the period of Sir Stirling Moss's victory and thus would appreciate the retro touch. But the small relatively insignificant thing to note here is the aspirational value of the brand. Granted this is a very subjective matter but in my personal opinion, the writings on the wall are brighter than a pair of damn Xenon headlamps!

Sure, Merc is still the most valuable car brand in the world today and for many years to come. But if you are asking about aspirational value, what kind of cars do today's kids, tomorrow's drivers will aspire to own - then answer could be very different. Look no further than the popular options at Gran Turismo series. A GTR should top the list but I doubt a Merc is among them.


Guess things have come to an almost full cycle. Gen-Xers didn't want the same car as their old bosses drive, so they went for a BMW. And the E30 3-series created a whole new genre. But today's kids see their dad's BMWs in similar way to how their dads used to see Mercs, fast but big and bulky driven by balding men. BMW acknowledged it is fighting a gradual increase in average age of its owners. There are talks that a M version of the 1-series is in the plans to draw younger buyers, with an affordable M car.

The next question now is what will be Renault and Daimler's competitors of PSA (Peugeot-Citroen) and BMW's response will be. Daimler had previously had some talks with BMW on a small car project collaboration, and it's easy to guess what the results would be. Peugeot and BMW have an ad-hoc basis collaboration on small petrol engines. Both Peugeot and BMW are still under significant influence from the founding Peugeot families and Quandt families of BMW. Understandably, both families are not very keen on mergers that would devalue their stock. Also precisely the reason why Peugeot and BMW are a good match for each other.

Deiter Zetsche's contract expires at 2013. Ghosn's term is unclear. Hopefully this will be nothing like the disasterous Daimler-Chrysler deal engineered by Jurgen Schrempp and Bob Eaton - the two person that stripped Chrysler of its value, destroyed employee's savings and then they both cashed out their stock options and retired. Former Chrysler's charismatic star boss Lee Iacocca would later admit in his book "Where Have All The Leader's Gone" that selecting Bob Eaton to succeed him was one of his greatest mistake, and destroyed a company that was previously doing very well on its own.