DBRS Comments on Daimler’s Strategic Cooperation with the Renault-Nissan Alliance

DBRS notes that Daimler AG (Daimler), Renault S.A. (Renault) and Nissan Motor Co., Ltd. (Nissan) today jointly announced a broad strategic cooperation (the Partnership) agreement aimed at sharing technology costs and best practices as well as increasing the scale and capacity utilization of the companies. (Note: Renault and Nissan previously formed an alliance (the Renault-Nissan Alliance) in 1999). The Partnership also entails modest cross-shareholdings among the three companies through equity exchanges, with Daimler to obtain 3.1% of the shares of each of Renault and Nissan, with the latter two companies in turn obtaining 1.55% of Daimler shares each (for a total of 3.1%). DBRS notes that today’s announcement serves to modestly improve the business profile of all the companies in the Partnership. Additionally, given the modest cross-shareholdings involved with no undertakings to provide any additional funding, the Partnership, in isolation, does not currently materially impact the financial profile of Daimler, Nissan or Renault, with the ratings of each of these companies therefore being unaffected.

Initially, the Partnership affords the sharing of powertrains as well as the co-development of future projects involving both cars and light commercial vehicles. Specifically, the next generation of Daimler’s smart vehicles, (which will include the fortwo and a new four-seater model) as well as Renault’s Twingo will feature small displacement gasoline and diesel engines from the Renault-Nissan Alliance; each of these models will also be available with an electric drive. Nissan’s premium Infiniti division will in turn benefit from larger displacement gasoline and diesel engines supplied by Daimler. Regarding light commercial vehicles, the Renault-Nissan Alliance will provide Daimler with small diesel engines and transmissions for the Mercedes-Benz Vito mid-sized van. In addition to the concrete projects outlined above, it is hoped that the Partnership will eventually result in a long-term framework for future areas of joint cooperation between all three companies, including possible areas such as the design of electric vehicles and batteries.

DBRS notes that the Partnership is consistent with trends of consolidation and increasing alliances within the automotive industry as original equipment manufacturers (OEMs) strive to attain sufficient scale to compete effectively given the high costs of developing new vehicles and technologies. By increasing unit volumes through project sharing, the Partnership serves to improve the capacity utilization of the companies’ operations and lower unit costs.

Another important aspect of the Partnership involves the long-term possibility of selling small cars profitably in Europe, which is constantly tightening emissions requirements with a 90 gram industry average CO2 target slated for 2020. In order for an OEM to continue selling larger vehicles (that have higher emissions) in the long-term, these will have to be offset by sufficient quantities of smaller vehicle sales in order to achieve the targeted average emissions level. From this perspective, Daimler, given its Mercedes-Benz line of premium vehicles, stands to particularly benefit from the Partnership.

Notes:
All figures are in euros unless otherwise noted.

The applicable methodology is Rating Automotive, which can be found on our website under Methodologies.

This is a Corporate (Autos & Auto Parts) rating.