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OM in the News: The Mercedes-Renault Alliance

July 5, 2014

mb1The New York Times (June 28, 2014) brings us a great example of today’s alliances as a strategy for product development, a topic in Chapter 5. Daimler and Renault-Nissan just significantly expanded their automaking alliance, with plans for a production plant in Mexico that will build a new generation of compact Mercedes and Infiniti cars. The companies will invest $1.4 billion in the factory 300 miles north of Mexico City. While the vehicles produced at the 50-50 joint venture will carry different brand names and look different from one another, they will share many components.

The companies will also share some of the costs of developing the new vehicles. But they said they were not worried about cannibalizing each other’s sales. There is virtually no overlap between buyers of Mercedes cars from Daimler and Infiniti cars from Renault-Nissan. Mercedes has been cooperating for 4 years with Renault-Nissan, itself a longstanding French-Japanese alliance. Among other things, they produce 4-cylinder engines together at a factory in Tennessee. They also shared the cost of developing major components for the next generation of their flagship small cars, the Renault Twingo and Daimler Smart.

The alliance is part of a trend for car companies and, in some cases, competitors to share the enormous costs of developing and producing new models while maintaining separate brand identities. When the Mexico plant reaches capacity, it will be able to produce 300,000 vehicles a year and will employ 5,700 people. The factory will begin producing Infinitis in 2017 and Mercedes in 2018. While the companies will initially maintain separate production lines, both lines will eventually be able to produce either brand, making it easier for the companies to respond to fluctuations in demand.

Classroom discussion questions:

1. Why do competitors enter into alliances?

2. What are the risks to Mercedes and Renault-Nissan?

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