Search for annual cost savings of USD3.8bn likely to involve pricing pressures
Nissan and Renault are looking to take their alliance to a new level by bringing together production as well as research and development (R&D) in a bid to save as much as JPY400 billion (USD3.8 billion) annually in costs, according to a report in The Nikkei business daily on Friday. The envisaged cost savings are expected to come from quick adaptation to shifts in global demand and volatility in currency exchange rates as well as joint-sourcing and procurement. Nissan declined comment on speculation concerning the alliance's future plans and projects.
The initiative would mark one of the most drastic steps yet in pooling together the long-time partners' resources—something they initially struggled to achieve. Under the plan, the automakers will appoint two executives, one responsible for engineering and R&D and the other for manufacturing.
Renault-Nissan plans to adopt this manufacturing method as early as 2015 at a joint venture factory in India that produces 400,000 vehicles a year. This mixed-model manufacturing approach will then be incorporated at facilities in more than 10 countries by 2020, including those belonging to the Alliance's Russian affiliate AvtoVAZ. By using common parts, Nissan and Renault will not only benefit from parts procurement in bulk but will also be able to manufacture cars with different designs on the same assembly lines.
The system will ultimately help both automakers achieve economies of scale by improving operating rates at factories that currently produce too little to be able to break even. Until now, a plant set up in a new market would not turn profitable unless it assembled at least 100,000 cars a year, according to The Nikkei. Joint production would also make cross-geographic expansion easier. For instance, Renault can leverage Nissan's already strong presence to expand footprint in Asia and North America, while Nissan can improve presence in Europe and the Middle East, where Renault's plants are concentrated. A similar realignment can help the partners address overlap and boost their R&D capabilities by sharing know-how and integrating progress on cutting-edge technologies such as fuel-cell vehicles, electric vehicles, and self-driving cars.
Since coming together in 1999 through a capital and business alliance that called for strict independence, both Renault and Nissan have developed a stronger affinity. Chief executive Carlos Ghosn is driving the alliance's cost-cutting initiative. Ghosn has been at the helm of both automakers for almost a decade now, guiding each business through revival and growth, as well as increased levels of integration and co-operation.
By working together in areas such as purchasing, both Renault and Nissan reportedly built synergies that helped them save nearly USD3.7 billion in 2012. Encouraged by this, the alliance extended the initiative last year to include AvtoVAZ and set up a common purchasing organisation, which will supply the activities of all the three companies in Russia. The alliance, along with AvtoVAZ, sold a total of 8.1 million vehicles worldwide in 2012, making it the world's fourth-largest automaker behind Toyota, General Motors and Volkswagen that year. With the alliance now cultivating partnerships with Daimler and Mitsubishi and its internal integration in place, it is better positioned than ever to catapult itself among the world's top-three automaker groups, maybe even earlier than envisioned by Ghosn.