Global alliances have become a rage in the automobile industry. They are being driven by two main factors: new markets and new technology.
There have been three big deals in recent weeks. General Motors and its Chinese partner SAIC have come together to sell small cars and light trucks in India, with SAIC being in control of the venture. Volkswagen has agreed to buy a 20% stake in Suzuki Motor Corp. that will allow the German auto company to add heft to its current weak presence in India, while Suzuki will get help in China, where Volkswagen is a strong player. PSA Peugeot Citroen is trying to become the largest shareholder in Mitsubishi Motors, reportedly to get access to the electric car technology developed by the Japanese company. These deals follow earlier ones such as the joint venture between Bajaj Auto and Renault-Nissan to make small cars.
The global car market is facing two tectonic shifts in industry dynamics. First, the demand for new cars from India and China will continue to grow even as demand sputters in the developed markets. However, some of the biggest opportunities will lie at the lower end of the market—the sort of families that Ratan Tata decided would need a low-priced car to replace their scooters. Creating small and cheap cars will require engineering and cost management skills that the global auto majors do not have.
The second big shift is in the technology that goes into a car. The internal combustion engine is not yet history, but rising climate change fears and higher oil prices have forced auto companies to reach out for new technologies such as electric vehicles and fuel cell batteries. Alliances help companies spread technology development costs and risks, something that the pharmaceuticals industry has already learnt.
India could play a key role in these two transitions. The Tata Nano is already being recognized as a game-changer for global auto industry. It could happen in green vehicles as well.
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