What makes auto alliances tick

The Suzuki-Volkswagen slugfest could be the result of a whole lot of issues, but within auto industry circles, the general consensus is that the core lies in a culture mismatch between the two companies. It is no secret that Suzuki resented being termed an associate, but from VW's point of view, this may not have really been a big deal.

The key lesson here is that one man's food is another man's poison. Maybe this was one of the main reasons for the mega divorce of Daimler and Chrysler.

A lot was expected from the alliance but it was clear that things were really not going on the right path. Beyond a point, it was impossible to bridge the divide between two culturally different organisations and they called it quits.

Ironically, Chrysler is today within the Fiat fold but there have been no hiccups yet, quite unlike the days of the Daimler marriage when the overall mood was sour and despondent.

The best part is that Fiat itself was floundering less than a decade ago and it required the vision of its new CEO, Mr Sergio Marchionne, to set things right.  

One of the more successful and enduring partnerships has been the one between Renault and Nissan. Not many people would have given it a chance of survival when it was first announced years ago but it required the never-say-die spirit of one man, Mr Carlos Ghosn (now the CEO of Renault-Nissan), who made the impossible a reality.

Key to survival

Today, there are enough case studies on this successful alliance but the bottomline is that it worked simply because no stone was unturned to make it tick. Mr Ghosn pulled out all stops to ensure that there were no cultural conflicts between the French and Japanese and the results are there for the everyone to see.

In an industry which is getting increasingly competitive, automakers have figured out that consolidation is the only way to ensure survival. VW leads the pack with a host of brands in its portfolio right from Audi and Skoda to Scania and MAN. Yet, it stumbled with Suzuki which clearly reflected a chink in its armour. Was it easier to work things out between fellow European companies while an Asian entity was a different ballgame altogether? One really does not know if the VW-Suzuki partnership will survive eventually but there has been enough bad blood to suggest the contrary.

The rule is equally applicable for Indian automakers, be it vehicle or component makers, which are now acquiring companies across the globe. One of the latest high profile buyouts was Mahindra & Mahindra of South Korea's SsangYong Motor some months ago. One of the first things M&M did was to ensure that the status quo continued at SsangYong in terms of keeping the Korean hierarchy largely unaltered. It was important to convey the message that the new owner was benevolent and not some autocrat in a hurry to get things changed.

Building on affinity

I am also reminded of the time I interviewed Mr Ratan Tata some years ago when the subject veered around to Tata Motors' acquisition of Daewoo Commercial Vehicles in Korea. While dwelling on the benefits it brought to both companies in terms of synergies and new markets, Mr Tata said what gave him immense satisfaction was the way the Daewoo workforce reacted to the acquisition.

“When we took over Daewoo, I visited the plant and had lunch with the workers in their cafeteria. I was speaking in English, talking through interpreters and a strange affinity happened because there was a lot of trouble with GM taking over the company and there was stiff opposition,” he told me.

However, the reaction was distinctly different this time around because the same workers perceived India as a Buddhist country. Mr Tata said their questions during the lunch meeting related to Buddhist sites and heritage here. It was his view that this affinity with Buddhism would be “quite considerable” when dealing with countries such as Korea, Thailand, Cambodia and Japan.

As Mr Tata put it, “It is not something one wants to overemphasise or try to make something where nothing exists. But there is an affinity and we have ignored that link. We just need to build on that as a cultural affinity.” The Tata Group has since made some big-ticket acquisitions like Corus and Jaguar & Land Rover and has been more than successful in meeting its objective of being a truly global entity.

The Tata experience and, likewise, Renault-Nissan are good instances of overcoming cultural divides and working efficiently. In the context of the auto sector, this will increasingly become imperative as companies team up to take on the challenges of surviving in a new economic order. It is quite likely that Peugeot and Mitsubishi will revisit their equity alliance options and it is here that there will be valuable lessons from VW and Suzuki as well as the good points from Renault and Nissan.

Cultural integration

Interestingly, the Chinese automakers have been quite successful on the issue of cultural integration. Geely took over Volvo Cars and has been quietly working behind the scenes in framing the roadmap for the future. SAIC Motor Corp did not quite make a success of SsangYong, which is now with M&M, but has worked out a good working relationship with GM.

In fact, the company emerged the American automaker's lifeline post-Lehman when its world literally turned upside down. The Indian operations could have been in dire straits had SAIC not entered the picture to help GM out of a potentially damaging crisis. Of course, in the process, it helped the Chinese company get a foothold in India which it will leverage it in the future to contemplate a bigger play in the Asean region.

It is quite obvious that effective leadership is the key to making global alliances work like a charm. The likes of Ratan Tata, Sergio Marchionne and Carlos Ghosn have shown what it takes to make the unlikeliest of marriages not only survive but grow stronger with time. 

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