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Business

Cooperation is the key to success in the auto sector

The car industry is becoming a giant web of special relationships, joint ventures and mergers. Partnerships are intensifying as smaller companies with a large range of models struggle to stay abreast of technology.

A selection of German auto company logos

All car brands are involved in alliances one way or another

Auto manufacturers are increasingly working with their competitors on technical projects and development alliances - a trend triggered by the economic meltdown and the expense of developing green technology.

"This kind of cooperation isn't new. It's always been around in the auto industry, but the intensity has markedly increased in the past years," Willi Diez, director of the Automobile Industry Institute at the Economics and Environment School in Nürtingen-Geislingen, told Deutsche Welle.

He said car manufacturers have had master a broader spectrum of technology as they expand their model ranges to include hybrid, electric, bio-fuel and fuel cell engines. It's reached the point where no company can do it alone.

"I can't think of any car company that hasn't had alliances with other manufacturers either in production or research," Diez said.

BMW 7 series production line

BMW shares some common components with rival Daimler

Cost-sharing

German premium car manufacturer BMW is no different. In the past few years it has worked together with Daimler, General Motors and Chrysler on hybrid technology. It's also shared the costs of developing small four cylinder engines with the Peugeot group, PSA. Now the two are looking at developing new hybrid engines together as well.

Diez said car manufacturers that produce less than three million cars annually need these kinds of alliances to survive.

"There are some car manufacturers that are quite dependent on cooperation and that's why car manufacturers try to work with several car manufacturers at the same time. That means that if one partner walked out, they would have other partners," he said

Bulk buying

A few years ago BMW realized that to stay financially healthy, it had to cut material costs by 4 billion euros ($5.4 billion) by 2012. So it decided to start buying parts together with its German rival Daimler.

"Of course at the beginning, both sides had to develop a certain kind of trust, but the cultural thing was not a big issue," BMW spokesman Frank Wienstroth told Deutsche Welle.

To build trust, the two companies met in Ulm – a halfway point between the Daimler's headquarters in Stuttgart and BMW's base in Munich.

Wienstroth said that although BMW and Daimler were on the same page in terms of quality, standardizing parts to meet both companies' design requirements was a challenge.

Willi Diez, director of the Automobile Industry Institute at the Economics and Environment School in Nürtingen-Geislingen

Diez says the auto industry is becoming more inter-connected

"BMW and Daimler both have unique proportions. We also have different engine programs. Our transmissions must be shorter, for example, so the inline six cylinder can fit into the car," he said

By purchasing just a few dozen parts together in bulk, Daimler and BMW have been able to cut material costs by over 100 million euros per year.

Fading exclusivity

The two companies could probably save much more if they expanded their common catalog – but it turns out they're quite picky about which parts they share. Neither manufacturer wants to jeopardize their technical secrets or their brand's image.

"We only develop and purchase components jointly that do not help to distinguish between the two brands. To give you an example, we're talking about air conditioning or the mechanism that controls the seat belt," Wienstroth said.

Almost everything the customer can see is off limits. So whilse they’re prepared to source the same parts for a seat’s interior, the exterior upholstery remains exclusive to each brand.

"Customers still want to drive a BMW or a Daimler. If they have the impression or the feeling that the cars are too much of the same, they will not buy a BMW anymore," he added.

A Peugeot RCZ in Frankfurt

French carmaker Peugeot is involved in a number of partner programs

Opportunities and risks

Although BMW said its customers benefit from new and innovative technology faster and at a more reasonable price, Diez said there are disadvantages too.

"The customer obviously buys a car with components, which other people have too. So in a way he loses a bit of the exclusivity he might associate with that particular model," he said.

Another risk is that if a component that's been developed jointly turns out to be faulty, it will affect several manufacturers at once, which can obviously be damaging for their brands," Diez added.

One example of this occurred in January 2010, when Toyota recalled thousands of Aygos due to faults with the gas pedal. PSA followed suit with the Peugot 107 and Citroën C1 because all three cars had been produced together at a plant in the Czech Republic.

Despite these glitches, Diez said the future is bound to bring more cooperation, given the immense cost involved in developing green technologies and the growing importance of the Chinese and Indian markets.

"You're only allowed to produce in China if you have a joint venture with a Chinese manufacturer. That means that all German companies that manufacture in China do so together with a Chinese company," Diez said.

Author: Natalia Dannenberg
Editor: Sam Edmonds

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