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http://seekingalpha.com/article/909...lan-strategic-blunder-for-nissan?source=yahoo

DETROIT -- Chrysler LLC is in talks with Nissan Motor Co. about jointly producing midsize cars, a partnership that would move the U.S. auto maker toward a radical new business model.

The two companies agreed earlier this year to team up on pickup trucks and subcompact cars. Since then, they have been discussing an agreement under which Nissan would produce midsize sedans that Chrysler would sell in the U.S. under its own name, people familiar with the matter say.

A Chrysler spokesman said the company has "no new alliances" to announce, and declined to comment on any discussions it might be having.

A deal would signal a dramatic change in the way Chrysler operates, at least in its passenger-car business. For decades, major auto makers have taken pride in marketing their vehicles as products of their own engineering. Chrysler plans to continue developing new trucks, sport-utility vehicles and minivans itself, from the ground up."

The potential alliance may sound interesting, exciting and potentially fruitful for Chrysler, but I think it will fall flat on its face. The foundation of a car company's brand rests on their ability to produce high quality vehicles, and the re-selling another company's products by a company with a weak brand effectively tells the consumer: "we're incompetent so we're going to sell you someone else's cars" . Such a strategy just reinforces the customer's negative feelings about the brand and just makes things worse.

Consider this brief history of Detroit selling rebadged versions of Japanese cars:

The first two generations of the Mitsubishi Eclipse were resold by Chrysler as the Eagle Talon and Plymouth Laser, in this case the Mitsubishi Eclipse became a racer boy classic that is still in demand today and the latter two vehicles were discontinued due to lack of interest. I tried to find a used Talon or Laser on AutoTrader and could only find one, whereas I had several options for a used Eclipse many of which cost in the $7-$10k range. Not bad for a 10+ year old car that was in the $20k range brand new.

GM (GM) has its own misadventures in rebadging as well:

The Geo (and later Chevy) Prism was simply a rebadged Toyota Corolla, the latter was a top seller and the former isn't even sold anymore. The Pontiac Vibe is a rebadged Toyota Matrix (itself a Corolla based wagon) and while 2007 sales were close (37k vs. 46 respectively), sales have been dropping steadily (17.8% decline in '07, 14.7% in Jan & Feb of this year) while Toyota expects to sell 70k units this year.

As you can see from the above Detroit has struggled to sell rebadged versions of cars that were smashing successes for their original manufacturer.

The issue here is that offering consumers a rebadged version of another automaker's more popular vehicle doesn't really work, primarily due to the way in which the cars are rebadged (appearance, switch-gear, etc) and the fact that consumers are generally more interested in the company that originally made the car. It's an issue of branding and authenticity.

On the branding side you have the fact that many of the customers that Chrysler hopes to attract by reselling re-badged Nissans (NSANY) are at Honda (HMC), Nissan and Toyota (TM) dealerships, and will probably never stop by a Chrysler dealership in the first place. The simple act of rebadging a Nissan as a Chrysler won't attract many customers because they're just going to see a brand and product they're not interested in, even if it is a "Rose by another name" and that Rose is the Nissan Altima they're shopping for/have sitting in their garages. Finally Chrysler further weakens its brand by giving in to consumer perceptions by trying to sell a car made by someone else, "this isn't really a Chrysler" isn't a particularly good sales hook; which leads us to the authenticity issue.

Even if consumers do stop by Chrysler dealerships to test drive the "Chrysler Altima" why would they want to buy the Chrysler version when they can get the real thing, especially when you factor in considerations like re-sale value, the potential for the Nissan version to be better due to any modifications made by Chrysler, etc? For all intents and purposes the Chrysler versions will come off as cheap knock offs, and why would a consumer want to buy into that situation? Even if the Chrysler version is cheaper the higher rate of depreciation will result in the car being more expensive in the end, thus nullifying the only real "hook" Chrysler would have to get customers to choose its version of the car.

Chrysler's partnership with Nissan will fail for many of the same reasons other rebadged cars have failed to sell particularly well, in addition to the reasons mentioned above. While it sounds like a good way to save money on development and production costs, have access to more popular vehicles, etc, the strategy will face on its face due to the failings of the Chrysler brand. People interested in mid-sized Japanese cars simply aren't shopping for Chryslers in the first place, and there will be few reasons to choose the original over the rebadged version. Just ask the people who chose Matrixes over Vibes, Eclipses over Lasers and Corollas over Prisms.

You can more read more on this topic here. [Additional source: Business Week: "Pontiac Tunes Up Its Vibe" -- Thane Peterson, March 28, 2008.]

So why in God's name is Nissan teaming up with Chrysler? While Nissan has had its own issues in the past it doesn't make sense to partner with a company that is arguably on life-support, has an abysmal brand and few areas of strength to even offer a potential partner. While I can understand the appeal of partnering with another automaker to save on manufacturing costs, it just makes more sense to team up with a company that can offer strategic advantages related to product development, co-engineering, etc. You can team up with nearly anyone to sell money on manufacturing, so why not team up with someone that has more to offer?

Subaru (SBUOF.PK), Volkswagen (VLKAY.PK) and even Tata Motors (TTM) (via Land Rover and Jaguar) all have more to offer Nissan than Chrysler, and in terms of preparing for the future it just makes sense for Nissan to team up with someone who can provide them something beyond cost savings in the manufacturing arena.

I suppose Nissan may be thinking in terms of gaining a stronger foothold in the American market, but at this point the foreign manufacturers effectively own it anyway so why bother working with Detroit at all?

Last but not least, here's a quick graphic depicting sales volume for various mid-sized vehicles:
 

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? I think the big question is: how were they able to get Matrix sales figures when Toyota lumps them in with the Corolla?
 
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