Succeeding in the Alliance Game

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Even with the vast resources that General Motors Corp. has at its disposal, the world's largest automaker believes it needs help from other OEMs to get along. If that is so, what must the Fujis, Fiats, and Fords of the world think? The same thing, of course, which is why they and every other major automaker have forged alliances of one type or another. This article takes a brief look at automotive industry alliances, which will be the subject of the Congress Blue Ribbon Panel on March 8, and provides a quick overview of other activities planned for the week.

An alliance, according to the Arvin Mueller dictionary, is "any relationship that is formed to bring benefit to both parties or all parties. It can be between OEMs or OEMs and suppliers - or any combination thereof. It can vary from full ownership to zero equity - and, frankly, sometimes the ones with zero equity are more successful than ones with a lot of equity. My point is equity can be, but is not the only, answer. It really gets down to developing a trusting relationship and generating mutual benefit."

Mueller, Group Vice President of GM Powertrain, says global production overcapacity, price pressures in mature markets, potential revenue streams from developing markets, and the need to constantly innovate are the main drivers of alliances. No company is too big to do it all by itself, he insists.

"GM certainly is large in size, but in terms of asset intensity, access to markets, and access to technology, it has every bit the degree of challenge that any other company might have," Mueller said. "It costs just as much to enter a new market for General Motors as it does for somebody else, and we evaluate those investments incrementally. If we can do it more effectively with an ally, then that's what we'll do."

Asset intensity and technology access figured prominently in the alliance between GM and Fiat, announced in March 2000. Although alliances are formed for everything from "buying entire vehicles to cooperating on a component, the powertrain area seems to be an attractive one," said Mueller, a key figure in the GM-Fiat deal. "I think you'll see a lot of powertrain plays in the years to come." Underlying the GM-Fiat alliance, he added, was the "clear idea that we could take some redundancy out of both of our systems and save money - then use that money to make better products."

Isuzu did most of the up-front engineering work on the Duramax 6600 diesel engine, which debuted in the Chevrolet Silverado and GMC Sierra.

One manifestation of the alliance is a 50/50 powertrain joint venture based in Turin, Italy. Annual production of the joint venture is 5 million engines and 5 million transmissions. About 13,000 employees from GM and its Opel, Vauxhall, and Saab affiliates were assigned to the joint venture, as were about 14,000 Fiat employees. As part of the alliance, GM took a 20% equity stake in Fiat Auto Holdings, which does not include Maserati and Ferrari, and Fiat took a 5.6% stake in GM. Synergies from the JV, including joint purchases, are estimated at $1.2 billion by the third year and $2 billion by the fifth year.

Developing diesel engine technologies with the help of a company possessing expertise in that powertrain arena was what drove GM to its first alliance with an Asian OEM in 1971. Isuzu helped GM not only in developing diesel engine technology, but also in establishing roots in the Asia-Pacific market. The Japanese automaker, for its part, got access to capital and gasoline engine technology. As GM Chairman Jack Smith remarked last year in reviewing the company's history of alliances, "No automaker today has the resources to achieve leadership in all regions and all product segments on its own. Our approach is to develop long-term relationships with other companies that offer a unique advantage to the General Motors group of brands and businesses."

A joint venture between GM and Isuzu, DMAX Ltd., began production of the Duramax Diesel 6600 V8 engine last summer at a new plant in Moraine, OH. Production is estimated to reach 200,000 units/year. The engine was introduced in 2001 GMC Sierra and Chevrolet Silverado 2500HD/3500 Series pickups. GM owns 49% of Isuzu.

Arvin F. Mueller is chairperson of the SAE 2001 World Congress, the theme of which is "Succeeding in the Alliance Game."

Isuzu was responsible for most of the basic up-front engine design work in terms of layout and related parameters such as combustion ratio and injection swirl pattern, according to Jim Kerekes, Chief Engineer, GM Powertrain. He said GM's work in the early stages related mainly to "packaging the engine into the vehicle." Its responsibilities grew in the latter stages of the program and involved mainly calibration and fine-tuning. The engine uses a Bosch common-rail injection system that provided GM engineers with "ultimate flexibility as far as shaping the injection rate," Kerekes said.

Other Japanese automakers in which GM has an equity interest include Suzuki Motor Corp. and Fuji Heavy Industries, maker of Subaru vehicles. Last fall, GM announced its intent to increase to 20% its stake in Suzuki and to begin production of the jointly developed YGM-1 passenger car beginning later this year. While GM has had a long-standing relationship with Suzuki, dating to 1981, its broad-ranging alliance with all-wheel-drive expert Fuji is much more recent. The alliance - consisting of a 20% GM stake - involves collaboration in design, development, and manufacture of cars, trucks, and technologies. Fuji brings to GM expertise in continuously variable transmissions as well.

GM also has alliances with Japan's two largest OEMs, Toyota and Honda. The Toyota alliance runs on two tracks, one being a joint manufacturing operation in California, called New United Motor Manufacturing Inc., under which the Chevrolet Prizm is built alongside the Toyota Corolla and Tacoma pickup truck. The other track involves a five-year collaboration, agreed upon in April 1996, focusing on fuel-cell and other electric drive technologies for next-generation vehicles. That agreement, like one under which Honda provides GM with advanced V6 Ultra Low Emission Vehicle (ULEV) engines and automatic transmissions while GM's Isuzu affiliate supplies diesel engines to Honda, is of the non-equity type.

Other alliances
Like Fiat, PSA Peugeot Citro‘n has an alliance with an American OEM involving diesel engines. Its nonequity partnership with Ford centers on four European joint projects: small aluminum engines, midsize direct-injection engines, vee-configuration diesels for both companies' large vehicles, and light commercial vehicle engines - Ford managing the latter two, PSA the former. PSA's common-rail technology is the prize for Ford. Diesel engine penetration in France is about 40%.

The Escape (top) and Tribute were jointly engineered by Ford and Mazda.

Although it is Europe's number two car producer, PSA has few operations outside Europe and is believed by many to be too small to survive alone. But the company believes otherwise, and is depending on OEM partnerships to remain independent. PSA has joint ventures with Renault (engines and transmissions) and Fiat (vehicles) as well, and recently agreed to cooperate with Ford in telematics, too.

Meanwhile, Ford and its affiliate Mazda are working together to increase market share in Europe, where diesels are growing in popularity. Ford, which owns 33.4% of Mazda, recently designated the Japanese company its global "center of excellence" for engineering large I4 engines and for developing front-wheel-drive midsize vehicles for the Ford group.

Rebadging of vehicles between the two marques is what previously defined the Ford-Mazda alliance. The Escape/Tribute program changed that. "The first true joint project" is how Keith Tanasawa, Chief Platform Engineer for Ford's subcompact utilities program, described the effort. "While Mazda was the prime engineering source for the basic platform, Ford engineering was responsible for making the vehicle a Ford - making sure the Ford SUV DNA was in the Escape vehicle from the start," he said.

As chief engineer on the project, Tanasawa oversaw - from Japan - the work of 30 to 50 Ford engineers and "a couple hundred" from Mazda. Though Mazda executed the all-new platform design, the concept and specific system design features had been agreed upon by both companies beforehand, Tanasawa noted. He said Ford considered its engineering resources worldwide before selecting Mazda as its partner on the SUV.

Keith Tanasawa, Chief Platform Engineer for Ford's subcompact utilities program, headed the joint Escape/Tribute project.

Differences between the companies in terms of culture (popular as well as corporate), language, time, and supplier relations "really got into everything we did every day - even the smallest things," Tanasawa said. "It was more challenging than if either company had done it separately. But in the end, the product turned out superior to that which either company could have done individually."

Mazda engineers were particularly helpful in the area of ride and handling, according to Tanasawa. The basic suspension allowed tuning by engineers from each company to match its brand identity.

As a result of this successful "grand experiment" in joint engineering, Tanasawa said, Ford has similar projects in the pipeline. A major lesson learned is that both partners need to "understand exactly not only what their responsibilities are, but the uniqueness and brand DNA differences that must be accommodated in a common platform design. We struggled with that early on, but we got it figured out."

GM relies on allies for concept platforms

The Chevy Borrego concept vehicle uses Isuzu's all-wheel-drive platform.

General Motors has tapped its global alliance partners in the design of two of its 2001 concept vehicles: the Chevrolet Borrego and the Oldsmobile O4.

"Whatever the concept, we can usually look around the company and the alliance partners to find a technology we need or a platform that would be the proper architecture for what we're trying to achieve," said John Taylor, Executive Director of the Advanced Portfolio Exploration Team at GM.

Opel's Ecotech engine powers the Oldsmobile O4.

When Chevy designers wanted to build a sporty crossover vehicle with all-wheel drive, they didn't have to reinvent the wheel. Instead, they looked to Subaru for an all-wheel-drive platform. The vehicle also used Subaru's horizontally opposed four-cylinder engine with turbocharging.

GM calls the Oldsmobile O4 a "dramatic reinterpretation of an Opel platform." Powering it is Opel's 1.8-L Ecotech, a turbocharged four-cylinder with 16 valves.