Rare alliance successes share key traits

In 2008, as Chrysler and General Motors were skidding toward bankruptcy, the companies began studying a possible merger, an idea that enthused top executives on both sides.

But tensions flared quickly when lower-level managers began examining the details of such a momentous deal -- whose plants could be closed, which models eliminated, whose departments slashed.

"Once they started talking product programs, everybody started protecting their own island and throwing sand at each other," recalled Jim Press, the longtime Toyota executive who had jumped to Chrysler and was part of the discussions.

The accepted wisdom in the auto industry says mergers don't work. Examples abound. DaimlerChrysler. Honda-Rover. BMW-Rover. GM's investment in Fiat a decade ago. GM-Saab. Suzuki and first GM, then VW. Ford's collection of luxury brands: Volvo, Jaguar, Land Rover and Aston Martin.

The auto industry is again considering the notion of major tie-ups. Fiat Chrysler Automobiles boss Sergio Marchionne, believing automakers are burning too much capital and earning too little in return, has called on the industry to consolidate to head off disaster, and has sought talks with GM.

The truth is some marriages do produce positive results. After a long engagement, Ford took control of Mazda for more than a decade, with both sides benefiting. Renault and Nissan have been working in tandem for nearly two decades now. At FCA, the two halves of the merged company are healthier, growing faster and more consistently profitable than they've been in decades. Mini under BMW's stewardship has flourished.

Why? What makes some mergers or alliances work?

One overlooked and underestimated factor can be found in the turmoil Press glimpsed in those nascent GM-Chrysler discussions seven years ago: When merger partners have overlapping operations, the drive to wring out costs often results in a fight for survival among the troops.

In contrast, successful mergers typically involve very little overlap, so those internal battles are kept to a minimum.

Talk about counterintuitive. Vast overlaps in operations are often the reason mergers appear to make so much sense. That's what has some, including former GM Vice Chairman Bob Lutz, cheering the prospect of a GM-FCA alliance -- a combined company would be able to consolidate two vast headquarters, two technical centers, proving grounds, truck platforms, rear-wheel-drive architectures, small cars, midsize cars and more. Not to mention two sets of executives.

But what looks so good on paper is what makes them so difficult to pull off.

John Hoffecker, a managing director at AlixPartners, a consulting firm with a large automotive practice, notes the absence of overlapping operations is a hallmark of many mergers and acquisitions that pay off. The partners can come together to right themselves without fighting over who's going to feel the pain.

Tata's acquisition of Jaguar and Land Rover and Geely's takeover of Volvo are two examples. Volkswagen has become one of the largest and most profitable companies in the industry in part through acquisitions -- of Bentley, Lamborghini, Skoda and Porsche.

Most of these involved little integration. Bentley and Lamborghini extend Volkswagen's reach into rarified segments of the industry. Tata has provided financial support for JLR; it hasn't merged the brands with its emerging market operations.

These deals work in part, Hoffecker said, because they "amount to filling holes in someone's strategy."

Neither the Renault-Nissan Alliance nor FCA has involved consolidating overlapping operations. Both sets of partners are separated by geography. Renault's main operations are in Europe; Nissan's turf is Japan and North America. Fiat and Chrysler also play in different segments: Fiat in small cars, Chrysler in trucks and SUVs.

When Nissan partnered with Renault, the Japanese company had to be downsized and restructured, but the alliance didn't make Nissan plants, products or technical centers redundant. Chrysler hasn't closed plants since Fiat took management control. In fact, it's done the opposite: added shifts, hired more workers and rebuilt its engineering corps.

No doubt both partnerships experience friction. Renault and Nissan, for example, spent more than a year trying to agree on a common design for a mere turn-signal stalk. FCA was going to build a Maserati SUV in Detroit, but eventually moved that high-profile assignment to an Italian plant.

One reason major spats have been few at Renault-Nissan and FCA is the presence of another ingredient industry executives say is indispensable for success: a strong leader.

Not simply a shrewd and savvy executive. There are many of those in the industry. But in the case of big, broad mergers or sprawling alliances, a key difference-maker seems to be an executive who wins the allegiance of both sides, and who stakes his personal reputation on the success of the venture.