As Nissan Links Up With Chrysler, A Lesson For Ford (F)

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Nissan and Chrysler will begin joint production of some cars and trucks. It makes sense. Nissan produces small, fuel-efficient cars and the US company is the past master of building pick-ups. So, like Jerry Lewis and Dean Martin, they will play to one another’s strengths.

Nissan will begin to build a small car which Chrysler can sell in the US and Europe. Chrysler will make a full-sized pick-up which Nissan can market in place of its flagging Titan brand.

According to The Wall Street Journal "The manufacturing agreement will keep Nissan and Chrysler working closely together for several years." It is an admission by two of the auto industry’s second-tier players that going it alone in a world of rising fuel costs and higher design and production expenses is no longer realistic. These firms now compete against operations like Toyota (NYSE: TM) which have the balance sheets, sales, and facilities to make and market cars in every large country.

Now, what about Ford (NYSE: F), the failing US car company? Its share price, sitting above $6 trades about where it did two to three years ago when credit agencies said it could default on its debt and head into Chapter 11.

Ford’s US market share is running about 15% and in most months domestic sales are down double digits. While Ford does well in many countries outside the US, it does not have significant market share in China, which many expert think is the future of the car industry.

That leaves Ford in an untenable position. It is a matter of time before losses push it back into financial trouble. It could, however, find a partner. The most likely choice would be Volkswagen. VW, huge and with a strong balance sheet, has one market which it covets and that is the US. It has done poorly here for years. Ford and VW could have a joint venture to design, manufacture, and sell cars in the US. It would utilize Ford production capacity and give VW the entre it wants. In the small car end of the market, the savings of a JV could well offset the per-vehicles losses the US company faces with many of its models .

For Ford, it is just a matter of time.

Douglas A. McIntyre