Why the Chrysler-Nissan Deal Makes Great Sense

The recently announced product sharing deal between Chrysler LLC and Nissan Motor Co. Ltd makes good common sense, in ways the former DaimlerChrysler merger never did.

The deal calls for Chrysler to make a full-size pickup for Nissan. It will be a successor to the current Nissan Titan, for sale in North America starting in 2011. Nissan will make an all-new small car for Chrysler in Japan, for sale in North America and other global markets, starting in 2010. Each product will have unique exterior styling.

For starters, unlike the ill-fated DaimlerChrysler "merger of equals," it's a limited deal, with no exchange of equity stakes (so far). "The financial arrangement is, the product I make for them, they pay for, and the product they make for me, I pay for," said Tom LaSorda, Chrysler LLC co-president, in an April 14 conference call for reporters.

Second, unlike Daimler and Chrysler, which divorced last year, Nissan and Chrysler each have something the other partner wants, that the other partner is better at doing. Daimler and Chrysler never did share much hardware. The most thorough-going sharing involved the Mercedes SLK and the Chrysler Crossfire. The Crossfire prompted such a negative reaction on both sides of the Atlantic, then-Mercedes boss Juergen Hubbert swore, "Never again."

Third, Nissan and Chrysler are both hungry. At the time of the DaimlerChrysler merger in 1998, both partners were growing and profitable. At the time, the partners said what a nice thing it was that two big companies could merge at the top of their game, without any immediate need to lay anyone off. That begged the question, "Then why merge?" And it didn't last, as Chrysler and then Daimler eventually ended up cutting thousands of jobs anyway.

The limited interests of Nissan and Chrysler dovetail much more logically. Compared to Nissan, Chrysler is a pickup truck powerhouse. The current Nissan Titan pickup is a very, very, very (very) distant No. 6 in the U.S. large pickup market, behind the domestic U.S. brands and the Toyota Tundra. Nissan added up the cost to develop an all-new Titan, including meeting new U.S. regulations for safety, emissions and fuel economy, and decided it didn't make sense to go it alone.

Meanwhile, Nissan's specialty is small, fuel-efficient cars. Chrysler is hot to get more into the growing small-car market. Chrysler also desperately needs to boost its footprint overseas. That lessens Chrysler's dependence on the U.S. market, which right now is just about total. While it lasted, that bigger footprint was one aspect of the DaimlerChrysler merger that made sense.