GM, Honda to jointly develop vehicles in North America, expanding consolidation

William Arsn

(Reuters) – General Motors (GM.N) and Honda Motor Co (7267.T) on Thursday revealed plans to team up in North America to make a range of vehicles, deepening their ties as the auto industry comes under greater pressure to share technology and costs to meet demands for cleaner vehicles.

FILE PHOTO: The GM logo is pictured at the General Motors Assembly Plant in Ramos Arizpe, state of Coahuila, Mexico October 7, 2019. REUTERS/Daniel Becerril

Under the alliance, Honda and GM said, the companies intend to share common vehicle platforms, including electrified and internal combustion propulsion systems.

The companies still need to complete a definitive agreement and officials said greater details on expected cost savings would be available then, but a person familiar with the matter said the savings would run in the billions of dollars for each company.

The partnership represents a significant expansion of existing collaborations between the two companies on electric and autonomous vehicles, connected vehicle technology and fuel cells. Honda is an investor in Cruise, the self-driving business that GM majority owns.

“Overall, we believe this alliance would help both companies realize significant cost savings in the development of our vehicle portfolios,” GM President Mark Reuss said in a statement.

The deal marks another milestone in the consolidation of the global auto industry, as pressures to cut emissions and move toward EVs strain the capital and engineering resources of even the largest players.

Former Fiat Chrysler Automobiles (FCA) (FCHA.MI) Chief Executive Sergio Marchionne had for years pushed for consolidation in the global auto industry, arguing it was inevitable to manage prohibitive capital costs.

FCA announced a $50 billion merger with France’s PSA (PEUP.PA) last year to create the world’s fourth largest carmaker, Stellantis, in a move to address cost and scale issues. That deal is expected to close by the end of the first quarter of 2021.

Japan’s Toyota Motor Corp (7203.T) has been expanding ties with smaller Japanese automakers such as Mazda Motor Corp (7261.T) and Subaru (9778.T). Ford Motor Co (F.N) and German automaker Volkswagen AG (VOWG_p.DE) have forged a wide-ranging alliance covering electric and commercial vehicles and autonomous driving technology.

Analysts and GM investors have been pushing for a transformational change at the Detroit automaker, with repeated questions around the spinoff of its EV operations into a separate company. GM CEO Mary Barra has said such an option was not off the table.

GM and Honda said in April they would jointly develop two new EVs for Honda and were planning to explore more ways to expand their alliance. They have already worked together on the design of an autonomous vehicle called Cruise Origin, and also collaborated on fuel cells and batteries.

Honda has for years remained largely independent, staying clear of industry mergers. But the GM alliance will give it economies of scale it cannot achieve on its own, Honda Executive Vice President Seji Kuraishi said. North America is Honda’s largest market and GM’s second largest behind China.

GM and Honda said joint development discussions will begin immediately, with engineering work starting in early 2021.

The companies plan to explore vehicle platform-sharing possibilities in more than four core segments including crossovers and midsized pickup trucks, along with propulsion systems, infotainment and connectivity services, advanced driver-assist features, vehicle connectivity and other technology. They also will cooperate on purchasing.

Credit Suisse analyst Dan Levy said in a research note that it was “encouraging” to see the companies teaming up on gasoline-powered engines as that technology still requires investment even as the industry shifts to EVs.

Reporting by Ben Klayman in Detroit and Sanjana Shivdas in Bengaluru, additional reporting by Rachit Vats in Bengaluru; Editing by Shinjini Ganguli, Saumyadeb Chakrabarty and Steve Orlofsky

Our Standards:The Thomson Reuters Trust Principles.

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