GM, Honda form alliance in North America for product development

General Motors Co. and Honda Motor Co. Ltd. on Thursday said they have signed a memorandum of understanding toward establishing a strategic alliance in North America for product development, purchasing and possibly more.

High costs needed to invest in automated, connected and electric vehicles are leading to more consolidation and team-ups in the industry for automakers to stay competitive. Ford Motor Co. and Volkswagen AG are partnering on autonomous, commercial and electric vehicles. Fiat Chrysler Automobiles NV is merging with French rival Groupe PSA to create volume as Stellantis.

"This is the world now," said David Cole, chairman emeritus for the Center for Automotive Research in Ann Arbor. "Automakers are going to cooperate in this field but compete in another. It's the uncertainty and the costs of working on some areas of technology. You don't really know when it will pay off, so working jointly makes a great deal of sense."

The GM-Honda partnership would build on their previous collaborations in electrified vehicles, enabling both companies to explore sharing vehicle platforms and propulsion systems, both internal combustion and electric. The agreement covers a range of each company's vehicles in various core segments as well as cooperation in purchasing, research and development, potential manufacturing efficiencies and connected services that could free up capital for the companies.

The agreement covers more than four vehicle architectures focused on crossovers and mid-size pickups, said two people familiar with the agreement who were not permitted to speak publicly.

"This alliance will help both companies accelerate investment in future mobility innovation by freeing up additional resources," GM President Mark Reuss said in a statement. "Given our strong track record of collaboration, the companies would realize significant synergies in the development of today's vehicle portfolio."

The companies did not publicly value those cost savings. Development planning discussions between the Detroit and Japanese automaker will begin right away with engineering work starting in early 2021.

"Through this new alliance with GM," Seiji Kuraishi, Honda executive vice president, said in a statement, "we can achieve substantial cost efficiencies in North America that will enable us to invest in future mobility technology, while maintaining our own distinct and competitive product offerings. Combining the strengths of each company, and by carefully determining what we will do on our own and what we will do in collaboration, we will strive to build a win-win relationship to create new value for our customers."

A joint committee comprised of senior executives from both companies will govern all facets of the alliance. A final agreement will be made for each vehicle they produce together.

The automakers have an ongoing partnership on electrification. In April, they agreed to develop two new electric vehicles for Honda based on GM's electric platform and with its Ultium batteries. Honda in 2018 invested $750 million into GM's self-driving car division Cruise LLC, contributing to the development of the autonomous Cruise Origin vehicle revealed earlier this year.

Honda also joined GM's battery module development efforts in 2018. The companies have worked together on alternative powertrains in some form since 2013 when they formed an alliance on hydrogen fuel cell technology development.

"The lack of profitability on the electric vehicle side means you have to get as much volume as possible," said Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions. "A lot of these companies are not going to get profitable scale on their own. Sharing the cost across three, four, five different brands can help make the transition less painful."

The COVID-19 pandemic that led to a two-month production shutdown delivered hits to automakers' balance sheets, amplifying the "amount of chaos that is literally rampant" in the industry today as it evolves to a greener, more automated future, Cole noted. Honda for years has tried to remain independent.

"If you're not looking at a new way of thinking or a new business model," Cole said,

"you are going to have some problems ahead."

GM and Honda are somewhat symbiotic with the Japanese automaker's strength in smaller vehicles and GM's in larger vehicles like pickup trucks, Cole said. The alliance especially provides a boost to Honda, which as a mid-size car maker faces challenges adopting the alternative powertrains being mandated by governments. GM, which is developing its own batteries with the goal of costs being below $100 per kilowatt, is a leading player.

GM shares were falling 4.6% early Thursday afternoon, more than market indexes. Honda's stock was down 0.6%.

bnoble@detroitnews.com

Twitter: @BreanaCNoble