About our company:
Reno is the third European automaker with 11% of the marketshare, a turnover of $45 Md, and $10 Md capital account. Our goal is to manufacture more than 4 millions vehicles in 2010 (against 2.2 in 1998).
Our society leads a strategy based on innovation, a high level of competitiveness, and international presence. According to this strategy, we took the control of the third Japanese automaker in 1999. We also took control in 1990 of the US truckmaker MAACK. MAACK realized a turnover of $2.4 Md in 1999 and has already 15% of the market share. We have plants in UK and South America and a plant in US for the production of minivans.
A team of 5 Reno executives is at your disposal for discussion:
Brigitte Gay: Project Leader
Michel Barbelanne and Dao Vo-Trung : Financial analysts
Grégoire Sarrazin : Technical expert
Gilles Perrin : Marketing specialist
Scope of the JV - 1
The cooperation deals with the common development and industrialization of special products (fuel cell taxis) in Los Angeles.
The proposal is made by LAFCC (Los Angeles Fuel Cell Company), a fuel cell manufacturer based in the LA area.
Fuel cells cars:
We recognize the growing role such alternative technologies are bound to play in the future and are prepared to invest heavily in fuel cells cars. We want to commit ourselves, as automotive industry, to closely working with industries such as LAFCC. With LAFCC also, we want to find solutions to the ongoing challenge of air pollution around the world, starting right here in the United States.
California market for fuel cell cars
In particular, with 17 millions vehicles travelling the largest freeway system in the world, together with the high pressure to reduce pollution, California is truly a good market for fuel cells vehicles, as stated by LAFCC. Moreover, the largest network of methanol fueling stations is in California and the methanol industry is ready, willing to serve a California market for fuel cell vehicles. Federal tax policy encourages the use alternative fuel vehicles (tax credits for the purchase of fuel cell cars that will be needed for the initial years of production, tax credits for the installation supports).
Energy Companies, government, and automakers are making unprecedented cooperations and globalization in the auto industry continues at a rapid space. Markets and companies in the auto industry are growing together. Notably, California is already home to a unique collaboration of auto manufacturers, oil companies, a fuel company and the State of California. We feel it will be impossible to target successfully a small market (some fuel cells taxis) when historic auto, oil and government partnerships are made by our competitors.
Furthermore, alternative technologies exist already. A number of states, including California, have adopted mandates for the sale of electric vehicles. In addition, a number of manufacturers have introduced hybrid electric-internal combustion engines. Even though they are complex, they are very fuel-efficient, and will perform as well as today's cars. Toyota US versions are targeted to meet SULEV standards. Toyota's demo program is currently underway in Atlanta, Georgia. Massive production for the US of these cars is expected to occur rapidly.
There are also a lot of political and other forces supporting the conventional fuel structure and US does not have a hydrogen industry or a public constituency asking for change.
There are also many different cab companies in L.A. with a number of permits varying from about 300 to 1 (mean number around 30) and marketing may be difficult and costly.
Importantly, though falling, the cost ratio (fuel cells /gasoline engines) is 10 to 1. It is generally agreed that only substantial production will allow fuel cell cars to be cost-competitive with existing cars. Moreover, methanol-powered vehicles will only receive a partial emission credit (i.e. a 0.7 credit where a ZEV credit of 1 implies no emissions) and we feel that constant financial support of research will be needed to reduce emissions and improve on existing technologies. This cost can't be supported by the cab companies in L.A.
Like LAFCC, we want to have a stake in a prosperous society and a clean environment. To ensure both, our joint venture must be able to deliver a competitively priced fuel cell car that meets the demands of our customers and government. In answer to your proposal, we suggest that we achieve these goals together on a reasonable scale and a commercially attractive market.
You recommend in your proposal minivans as multiple passengers vehicle. The minivan market is booming if compared to the general tendencies of the car sector. In Europe, France is leading with about 30% of all sales (market of 160 000 vehicles in 1994 and 400 000 vehicles in year 2000). Spacelife, a Reno model, accounted for about 50% of the European market sales (40 % market share in 1998). Spacelife is also produced and marketed in US with increasing success.
In January, sales of light trucks (including minivans, pickups and SUVs) also outsold the cars in USA. Among all manufacturers, this segment (minivans) has become a priority because of its high margins and growth potential.
Targeting together the fuel cells minivans market would allow us to
efficiently combine our skills (Reno for minivans and LAFCC for fuel cells)
and would be a good compromise between a small program (taxis: low cost
of investment but high price of cars, high risk and high competition) and
a large program (cars: high costs of investments and high competition).
It is of interest to remark that this choice doesn't preclude the taxi
market. The taxi market then becomes a segment of the minivan market in
contrast to the LAFCC proposal where the minivan market is a segment of
the taxi market.
Scope of the JV - 2
The cooperation would deal with the common development and industrialization of special products (fuel cell minivans) in Los Angeles.
Input of each partner to the JV and financial structure
LAFCC would be responsible for fuel cells and fuel cell systems. LAFCC would be committed to deliver the technology or any improvement deriving from the technology. LAFCC would also act as fuel cells and fuel cells systems supplier of a new company called JV. Reno is willing to invest heavily in LAFCC and its technology and will negotiate with LAFCC to that effect.
The new company, JV, would be committed to produce and commercialize volume-manufactured minivans powered by fuel-cell engines. JV would own the technology and would have to strengthen and improve its proprietary rights. As part of the alliance, a local plant would be created and would include the body assembling, painting and mounting workshops and fuel-cell engines production. A local plant would also allow JV to be close to the industrial base already operated by LAFCC and to have their support as local partner.
The common plant should be operational in 2002. The first fuel cell minivans should leave the plant at the beginning of 2003. 50 fuel cell minivans will be placed on the road to demonstrate vehicle technology by operating and testing the vehicles under real world conditions in California. A regular increase in the manufacturing output of the plant from 15 per day at the end of 2004 to 50 per day at the end of 2006 (to get "today's" investments profitable) to 80 per day at the end of 2008 should be obtained. The plant capacity should reach an annual production of 20 000 units in 2010. The body assembly workshop would be automated at 45% which corresponds to a low automation rate within American car manufacturing industry. Advantages would be a greater flexibility for the plant, a benefit when dealing with the development of innovative products.
The global investment for the minivan (vehicle development and new plant) is evaluated to $500 million. Reno total investment in the JV partnership would be about $500 millions, made up of cash, technology and assets. The percentage equity contributed by each partner, based on his ownership share, should be as follows: Reno would be the majority owner of this new company, with LAFCC owning 20%.
Management structure of JV
The number of executives and managers would be limited to 10. The leadership role in the managerial decisions would go to Reno for the whole duration of the joint venture. Reno would nominate the CEO (from Reno) and a head of BOD permanently assigned to JV (from Reno also). 8 directors would be nominated to the BOD, 5 from Reno (4 permanently assigned) and 3 from LAFCC. Reno would be responsible for minivan development, industrialization and support functions (quality, logistics, costing, marketing and finance). The number of executives and managers from LAFCC who would be permanently assigned to the local plant would be limited to 2; one executive from LAFCC would also be expected to participate. LAFCC role would be concentrated in strategic technology management. Would also attend, as consultants, chosen members of an energy company.
After 10 years, if the JV is successful, plans to better our position in the US (including looking for a partnership with a big American automaker and diversification of car models) would be discussed. Plans to enter the European market (certainly ready at this time for fuel cell cars) would also be considered.
This joint venture is reasonable and would allow LAFCC to make money for LAFCC and expand. It would also allow JV (company owned by Reno and LAFCC) to market competitively priced vehicles and derive benefits from the sales. The higher number of vehicles made in JV would help improve the environment in a bigger way and permit the creation of many jobs (low-automation of the plant and higher number of vehicles), as willed by LAFCC.
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