DETROIT _ General Motors and Honda have a deal to share vehicle platforms and technology in North America starting next year.
On Thursday the automakers said they have signed a non-binding memorandum of understanding to establish a North American automotive alliance. The deal has come together after extensive discussions.
The proposed alliance will include sharing a range of vehicles, to be sold under each company's distinct brands, as well as cooperation in purchasing, research and development, and connected services.
Honda and GM plan to collaborate on purchasing supplies by leveraging their scale to gain costs savings. Purchasing collaboration would focus on joint sourcing of materials, logistics and localization strategies, GM said.
The alliance will help GM and Honda achieve substantial cost savings, and allow them to continue to invest in developing future products.
"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."
Birth of a deal
Reuss said GM and Honda will work "immediately toward completing definitive agreements and will have more details to share regarding financial benefits once those agreements are finalized."
In April, GM and Honda announced an agreement to jointly develop two all-new electric vehicles for Honda. Those vehicles will be on GM's global EV platform powered by proprietary Ultium batteries, but Honda will design the vehicle exteriors and interiors. The platform will be engineered to match the way Honda vehicles handle on the road. At the time, GM said this was "another step" toward its vision of an all-electric future.
The GM-Honda relationship, which began more than two decades ago, includes recent collaborations on fuel cells, batteries and the Cruise Origin shared autonomous vehicle.
Under the latest proposed alliance, Honda and GM would collaborate on a variety of segments in North America, intending to share common vehicle platforms including both electrified and internal combustion propulsion systems that align with the vehicle platforms.
Co-development planning discussions will begin immediately, with engineering work beginning in early 2021.
"Through this new alliance with GM, 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," said Seiji Kuraishi, executive vice president of Honda Motor Co. Ltd. "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."
Share the big costs
Analysts said the deal makes sense given the industry has been seeing and likely will continue to see more of these kinds of joint ventures and strategic alliances to achieve costly technological advancements to compete. It is better to "share than go it alone," said Michelle Krebs, executive analyst for Autotrader in Detroit.
"This is very significant news. GM and Honda have been working on a number of projects over the years," Krebs said. "This takes their relationship to a whole new level. What's notable about Honda is that it has remained fervently independent while others merge or do joint ventures."
It is a low-risk and potentially high-reward move for both automakers, said David Whiston, auto analyst for Morningstar.
"If they focus on where each is strong, that brings up interesting scenarios for GM's car business. Will GM use a Honda platform to keep a subcompact offering after the Sonic ends? Will the Malibu move to an Accord platform?" Whiston said.
He noted that Honda excels at making cars and GM is good at light trucks. There's overlap in SUVs and midsize pickups.
"But GM could also give Honda help in a full-size pickup or a full-size SUV, which Honda does not have offerings in either segment, in exchange for help in purchasing or sedans," Whiston said. "Not sure GM wants to let Honda into those highly profitable Detroit Three dominated segments though. Honda definitely needs GM's battery and OnStar expertise so they'll have to give something up in return."
GM has been throwing billions into its quest to become an all-electric automaker.
In March, GM CEO Mary Barra said GM will spend $20 billion between now and 2025, about $3 billion a year, on EV development. GM said it will launch at least 20 new all-electric vehicles by 2023.
To that end, GM announced in July it was partnering with EVgo, the largest public fast-charging network for electric vehicles, to triple the size of the U.S.' public fast-charging network. Neither company disclosed the investment amount they were making.
But GM has invested $2.2 billion to retool its Detroit-Hamtramck plant to make all-electric vehicles and $300 million in its Orion Assembly plant to add an all-electric vehicle there. GM has not said which EV will go into Orion, but Detroit-Hamtramck will get the electric GMC Hummer pickup, the self-driving Cruise Origin and other EVs. But sources said the Cadillac Lyriq SUV will not be made there, though GM has not announced where it will be built.
GM said an alliance in North America with Honda would leverage the best technologies each has to offer. That, in turn, would generate substantial cost efficiencies from shared vehicle platforms and propulsion systems, joint purchasing, potential manufacturing efficiencies and other collaboration efforts, GM said. The result is it frees up funds to allow both companies to make greater investments in advanced future technologies.
As part of the deal, GM and Honda would share R&D and engineering costs for certain future co-developed vehicle and propulsion platforms.
Given shifting consumer tastes and regulatory requirements, introducing advanced technology is imperative. Therefore, GM said the alliance would study "combining the R&D efforts between the two companies related to advanced technology areas, including electrical architecture, advanced driver assist systems, infotainment, connectivity and vehicle-to-everything communication."
When Honda and GM announced their shared EV agreement in April, the agreement included a plan for Honda to incorporate GM's OnStar safety, security and connected services into the two new EVs for Honda based on GM's global EV platform. It would seamlessly integrate them with HondaLink.
GM and Honda will now explore further co-development options for future connected services, including GM's OnStar and infotainment.
The perfect partner
All facets of the alliance will be governed by a joint committee, comprising senior executives from both companies, GM said.
In a separate statement, Reuss said Honda makes the perfect partner because of a shared worldview.
"We both aim to leave a better, cleaner planet for our children, and their children. That's what drives our plan for an all-electric future, and today's announcement brings us a step closer to it, by starting the creation of synergies that can help make it happen," Reuss said.