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As safety requirements and fuel-economy concerns loom ever larger in automotive development, the company that effectively deploys the most useful, accessible, and innovative technology  wins. So cutthroat is the car business that Volkswagen—currently No. 3 in global sales but with stronger financial reserves than many competitors—says it will invest $86 billion in research and development through 2016. For companies with less cash on hand, one way to keep up is to partner with another maker. The potential benefits are seductive: shared R&D costs; access to new technologies, platforms, and component sets; entry into new markets; and, in some cases, just a big ol’ pile of greenbacks, euro, or yuan. At the top of the “cons” ­ledger, though, sits financial ruin. It cost General Motors $2 billion in 2005 to unwind a failed tie-up with Fiat.
GM’s new partnership with PSA Peugeot Citroën raises the question of what distinguishes a successful partnership from a disaster. Industry expert Ferdinand Dudenhöffer, professor of automotive economics at Germany’s University of Duisburg-Essen, says the grander the vision, the more likely it will fail. Think DaimlerChrysler or BMW-Rover. On the other hand, smaller-scale joint ventures succeed so often that they’re commonplace [see diagram].
Even when the business case for partnership is strong, the human element often determines success or failure, Dudenhöffer says. Partners need to work at “eye level—if this is missing, the cooperation doesn’t work.” As evidence, he cites VW’s failed alliance with Suzuki, in which the Japanese felt they were treated as a VW subsidiary rather than an equal partner. Similar dissonance fueled DaimlerChrysler’s flameout.
IHS analyst Arne Behlmer agrees that the human element is critical. He says, “Cultural competence, i.e., treating each other with respect, is the key to success.” But he also says that partners have to be chosen carefully, that positioning of the brands in the market should not be too far apart. Here is a deeper look at three recent examples:
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GM AND PSA PEUGEOT CITROËN
The deal: GM paid an estimated $300 million to $350 million for seven percent of  PSA Peugeot Citroën.
Stated objectives: Share R&D costs, jointly develop vehicles, and combine purchasing power, aiming to reduce annual costs by as much as $2 billion. Additionally, GM hopes PSA can help strengthen its struggling Opel subsidiary.
Why it looks good: PSA and Opel both play in the shadow of the VW juggernaut. Dudenhöffer says, “GM Europe and PSA have no chance of catching VW unless they team up.” GM could benefit from PSA’s expertise in diesel engines and compact cars while PSA gets financial backing to help it push the envelope on future models. Dudenhöffer points out that PSA already juggles a number of successful collaborative efforts.
What could go wrong: While the companies’ strengths are similar, so are their weaknesses. Both have excess production capacity diluting their profits, and both have plans to reduce it. Further, this partnership could create turmoil between PSA and its other partners. PSA produces a minicar with Toyota in Slovakia, works with BMW on electric technology, and buys and rebadges the Mitsubishi i-MiEV, Outlander, and Outlander Sport for sale in Europe. Not all interests here are mutual: A strengthened Opel is a fiercer competitor to Peugeot and Citroën.
Talk behind the scenes: Some analysts believe that GM taking a stake in PSA is a prelude to the sale of its European brand, complete with Opel’s renowned R&D facilities. Peugeot Citroën has a similar reputation for excellence, and one insider tells us that “with PSA, GM doesn’t need Opel’s R&D anymore—and doesn’t need to rely on Korea’s engineering, either.” Shedding brands helped GM cut costs in the U.S., and it’s possible the company is looking to implement the same strategy overseas. Its European losses offset strong performances in North America and Asia in recent GM earnings statements.
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DAIMLER AND RENAULT-NISSAN
The deal: Daimler gets 3.1 percent each of Renault and Nissan, while the Renault-Nissan Alliance gets 3.1 percent of Daimler.
Stated objectives: Share platforms and technology. The Renault Kangoo light-commercial vehicle will be rebadged as the Mercedes-Benz Citan, and the next-gen Smart will be developed jointly with Renault. Mercedes’ small cars will offer Renault engines, and Infiniti’s small cars will be built on a Mercedes-derived platform and powered by German engines. The companies will collaborate on EV development.
Why it looks good: Reducing development costs on new engines and platforms benefits everybody.  Analysts agree there is a stra­tegic fit. Behlmer is confident, saying, “The Smart and small Renault models will work; they are different enough from a marketing point of view.  And there is no problem with Renault engines in the small Mercedes vehicles.” Dudenhöffer emphasizes that Renault and Nissan have already pulled off a successful merger, thus proving their intercultural competence.
What could go wrong: As with Peugeot Citroën helping Opel, Daimler is providing aid and comfort to an enemy. The company must view Infiniti as less than a full com­peti­tor to consider sharing technology. Some critics are concerned that Benz will adjust its quality standards down to Renault-Nissan’s level, though the Infiniti brand provides ­evidence that the latter can differentiate between mainstream and upscale.
Talk behind the scenes: Engineers and executives on both sides are clearly pleased thus far with the level of cooperation. Electric powertrains allow little differentiation, but EV customers are unlikely to notice or care if their electric Benz has Renault-Nissan parts and technology.
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BMW AND TOYOTA
The deal: The two have teamed up to develop next-gen lithium-ion batteries; Toyo­ta’s European arm will buy BMW diesel engines starting in 2014.
Stated objectives: Becoming competitive in battery technology, fitting Toyotas with BMW’s cutting-edge diesel engines.
Why it looks good: Currently in a faltering relationship with PSA to develop small engines, BMW is seeking to split development costs elsewhere. Both BMW and Toyo­ta have ambitious hybrid and electric-vehicle goals; cooperating reduces costs for electric components. BMW diesels could give Toyota’s European operation an important edge against Hyundai-Kia, which has inflicted a painful beating lately.
What could go wrong: Not much. BMW finally gets a stable customer for its diesel engines. (Bulk orders were previously placed and then canceled by Saab and Carbon Motors, which plans to build the ultimate prohibitively expensive police cruiser.)
Who wins and who loses: BMW’s partnerships with PSA may be on the wane, but so far it seems there are only winners here.