Maruti's hopes of setting up a small car assembly unit with Japanese major Nissan may have come unstuck with the proposed car manufacturing JV between French auto giant Renault and domestic major Mahindra & Mahindra. Nissan is 44-per cent owned by Renault and industry observers believe the company would prefer to join the Renault-M&M alliance rather than teaming up with Suzuki Motor and its Indian subsidiary Maruti.

Though there were no formal official confirmations, Nissan and Suzuki were in discussions to set up a new small car plant in India. As Suzuki's Indian arm, Maruti was expected to represent Suzuki in the venture to assemble cars under both Nissan and Suzuki badges for both domestic and export markets. Industry analysts believe these talks ran into difficulties after disagreements over financial commitments.

M&M and Renault have just announced a new venture to set up a new auto plant to manufacture up to 5 lakh units. The plant would be set up in five years and is expected to cost around $1 billion. The investment would be shared equally between M&M and Renault, but Renault is expected to rope in Nissan also - even if at a later stage.

The new M&M-Renault plant would manufacture both Mahindra and Renault vehicles. The partners are also planning engine and transmission plants and the site would be identified soon. Mahindra and Renault already have a 51:49 JV to manufacture the low-priced Logan sedan, which is expected to be launched by early next year.

As the proposed venture is an integrated engine-transmission and assembly unit operation with flexibility to produce multiple models, it makes some sense for Nissan to go with M&M-Renault rather than an alliance with Suzuki for the new plant. By joining the M&M-Renault alliance, Nissan would have access to sufficient capacity without heavy financial commitments.

From the strategy it appears as if Nissan is not looking at heavy volumes from the Indian market and may stay out of the highly competitive domestic small car segment - at least in the initial years.

Nissan currently has only one model, the SUV X-Trail in India. The company is importing the model as a fully built unit, which makes it very uncompetitive in terms of price. Nissan has sold only around 250 units of the X-Trail in the domestic markets so far this year.

However, it is expected that Nissan would continue its production alliance with Suzuki for small cars. The two companies have a separate agreement under which Suzuki would manufacture small cars for Nissan - mostly for the European market. Nissan and Suzuki already share production facilities in Japan by supplying vehicles under each other's brands and there was some speculation that Nissan is eyeing a large stake in Suzuki.

Suzuki had announced in June this year that it would supply cars to Nissan from Maruti's assembly units in India. Maruti had also announced that it would further expand capacity at its soon-to-be commissioned Manesar plant to 2.5 lakh units per annum to cater to Nissan as well.