MUMBAI/PARIS - Renault's falling sales in India and Russia and tension with its partners underline the risks of car sector tie-ups and suggest that the infusion of technology, rather than cash, is the solution.

Consolidation is playing a part as automakers seek critical mass to help them back on to their feet after the crisis of the past year, with technology partnerships, in particular, driven by a push toward zero emissions.

France's PSA Peugeot and Germany's BMW are looking at ways to deepen their existing cooperation, while Italy's Fiat took management control of Chrysler after buying a stake as part of a government-backed reorganization.

And parts maker Magna is poised to take a majority stake in General Motors unit Opel.

But in an industry littered with the skeletons of failed partnerships, the problems Renault is facing now in Russia and India, where Avtovaz is on the brink of bankruptcy and Renault Mahindra's Logan sales are falling -- and the solutions it finds -- may provide valuable lessons for other carmakers.

Morgan Stanley on Tuesday cut its rating on Renault because of delayed dividend from Nissan, Avtovaz and Volvo.

When Renault bought its 25 percent stake in Russian carmaker Avtovaz for about $1 billion in 2008, an entry into the burgeoning Russian car market -- tipped to overtake Germany as Europe's biggest before the crisis -- seemed a good deal.

Unfortunately the wheels fell off, both the Russian economy, the auto industry, and then Avtovaz, said Nomura International analyst Michael Tyndall.

Renault CEO Carlos Ghosn, who is also head of its alliance partner Nissan Motor Co. told reporters this week the carmaker was helping out with management skills and technology, and shared in Avtovaz's short- and mid-term strategy.

Renault's partnership with India's Mahindra & Mahindra on the low-cost Logan car started off well, but healthy Logan sales soon began to dwindle, with high taxation making the car too expensive for its target market.

Production last year was less than a third of capacity and the joint venture lost 4.9 billion rupees in 2008/09.

Both parties in India have rubbished reports that Renault was planning to pull out of the venture and considering other partners including Bajaj Auto, with which it already has a partnership.

There are no plans to end the venture, Nalin Mehta, Mahindra Renault CEO told Reuters recently.

Asked at the Tokyo Motor Show whether Renault would part ways with Mahindra, Ghosn said, I am not saying we will, I am saying we can. I don't want anybody to be surprised.

Our intention is to continue with the (three) partners, but if it is not possible, I can tell you that we need at least one, he added, in a reference to Mahindra, Bajaj and Ashok Leyland, which has an alliance with Renault affiliate Nissan.

A spokeswoman for Mahindra declined to comment.


A Renault official, who declined to be named, said the two companies were working to give the Logan a face-lift, which would go beyond the merely cosmetic. We are working together for a revamped strategy for the Logan. Once we have decided what to do with it, there will be an infusion of equity.

As for Russia, Ghosn signaled last week that the Avtovaz partnership would likely expand to Nissan with a joint project to develop and sell an entry-level car, and that, despite the short-term pain, the partnerships would ultimately benefit all parties involved.

Little by little Russia is going to recover, Ghosn said.

The painful lessons Renault is learning in Russia and India may, however, show that Fiat is on the right track with Chrysler, as it prepares to unveil the radical product line revamp Chrysler desperately needs to cement its turnaround, at the presentation of a five-year plan on Nov 4.

Fiat's technological expertise will help the struggling U.S. carmaker refresh its flagging product line-up.

With Fiat and Chrysler, Fiat has used its technology in the transaction, and it certainly looks as if Renault is going to do the same, which arguably is what Avtovaz needs, said Nomura analyst Tyndall.

Versus the competition, Avtovaz is in need of modern products. So I can see how it would work -- that Renault provides technology instead of cold hard readies, Tyndall added.

(Additional Reporting by Chang-Ran Kim, Editing by Sitaraman Shankar)