Renault-Nissan: how long can the fractured alliance last?
The partnership has suffered since the downfall of Ghosn, but a break-up would reverberate across an already struggling industry
Carlos Ghosn marked the 10th anniversary of the Renault-Nissan alliance in 2009 by shrugging off the global recession and issuing a self-confident statement listing 10 big achievements of the pre-eminent symbol of Franco-Japanese co-operation. In March, as the alliance crawled past its 20th anniversary, no one at Renault or Nissan even bothered emailing employees to note the milestone.
Staff and investors in both companies now openly question whether there will be a 21st anniversary to celebrate.
The contrast between how the two anniversaries were marked, say analysts, advisers and people senior in both companies, perfectly captures the crisis-hit state of the post-Ghosn alliance.
Several shared functions, in particular communications and the chief executive’s office — that most symbolised Mr Ghosn’s grip over his empire — have been closed altogether. In one case, about a dozen office staff who had continued to come to work at the alliance’s Paris headquarters for five months after Mr Ghosn’s public downfall and arrest discovered their fate when Renault staff turned up unannounced to measure the office for its new occupants.
Activity in other functions — including manufacturing and quality control — has slowed to walking pace, say people close to both companies. And goodwill is in short supply. As CLSA auto analyst Christopher Richter puts it, “the alliance in mid-2019 is in name only”.
That may overstate how easy it would be to break up. For 20 years the alliance was the banner under which two of the biggest car companies in the world operated — often successfully and often to the envy of the industry. The steady decline in both Renault and Nissan’s share prices since Mr Ghosn’s arrest, say investors, attest to his reputation, but also raise the question of whether the tie-up was a genuine powerhouse or an unrepeatable expression of the skill, showmanship and chutzpah of Mr Ghosn.
It is not the only question being asked. Some query whether it was always an uncomfortable pairing that strained cultural differences to their limit, one that has now reverted to a natural state of mistrust? And also, after several failed merger attempts between the French and Japanese carmakers and after the chaotic breakdown of talks between Renault and Fiat Chrysler in June, can the survival of the alliance still be guaranteed?
The impact of a collapse would reverberate across the global automotive industry — firstly as two of the largest carmakers absorb the initial losses that come with the break-up, and then the massive upheaval in investment and strategy required to face the world separately.
That would inevitably trigger, say analysts, a global readjustment as both Nissan and Renault either pursue deals of their own, or receive approaches from suitors that have until now steered clear. Looming over all of this, however, would be the devastating symbolism of a collapse — the ripping-up of a blueprint that has for 20 years proved that companies can achieve scale and collaboration without embarking on a full merger.
The signs, say analysts and investors, are not promising. Until his arrest last November on charges of financial misconduct, say people who dealt directly with him, Mr Ghosn was able to charm and bully his way round the governance carbuncle at the heart of the alliance — a capital imbalance that gives Renault, as the company that rescued Nissan from bankruptcy in 1999, a 43 per cent voting stake in the Japanese carmaker. Mr Ghosn denies the charges.
Nissan, meanwhile, has only a 15 per cent non-voting stake in Renault, whose largest shareholder is the French state. The imbalance used to be Mr Ghosn’s problem but, since his arrest, it has become everyone’s problem, and many people are realising how big an obstacle to future success it could be.
The long-term outlook for the alliance, says Nobumichi Hattori, a former Nissan employee, is very negative. Neither Jean-Dominique Senard, the chairman of Renault, nor Nissan’s chief executive Hiroto Saikawa look able to provide the management Mr Ghosn brought to bear.
“To put it extremely,” says Mr Hattori, now at Waseda university, “it would have been better for the alliance if it had kept Ghosn — even if that meant sacrificing ¥1bn a year in [any alleged] embezzlement.”
Either way the alliance has picked a dreadful moment for its existential crisis. The global auto industry faces its sternest test in decades.
While sales in most large markets tumble, carmakers are being forced to invest in costly technologies such as electric battery power to meet ever-tighter emissions regulations, squeezing their already-thin margins. US President Donald Trump’s trade wars with Europe and China and other disruptive events such as Brexit are not helping, playing havoc with the global supply chains built up over years.
On its own doorstep, Nissan can see what it is up against. In June, Toyota revealed plans to throw itself into electric vehicles in alliance with Subaru and Suzuki. Mazda, say some analysts, is likely to join imminently. If that co-operation holds, which Toyota is primed to ensure, it would already be bigger than the Nissan-Renault-Mitsubishi alliance in terms of cars sold.
While recognising these threats, both companies insist that everything is working as normal. At Nissan’s annual general meeting in June, the carmakers were keen to show they had made peace and stood ready to rebuild.
However, senior executives in both camps admit there have been fundamental shifts in recent months that may undermine efforts to repair relations.
Nissan’s leadership, say people close to the situation, is increasingly guided by a revitalised sense of the company’s Japanese heritage and by a belief that after years of depending on Mr Ghosn to protect it from French dominance, Nissan must now seek a more structural independence from its French partner.
Renault bosses, meanwhile, remain wedded to the alliance, blaming much of the current problems on a small number of more nationalist voices surrounding Mr Saikawa. It is appeasing this vocal group, say analysts, that prompted Mr Saikawa to assure shareholders that any attempt by Renault to increase its influence over Nissan “will never happen”.
The threat to the alliance, say company insiders, has crystallised questions that have lain in the background for years about its true financial value.
Every year, it produces a “synergy” number, intended to show the material benefits to the three alliance partners. Under Mr Ghosn every year — without fail — that number which measures direct savings and avoided costs, rose, painting a picture of increasing success. In 2017, the figure was €5.7bn.
In reality, the headline figure was often dictated directly by Mr Ghosn, with lieutenants then commanded to conjure his wishes into reality, according to several witnesses to the process. “Ghosn wanted a big number, then the finance functions had to calculate it,” says one former director. “You couldn’t prove they were right, but you also couldn’t prove they were wrong.”
Mr Ghosn also made several major decisions whose primary purpose was a mix of cosmetic and political rather than the result of cold number crunching. Moving production of the small Nissan Micra car from India to Renault’s underperforming plant at Flins, less than an hour’s drive from Paris, was a prime example.
“The financial decision to go to France was made up”, in the view of one person involved in the process.
“This allegation is laughable. Carlos Ghosn based any syngergy goals on data while pushing his teams to be more ambitious, as any leader would,” said a spokesperson for the former Nissan chairman. “Synergy figures were all meticulously validated by financial comptrollers of each company, and were formally presented to the relevant boards before being communicated publicly. The performance of the alliance under his leadership speaks for itself.”
Aside from isolated exceptions, such as the joint purchasing department and some shared manufacturing platforms that saw vehicles such as the Nissan X-Trail and Renault Koleos use the same base, beneath the surface were two companies that preferred independence to collaboration.
“I don’t think it ever worked properly,” says one person who held several positions across the business, a sentiment echoed by almost a dozen former employees from both companies.
Opportunities to collaborate on new projects were squandered. Developing electric cars — engineered virtually from scratch — led to so much horse-trading between the two sides that despite their relative success, the two resulting cars, the Nissan Leaf and the Renault Zoe, shared only one common part: the door handle.
Even so, some parts of the business would be difficult — and expensive — to untangle, from the purchasing operations to the increasing range of cars based on joint platforms.
“Even if they decided today to go their separate ways, for the next 10 years they would still have to work together,” says Thomas Besson, an analyst at Kepler Cheuvreux. “Maybe they can start to change future platforms but not on these ones. It’s just a reality.”
Despite the pessimism that surrounds it, the underlying business logic of the partnership is not being questioned at the highest levels of Renault.
“Forget about destroying the alliance,” says one senior figure in Renault who asked not to be identified. “For Renault there is no future, in my mind, without the success of the alliance.”
Many Renault executives do, however, acknowledge the current structure of the alliance is untenable and will have to change if it is to survive. But it remains unclear how to do it, not least because of the influence of the French government, a source of huge mistrust in Japan.
In the past the state has wreaked havoc on Renault’s partners, first by pushing through double voting rights in 2015, much to the shock of the Japanese, then by prompting Fiat Chrysler to walk away from merger talks in June after just 10 days.
Despite noises that France was open to selling down its stake immediately after the FCA merger talks collapsed, President Emmanuel Macron dashed those hopes last week when he said there was no justification for “changing the cross shareholdings, the rules of governance, and the state’s shareholding in Renault”.
Several people close to the French group say there are no active discussions about how to reduce its stake in Nissan. Unwinding the shareholdings would be complex and expensive — with Renault’s Nissan stake worth €14.9bn and the Japanese stake in its French peer worth €2.4bn at current market prices.
“You can’t just say, ‘Oh gee, we’re going to reduce the stake in Nissan, that’s the best idea we’ve ever had’,” says one Renault insider, “and at the same time make sure that the operations don’t think the whole thing is falling apart.”
Yet bankers in Paris and Tokyo say a solution, including even a divorce, would likely see the value of both groups rise.
The strained relations between the two sides, with both chief executives Mr Saikawa and Renault’s Thierry Bolloré barely on speaking terms, makes discussion on the future of the tie-up much harder.
The reality, says one senior Nissan executive, is that they are like an estranged couple at either end of a long dining table. “There is nice food in the middle, but to get it, they have to agree to meet there,” he says.
Mr Senard, the Renault chairman, argues that a new governance structure at Nissan can kick-start the relationship, according to people familiar with his thinking. That was one reason, they say, that he pushed for Mr Bolloré to be included on one of the newly constituted committees. The move backfired, enraging many in Nissan.
Some suspect that Nissan and Renault will meet in the middle of the table and enjoy the proverbial banquet — others say the pair may simply starve. But there is a grudging realisation that although the first iteration of the alliance may have worked for 20 years, it is a model that will struggle to replicate.
In an open letter sent last week to the Renault chairman, AllianceBernstein’s Max Warburton, a prominent auto industry analyst, said that from Mr Senard to Mr Macron, no one appeared willing to admit what is obvious: that the days of close co-operation are over. The letter advised Renault to make a clean break with Nissan and pursue a merger with Fiat Chrysler.
“You appear to be clinging to the idea that the alliance with Nissan can be preserved,” wrote Mr Warburton, adding that cultural ties and geographic overlap make the French and Italian groups better suited, while Nissan’s Japanese retrenchment will make it “difficult, perhaps even impossible, for Renault and Nissan to work together like they used to”.