Mitsubishi turnround raises questions for Nissan-Renault
Owner Carlos Ghosn seeks to cement Franco-Japanese alliance
The strong turnround at the scandal-scarred Mitsubishi Motors could jolt the fine power balance between Nissan and Renault as Carlos Ghosn looks to cement his Franco-Japanese alliance in the run-up to his retirement.
Analysts say the fast recovery of Mitsubishi, which is 34 per cent owned by Nissan, could increase the bargaining power of Japan’s second-largest carmaker when Mr Ghosn reviews the cross-holding structure of his global alliance.
Mr Ghosn, who is chairman of all three carmakers and the alliance, is exploring closer links between the three groups — although a full merger that would jeopardise their autonomy is unlikely.
He told the Financial Times last month that he is likely to step down as chief executive of Renault before his term ends in 2022. That suggests he is seeking to complete his task of making the alliance irreversible before he formally relinquishes operational control of the carmaker that he has led since 2005.
At a Mitsubishi shareholders’ meeting last month, Mr Ghosn flatly denied the possibility of the French carmaker taking over its Japanese partners. But the alliance structure, formed when Renault rescued Nissan from bankruptcy in 1999, has come under pressure in recent years as Renault has become the smaller partner in terms of production volumes and market capitalisation.
Speaking to the Financial Times, Trevor Mann, a Nissan veteran who joined Mitsubishi to help steer its turnround, did not rule out the option of Renault taking a stake in Mitsubishi.
“Is today the right time? Probably not. Could it happen in the future? Possibly yes,” Mr Mann said. “You have got to do it when it’s right and it makes sense for you. Renault does not have a direct holding in Mitsubishi. That is not stopping us from looking for synergies with Renault because we are part of the larger alliance.”
The French group still wields de facto control at the Japanese company through a 43.4 per cent stake, while Nissan has no voting rights at Renault despite its 15 per cent holding.
The alliance expanded to include Mitsubishi when Nissan acquired a controlling stake in its smaller rival for $2.3bn in 2016, catapulting the trio to the top league of global carmakers alongside Volkswagen and Toyota.
That investment came as Mitsubishi was grappling with a fuel economy scandal. Since then its fortunes have improved dramatically.
The company reported a 19-fold increase in annual operating profit to ¥98bn ($889m) in the 2017-2018 fiscal year, with nearly 30 per cent of its profits generated from alliance-driven cost reduction efforts.
“If Nissan’s bargaining position increases, Renault’s relative position will appear to have declined, which could upset the existing alliance between the two companies,” according to Takeshi Miyao, chief executive of auto consultancy Carnorama. “In order to maintain the power balance, it may be necessary for Renault to invest in Mitsubishi.”
While some analysts have warned that the benefits of the alliance could taper off, Mr Mann said he expected them to increase as the car industry addresses rising costs of greater investment in developing electric, self-driving and digitally connected vehicles.
The Renault-Nissan-Mitsubishi alliance is targeting €10bn of annual savings by 2022 from combining manufacturing operations across the world and using a shared platform for constructing electric vehicles and other models. Last year it achieved savings of €5.7bn, up 14 per cent from a year earlier.
Mitsubishi’s role in reshaping the alliance will depend largely on how sustainable its recovery is.
Nomura analyst Masataka Kunugimoto expects profits to continue expanding as Mitsubishi shares more technologies, components and vehicle platforms with Nissan and Renault. Yet despite its growth potential in south-east Asia, Mitsubishi's outlook in developed markets such as Japan and the US is uncertain.
“Our concern is that it is stepping up forward investments … too quickly, and substantially increasing promotional and advertising spending in Japan and North America, where returns are low and there is no guarantee of success,” Mr Kunugimoto said.
While Mitsubishi will try to improve its position in the US, Mr Mann said the market was not sapping its resources: “I’m not doing the US instead of something else. Our priorities really are to make sure that we have solid foundations in the ASEAN market.”