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Bold, Convincing Action Required By Renault’s Ghosn

Merger With Nissan Would Go Down Well
Rumour Mill Reckons Five Percent Margin Target Likely

A full merger with Nissan and a convincing plan that puts stockholders first would convince investors that Nissan-Renault CEO Carlos Ghosn is finally on the right track.

Ghosn is scheduled to present his new 3-year strategic plan on February 10. The fact that his previous plan for 2009 crashed and burned will probably induce some caution.

The plan for 2009 was unveiled in 2006 and included the following –

  • Renault would be Europe’s most profitable car company by 2009.
  • Renault would boost annual car sales by 800,000 vehicles to 3.33 million through the introduction of 26 new models.
  • Renault would raise profit margins to 6%, up from 2005’s 3.2%, and the dividend by 33 per cent.
  • The Laguna would be in the top three European models in terms of quality.

Bernstein Research analyst Max Warburton said Ghosn’s credibility was harmed by – .

  • The lack of realism in the original plan.
  • The clear evidence that Renault was not on track to hit the targets even before the recession.
  • Ghosn’s attempts to blame the recession for Renault’s total miss.
  • An apparent unwillingness to admit to management errors and miscalculations.

“In addition, he has always ducked the issue of the Renault-Nissan corporate structure. We’d argue that without a fair appraisal of what he got right or wrong the last time, and some new acknowledgement that the Renault Nissan structure is unsustainable, Ghosn’s promises for the next three years will ring hollow with investors,” Warburton said.

Warburton said Ghosn has to lay out a convincing plan showing that Renault can be profitable, that harnesses Nissan’s cash flows, and shows a more straightforward corporate structure.

“Why not go to 51 per cent (ownership of Nissan from 44 per cent). Why not merge,” Warburton said.

The French media has been buzzing with rumours ever since February 10 was declared to be the decision day. Latest reports say Ghosn will target an operating margin of five per cent over the three years and sales of three million by 2013 compared with 2.62 million in 2010. Le Figaro said in December the operating margin target would be 5.0 to 5.5 per cent by 2013.


Neil Winton – January 31, 2011

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