Renault-Nissan Tries To Tweak Current Deal.
“The big disadvantage remains. It is a collaboration that is more complicated and slower to make decisions than a classic company”
The Renault Nissan Mitsubishi alliance has been treading water for a couple years as the partners struggled to solve basic problems of ownership and direction.
Could the French-Japanese alliance survive as long as France retained excessive power? Or would the partners decide that the problems were just too deep and ditch the alliance. But while they dithered, global auto markets have been decimated by the coronavirus and the decision now seems to be “it’s very dangerous out there so let’s avoid anything complicated and just try harder to do the same thing only better”.
Or maybe Renault is awaiting new CEO Luca de Meo, hired from VW’s SEAT, on gardening leave until July, before taking big strategic decisions about ownership and policy.
The alliance said Wednesday it would revitalize its business by slimming down a bit and dividing up markets, technologies and competencies. The number of common engineering platforms would be halved to 4. Nissan would concentrate on the U.S., China and Japan. Renault would lead in Europe, Russia and South America. Mitsubishi got Southeast Asia and Oceania.
Nissan will lead the alliance on larger electric vehicles and autonomous driving. Renault takes control of smaller electric vehicles and connectivity. Mitsubishi got plug-in hybrids.
“The previous strategy was focussed on growth and volume as much as possible on differentiation among brands. What we have done so far is to refocus on competitiveness and profitability,” the alliance said in a statement.
Analysts weren’t impressed by the plans.
Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) in Duisberg, Germany, thought it pointed to over-elaboration and bureaucracy.
“The big disadvantage of the alliance remains. It is a collaboration that is more complicated and slower to make decisions than a classic company,” Dudenhoeffer said.
Dudenhoeffer described the new structure as a complicated matrix which will make for a difficult coordination process with the three partners.
“The goals of the alliance partners – as the past 5 years have shown – are quite different. The main problem that has been observed after the disagreements of recent years has not been solved in our opinion. Under Carlos Ghosn, the alliance worked for a long time because a head was at the top for alliance partners. Now you have to expect tedious agreements and decisions that are not made easier by the complicated matrix,” Dudenhoeffer said.
And complicated problems have been left to fester.
Renault bailed Nissan out of bankruptcy in 1999 and currently holds a 43% stake. Nissan has a 15% non-voting stake in Renault. After the Renault bailout, Nissan was quickly turned around and soon was much more profitable than Renault, although both sides of the deal have been in financial trouble recently.
Nissan has been unhappy with its second–class status and wanted the French government, which owns 15% of Renault, to engineer a more equal arrangement of shared power.
That problem has been glossed over.
When former chairman of the alliance Carlos Ghosn, was arrested in Tokyo in November 2018, he was actively seeking a merger and a way to persuade France to give up its stake, and for Renault to seek a more equitable ownership with Nissan.
Reuters Breaking Views column saw some scope for action when de Meo takes up his new job.
“Thankfully, there’s a way de Meo can smooth relations – and release some badly needed capital. Selling, say, a 5% Nissan stake would bring in around 815 million euros ($900 million), or roughly half of Renault’s 2019 pre-tax profit, according to Refinitiv data. It would also take Renault’s shareholding below a 40% threshold, thereby helping restore Nissan’s voting rights in Renault,” Breaking Views columnist Christopher Thompson said.
“It would look like a retreat, but the French would still hold the upper hand. Renault would remain Nissan’s largest shareholder. And, while Nissan would have a greater say in Renault, it would play second fiddle to the Élysée, which controls 28.6% of the votes. A detente, however, should smooth the way for technology sharing, and possibly a full-blown merger. If de Meo wants to strengthen the alliance’s new-found trust, he should address its unbalanced governance,” Thompson said.
Norddeutsche Landesbank Girozentrale analyst Frank Schwope didn’t much like what he saw either. The alliance would be much less efficient than an outright merger and it wouldn’t end Nissan’s unhappiness with the power imbalance.
More unstable than a merger
“The new alliance model is intended to reduce costs and stabilize the alliance. A merger of the companies, as Carlos Ghosn once intended, has long been off the table. However this alliance is much more unstable than a merger,” Schwope said.
“It is questionable whether the new model also eliminates the dissatisfaction of the Japanese partner Nissan (who’s profit) has often supported Renault’s results in recent years. Ultimately, Nissan sees itself as the stronger partner, although Renault holds 43% of Nissan shares,” Schwope said.
But Schwope conceded that dismantling the alliance under current coronavirus conditions might be difficult, and looked to a possible merger with Daimler as a better long term solution
Nissan and Renault will announce big production cuts and layoffs separately on Thursday and Friday,
Reports earlier this month suggested Nissan might shut its Barcelona, Spain plant and transfer production of pick-up trucks and electric vans to Renault. Other reports suggest Renault might move parts of its SUV production to Nissan’s big factory in Sunderland, England. Renault is likely to shut-down even iconic vehicles like the Espace and Scenic minivans. Nissan is expected to cut 20,000 jobs in Europe and concentrate on the U.S., Japan, and China.
Nissan is expected to announce a $2.8 billion, 3-year cost cutting plan.
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