Renault “Spy” Shenanigans Bodes Ill For Ghosn

The strange affair of the three “spies” at Renault, fired for betraying electric car secrets and then reinstated after grovelling apologies conceding that they were innocent, is likely to undermine top management for some time to come.

Investors though believe CEO Carlos Ghosn and his chief operating officer Patrick Pelata, will manage to hang on to their jobs.

“First, it calls into question Mr Ghosn’s continued stewardship. He has distanced himself from this bizarre affair, but it happened on his watch,” said the Financial Times’ Lex column.

Renault, owned 15 per cent by the French state, fired three senior employees in January for allegedly selling industrial secrets about its electric-car programme. Renault admitted in March that there was in fact no evidence of wrongdoing by them, and offered to reinstate them. The case caused some friction with China after reports that it was involved in the case. Renault, presumably at the insistence of an embarrassed French government, subsequently talked down any link with China, which denied involvement.

According to the Wall Street Journal’s Heard on the Street column, evidence is mounting that Renault itself was the victim of a scam.

CEO Ghosn’s reputation has taken another battering. His much trumpeted Commitment 2009 targets for profits and quality crashed and burned. That didn’t help the CV. But investors won’t like uncertainty at the helm in the face of current problems, and that could be a plus for Ghosn staying on.

“Renault targets an operating margin of at least five per cent in 2013, compared with 2.8 per cent last year. Its ambitious €4 billion electric-car programme is in partnership with Nissan, now grappling with disruption from Japan’s earthquake. It isn’t the moment for Renault to lose its chief executive, when Mr Ghosn also is CEO of Nissan,” said the Wall Street Journal’s column.

“Mr Pelata seemed the natural successor to Mr Ghosn at Renault. But the recent scandal has tainted him,” the column said.

UBS Investment Research also thinks Ghosn and Pelata will survive.

Weakened
“Top management comes out weakened, in our view, which casts a shadow on credibility and leadership skills. While we cannot exclude further instability later on, we think stable executive direction is critical to deliver on the recently announced plan, and Carlos Ghosn has a key role to play over the coming years in ensuring Renault-Nissan is evolved or re-defined for the future,” UBS analyst Philippe Houchois said.

When Ghosn announced his latest financial targets for Renault in February, investors were hoping to hear some ideas about cashing in on Renault’s 43 per cent stake in Nissan, or even taking over the Japanese firm completely. They were disappointed. Ghosn’s weakness may mean that decisive action on Nissan is less likely.

“That (progress towards a full takeover) may now be off the table, as the affair has embarrassed the French government, which owns 15 per cent of Renault. Mr Ghosn’s future rests on his ability to retain the government’s confidence,” the FT’s Lex said.

Neil Winton – March 27, 2011