Carlos Ghosn’s scandal raises questions about the future of the Renault-Nissan alliance

Posted on

PARIS – The possible elimination of Carlos Ghosn as chairman of Nissan after his arrest for alleged violations of Japanese financial legislation raises the question: can the Renault-Nissan-Mitsubishi alliance survive without him?

The arrest of Ghosn does not mean that he will be found guilty and it is unclear how long the legal process will take, but his arrest most likely means the end of his 20-year relationship with Nissan, which Ghosn turned and "business superstar" yielded "status in Japan and even a manga comic book about his life.

Ghosn's position in the complex French-Japanese industrial alliance also appears to be in danger. Ghosn, 64, led the alliance to become the world's largest car manufacturer together with Volkswagen Group and Toyota, with sales of more than 10 million vehicles worldwide among 10 different brands.

The independent leader of Renault recommends Monday a statement in which it is only said that the board would meet soon and that he and two other independent directors wanted to express their "dedication to the defense of Renault's interest in the alliance".

President Emmanuel Macron from France, with two seats on the board and a 15 percent stake in Renault, also expressed his concern about the alliance and said that the government "would remain vigilant regarding the stability of the alliance" and promised Renault support employees.

& # 39; Feeling of indignation & # 39;

Nissan CEO Hiroto Saikawa, 65, who succeeded Ghosn in 2017, did not say anything on Monday in a press conference after the arrest of Ghosn. "This is a negative impact of Mr. Ghosn's long regime," Saikawa said about the accusations against Ghosn. "This is a good opportunity to review the way we work."

Saikawa said the Nissan board will meet on Thursday to discuss the dismissal of Ghosn. "The partnership of the alliance itself will not be affected by this event," Saikawa said.

Saikawa, pictured, said that too much power was concentrated on Ghosn.

"Looking back, after 2005 when he became CEO of both Renault and Nissan, we did not really discuss the implications," he said.

Saikawa, a long-standing lieutenant of Ghosn, said that he could not give details about the personal use of company money, but that the misdeeds were serious and had continued for years. "To feel so much trust in many people, I feel full of disappointment and regret," Saikawa said. "It is not only disappointment, but a stronger sense of indignation, and for me, despondency."

Alliance wave opening

Max Warburton, senior analyst at Bernstein, said: "It is difficult not to conclude that a wave can arise between Renault and Nissan."

Bernstein, however, suggested that fears about Renault and Nissan that survive as separate companies, if the alliance collapses, can be exaggerated. "The alliance was never fully functional and integrated," Warburton said in a note to investors. "The real synergies between the companies are surprisingly modest: Renault can be profitable even without Nissan."

Renault could find other industrial partners, he said, whether the importance of Ghosn can be overestimated. Anyway, he said: "It will be a long time before we have any clarity, but the alliance's interest is probably exaggerated."

The alliance framework was controversial almost since it began in 1999, when Renault took control of much bigger but ailing Nissan for the equivalent of about $ 5 billion. Renault has held a 43.4 percent stake in Nissan, which in turn holds 15 percent from Renault – and no voting rights. The presence of a share of the French government has largely ensured that every talk about a complete merger remained exactly that. The companies continue to trade separately, but share a growing percentage of platforms and components, and many of their activities are led by teams from different companies. Last year, Nissan sold 5.8 million vehicles, compared with 3.8 million for Renault, and before this week the market capitalization was about three times that of Renault.

But in recent months, more and more attention has been paid to how the complex web of mutual participations between the alliance partners can be simplified to ensure that it can flourish after the final departure of its most important architect.

In March, sources close to the Reuters case reported that the alliance partners were discussing plans for a closer relationship whereby Nissan would acquire the majority of the 15 per cent share of the French state in Renault.

Nissan ensured that he was under the control of a smaller company. Ghosn's continuing grip on power – he is CEO and chairman at Renault and also chairman of Mitsubishi and CEO of the general alliance holding company – has raised concern that power is too centralized. Ghosn has never anointed a successor to the top alliance post and several chief operating officers have left Renault on less than friendly terms.

The remuneration of Ghosn has become a problem in recent years. He has been criticized for collecting a salary from both Renault and Nissan and he was forced to deny reports that the alliance was setting up a secret bonus pool to compensate top executives. He received 9.2 million euros ($ 10.5 million) in his last year as Nissan CEO in 2016, and 7.4 million euros at Renault in 2017.

Ghosn & # 39; s role shifts

Ghosn, for his part, acknowledged that he had to answer questions this year about the succession and the future structure of the alliance. "People have legitimate concerns about the sustainability of the alliance," Ghosn said in February. "Will the alliance survive me? That is really the question."

Last fall, Ghosn unveiled new five-year strategic plans for both the alliance and the Renault Group, and this spring announced the creation of new cross-company teams to improve synergies in engineering, manufacturing and procurement, among others. Ghosn handed over his daily operational role at Renault to Thierry Bollore and achieved a salary reduction of 20 percent. He said he did not expect to finish his new four-year term with Renault.

"I focus more on strategic issues, relationships with partners in the alliance and developing synergies, and selecting the best people for Renault's future," he said in an interview with Automotive News Europe in October.

"I personally am not worried that the alliance will survive after I leave, but some stakeholders are worried, so I have to respond," Ghosn said. "They ask for reassurance that this effort – which has developed over the past 19 years – will not pose any problems because we will have more conflicts than synergies."

"There are a few simple and concrete questions that we have to answer, for example what is the succession plan?" he went on. "There is no emergency at the moment, it is going well, but the sooner we respond to these concerns, the better." That is why I said this year when I was elected for a new mandate (as CEO at Renault, for four years) that we would answer these questions earlier than later, which means that you can expect this to happen in the first part of my mandate. . "

Bloomberg and Reuters contributed to this report