The deceptively high price of a untangling the Nissan-Renault alliance

Posted on

TOKYO – Carlos Ghosn was the engineer and duct tape of the alliance Renault-Nissan-Mitsubishi. Without him, it seems like the whole thing is falling apart.

But with platforms, procurement and plants shared over the Franco-Japanese collaboration, completing Ghosn & # 39; s creation would do more damage than keeping it together.

That is the dilemma faced by executives in Paris, Yokohama and Tokyo after Ghosn's arrest in Japan on suspicion of financial misconduct and his subsequent resignation as Nissan's president.

"Nissan will keep the alliance as much as possible," said Koji Endo, senior auto analyst at SBI Securities Co. "If they dismantle it, they would have to make considerably higher costs."

The downfall of Ghosn has prompted speculators among experts and politicians about the collapse of an alliance. Even Osamu Masuko, CEO of Mitsubishi, whose company joined the alliance in 2016, suggested that no one could match the unifying authority of the charismatic leader.

"I do not think there is anyone else on earth like Ghosn who could drive Renault, Nissan and Mitsubishi," Masuko told reporters in Tokyo.

& # 39; Point of no return & # 39;

Ghosn forced the companies to cooperate through pure will power. But since turning off the alliance in 1999, he has interwoven the companies in ways that make it difficult to pry apart.

"At operational level they have already passed the point of no return," says Tatsuo Yoshida, a senior auto analyst at Sawakami Asset Management in Tokyo. "It is almost impossible to separate."

Even in the best of times, Ghosn was an almost superhuman juggling act that had kept him in the air for the past twenty years, spraying between Tokyo and Paris.

The car manufacturers have been stitched together in a complex, somewhat counterintuitive web of cross-participations. Renault has a controlling 43 percent of Nissan. But Nissan, the larger, more profitable partner, only owns 15 percent of Renault and has no voting rights. Nissan also has a controlling interest of 34 percent in Mitsubishi. But Renault and Mitsubishi do not have cross-participations.

Complicating for the image, the 15 percent is owned by the French government of Renault. With double voting rights, the government is Renault's largest single shareholder. Nissan is sometimes guilty of being under the control of the smaller company and sees a faintest idea of ​​the suspicion that the government is interfering.

"Until Monday, of course, there were people who were negative about the alliance, but they were in the minority," said a Nissan chief, who spoke on condition of anonymity. "Now I'm afraid that some conflict may have increased and the negative opinion is rising."

The director said it was important for both companies to present a united front now.

After he had dismissed Ghosn as chairman on Thursday, Nissan confirmed his support for his partnership with Renault.

"The board recognized the importance of the case and confirmed that the long-term partnership with Alliance remains unchanged and that it is the mission to minimize the potential impact and confusion on day-to-day cooperation," Nissan said in a statement.

In a telling sign of unity, the board – which according to the gossip would be divided over the lines of Nissan-Renault – decided unanimously to drop Ghosn. Voting in sync were the two directors of the French car manufacturer, including Bernard Rey, a manager chosen by Ghosn in 1999, to join the 30 Renault leaders that he would bring to Japan as a spearhead for Nissan's revival.

Much to lose

The alliance Renault-Nissan-Mitsubishi has become the world's largest automobile empire, with worldwide sales of 10.6 million vehicles by 2017. Massive brings billions of dollars in annual synergies – savings through shared functions.

Last year these joint savings increased by 14 percent to 5.7 billion euros ($ 6.5 billion). And the managers are planning to double that by 2022, to 10 billion euros.

Nowadays sharing the load is a must because of the substantial investments needed for new technologies in autonomous driving, connected cars and electric vehicles. Amidst a rapidly changing industry, size really matters.

The key, in alliance talent, is the so-called convergence between the business units of the companies. It helps partners through incremental revenues, cost savings and cost avoidance. Purchasing departments can meanwhile reduce prices with the help of economies of scale.

The partners often build vehicles for each other and maximize the capacity to operate more profitably. For example, the Renault plant in South Korea provides the US with around a third of its Nissan Rogue hot-selling crossovers.

Shared items

Further savings are due to cooperation in the field of product development. The Rogue rides on a new family of shared platforms for the alliance. The architecture is used in the crossover of the Nissan Qashqai, as well as in Renault vehicles such as the Espace crossover and the Talisman sedan.

It is called the Common Module Family platform and according to the alliance this can ultimately support 70 percent of all vehicles of the brand. Promised managers must reduce procurement costs by up to 30 percent and engineering costs up to 40 percent.

The same applies to engines and gearboxes. Three quarters of the company's vehicles run on shared powertrains.

When it comes to investments in next-generation technologies, the alliance also pools resources and shares. Alliance Ventures, the venture capital unit established in January, has a $ 1 billion war chest over the next five years. It invests in everything from high-tech mapping to autonomous driving.

And then there is Google. Renault, Nissan and Mitsubishi said they would work with the giant Silicon Valley in September to integrate the Android operating system into their vehicles.

The tie-up has had its misfires. Renault and Nissan, for example, separated each other from critical battery technology over performance and cost.

Critics note that many of the benefits are projected but have not yet been harvested. Max Warburton, senior analyst at AllianceBernstein research brokerage, said that Nissan and Renault do not necessarily have to suffer by going solo.

"The real synergies between the companies are surprisingly modest," Warburton wrote after Ghosn's arrest. "The importance of the alliance is probably exaggerated."

Nissan board member Toshiyuki Shiga is one of those who still see value. He said the alliance is needed in this age of rapid change. By the way, he told NHK that Ghosn would not rule forever.

"Sooner or later the time would come when we would have to discuss how we can promote the alliance without Mr. Ghosn, which we call the alliance," Shiga said. "So that time has now come, rather than later."

Naoto Okamura and Peter Sigal contributed to this report.