Nissan Tied to Renault-Fiat Faces Less Independent Future

(Bloomberg) -- Nissan Motor Co. is about to find itself chained to a much bigger gorilla as Renault SA and Fiat Chrysler Automobiles NV proceed with a plan to forge closer ties. The Japanese carmaker doesn’t like it, but may not have much of a choice.

Fiat Chrysler announced a proposed merger with Renault, Nissan’s partner of two decades, on Monday that could create the world’s third-biggest automaker. While the pair isn’t seeking a merger with Nissan for now, the companies plan to eventually invite Nissan and Mitsubishi Motors Corp., Renault’s existing global alliance partners, to join forces, people familiar with the matter said.

Nissan wasn’t involved in talks between the two European car companies and doesn’t view an extensive deal between them as a positive development, people with knowledge of the matter said. Nissan isn’t interested in a scenario that pursues car sales for the sake of volume, said the people, who asked not to be identified because Nissan’s stance isn’t public.

“Given that Nissan has been so opposed to a merger, the question is whether forcing one will work at all,” said Koji Endo, an analyst at SBI Securities in Tokyo. “It won’t work if Nissan is forced into it.”

Fiat Chrysler’s dependence on the U.S. market, where its incentives are even higher than Nissan’s, isn’t attractive either, one person said. A representative for Yokohama-based Nissan declined to comment.

Nissan was left with less clout following the November arrest of Carlos Ghosn, the architect and chairman of the three-way alliance, for alleged financial crimes during his time as leader of the Japanese carmaker. The shock development, which came as a surprise to Renault, triggered a recalibration of their relationship. Coming at a time of upheaval in the global auto industry and falling profits for Nissan, the Yokohama-based company found itself under greater pressure to merge with Renault.

Although Nissan has asserted its independence in the partnership, it is struggling to keep pace with global rivals. Hurt by slumping U.S. sales, aging vehicle models and an out-of-sync product cycle, the Japanese automaker issued an outlook for weak operating profit and cut its dividend for the first time in a decade.

Read more about how Nissan needs a makeover to kickstart profits again

Renault and Fiat Chrysler estimate cost savings of more than 5 million euros ($5.6 million) as a result of their deal, and an additional 1 million euros in savings for alliance partners Nissan and Mitsubishi Motors. They made a combined 8.7 million cars last year, which would vault the pair past South Korea’s Hyundai Motor Group and Detroit’s General Motors Co. The world’s two biggest automakers, Volkswagen AG and Toyota Motor Corp., each topped 10 million vehicles last year.

Although Renault owns a 43% stake in Nissan, the Japanese automaker is the bigger partner by sales and owns 15% of Renault, with no voting rights. Nissan sold 5.65 million cars last year, more than Renault’s 3.88 million units, but its profitability has been on the decline. Last year, the Japanese carmaker’s operating profit fell below Renault’s for the first time in a decade.

What Bloomberg Intelligence Says

"The move might lead Nissan to distance itself to maintain management autonomy, resulting in less synergy than before."
--Steve Man and Kevin Kim, Asia industry analysts

All of this will make it easier for Renault to push for changes. The likeliest scenario will be a loose partnership for them to compete globally, according to Arifumi Yoshida, an analyst at Citigroup Global Markets Japan Inc.

“We see potential synergies between Chrysler’s strengths in large-framed vehicles and large SUVs, Fiat’s and Renault’s strengths in small cars, Nissan’s prowess in mid-sized monocoque vehicles, and Mitsubishi’s ASEAN market presence,” Yoshida wrote in a research note. “Nissan may welcome such an alliance, providing it is loose.”

Behind the talk is intense pressure on automakers to combine efforts and investments as the industry undergoes major shifts. With sales falling in the world’s biggest car markets, manufacturers are being pushed by regulators to electrify and reduce fleet emissions. They’ve also been forced to spend heavily on self-driving technology or risk getting left behind by new, deep-pocketed competitors like Alphabet Inc.’s Waymo.

“There isn’t much overlap and the key thing is finding synergies between Renault and Fiat Chrysler,” Endo said. “Even so, the merger talks will add pressure to Nissan.”

--With assistance from Kae Inoue.

To contact the reporters on this story: Ma Jie in Tokyo at jma124@bloomberg.net;Maiko Takahashi in Tokyo at mtakahashi61@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Reed Stevenson, Indranil Ghosh

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