The Not-So-Irreversible Renault-Nissan Allliance
(Bloomberg Opinion) -- Renault SA pledged back in February to make its 20-year-old Alliance with Nissan Motor Co. “irreversible,” after the shocking arrest of the French carmaker’s boss Carlos Ghosn on charges of financial misconduct exposed deep rifts on both sides.
That goal now looks further away than ever, with Ghosn’s dramatic escape to Lebanon and his repeated denials of the charges reopening old wounds, and neither firm succeeding in bridging the political and governance divide between France and Japan.
The Financial Times reports that Nissan is ramping up contingency plans in case of a breakup — which, while financially painful and costly for both sides, shouldn’t be ruled out. With both Renault and Nissan under new management, and advocates of closer integration on the wane, time is running out to prove that this isn’t an alliance in name only.
The spectacle of Ghosn holding court for several hours in Beirut last week was a grim reminder of the Alliance’s fragility. Whether you believe in his conspiracy narrative or not, the political meddling clearly ran deep: Ghosn pointed to France’s doubling of its voting rights in 2015 as the seed of Japanese resentment against Paris’s out-sized influence within the partnership. The fact that Paris was dreaming of a full-blown merger, while the Japanese wanted nothing of the sort, shows that the fundamental issues around control and governance go well beyond Ghosn.
Renault Chairman Jean-Dominique Senard’s efforts to show that the Alliance is bigger than the man who forged it haven’t really paid off, either. Conversations about how to save the partnership have failed to get past the question of whether it should become more equitable: Renault, in which the French state has a 15% stake, owns 43% of Nissan, while Nissan owns 15% of its partner. Nissan has sought more sway in the alliance, including a reduction in Renault’s stake, given the Japanese company’s bigger size and superior earnings performance in recent years (though the latter has started to tail off). Meanwhile, Renault’s bungled attempt last year to strike a deal with Fiat Chrysler Automobiles NV managed to both annoy the Japanese and benefit its French arch-rival Peugeot SA, the company that Fiat is now set to merge with.
Politics and governance are one side of the equation — but what about money? It seems strange to let a corporate partnership fall apart after 20 years when it’s clearly been a financial success. Renault and Nissan’s Alliance sells over 10 million cars a year, almost on par with industry leaders Volkswagen AG and Toyota Motor Corp., and they’ve been avidly working together to find more synergies. The companies said in 2018 that their annual cost savings would exceed 10 billion euros ($11.1 billion) by 2022. In an industry that’s facing growing spending requirements amid the shift to electric cars, that’s an obvious advantage.
But even the financial benefits of the Alliance require a harmonious partnership. To achieve those savings, Renault and Nissan need to ramp up common manufacturing platforms and roll out more jointly-developed projects. The companies have pledged to build two-thirds of all cars sold on common platforms and three-quarters of all cars sold using common power-trains (up from one-third) by 2022. That looks hard in an environment where, according to the FT, the view inside Nissan is that the relationship is “toxic.” And the fact that both Renault and Nissan have recently moved to replace their CEOs shows how tough the post-Ghosn era has been.
Today, the best argument for keeping the Renault-Nissan Alliance together, like many an unhappy marriage, is the cost of breaking it up. At a time when national pride is trumping economic self-interest, that’s not good enough. Until those in charge can prove there is an incentive in closer cooperation, it will be hard to convince stakeholders on both sides that this is an irreversible alliance.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.
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