Renault looks to rebuild trust with Nissan — and its merger hopes

Three weeks ago, the heads of Renault, Nissan and Mitsubishi pledged the start of a new era, and the end of a chapter that included divisive merger talks, the arrest of Carlos Ghosn and an existential crisis at the world’s biggest car alliance.

Behind the backslapping and talk of a “win-win-win” partnership, Renault, supported by the French government, is itching to revive merger talks with Nissan and Mitsubishi that will test the post-Ghosn relationship to its limit, say people close to the alliance.

And, once this consolidation is on track, bigger ambitions lie ahead. The alliance has its eyes on acquiring another partner, potentially Fiat Chrysler, to cement its position as a world-leading company.

Despite the need to consolidate to keep ahead of rivals such as Volkswagen and Toyota, it is likely to be a slow process.

Even getting to the starting point of sitting down to talk about a merger is going to take months as new Renault chairman Jean-Dominique Senard has to gain the confidence of Nissan’s executives.

Despite marking 20 years as partners this week, trust between Renault and Nissan remains fragile with the Japanese group wary over resuming talks for further integration that will have to address the lopsided capital structure that favours the French carmaker.

The French group owns a 43 per cent voting stake in Nissan, while the Japanese company holds a 15 per cent non-voting stake in Renault and a 34 per cent stake in Mitsubishi.

The plan, say people in Paris, is to allow a few alliance board meetings to take place discussing purely operational matters before moving on to the trickier subject of the capital structure.

For years, the companies focused on synergies rather than tackling the underlying structure of the businesses.

“When you see some of the evolution of the alliance structure over the years, they were always put in place to get more synergies. All of the steps were leading towards how do we get more,” said Trevor Mann, the outgoing chief operating officer at Mitsubishi. “Do you have to do a fundamental change to get more? I think that is the open question the three CEOs and the chairman of Renault are considering.”

The French government, having learnt its lesson from past experience, will not exert pressure to speed up the process.

If trust is restored, Renault and the French state are expected to revisit earlier plans for an Amsterdam-based holding company structure, although people close to the situation cautioned that this only represents a starting point.

The idea, which was envisioned by Mr Ghosn months before his arrest, alarmed senior executives at Nissan, who feared a de facto French takeover that could bring plant closures and job losses, according to people close to the companies.

Some of these people said Paris could eventually sell down its holding of 15 per cent in Renault, either completely or by diluting it during a merger with Nissan.

One investor, whose fund previously held Nissan shares, said a merger would only make the company attractive again if the French government’s stake is reduced.

Even if Mr Senard is successful in restoring trust between the two sides, people who have worked with Nissan said it will be a challenge for a full merger to be accepted by the Japanese group’s engineers, who have resisted Mr Ghosn’s attempts in recent years to expand sharing of technologies and convergence of engineering.

“Japanese engineering is still a castle,” one person close to Renault said.

Another problem is the apparent leadership void with a number of senior executives leaving the Japanese groups.

“I did have some discussions [for a senior alliance role] but at the moment, the clarity is not there because they’re still redefining what they want to do. At some point, you have to make a decision for yourself,” said Mr Mann, who will leave Mitsubishi at the end of this month for family reasons.

Investors in Renault, Nissan and Mitsubishi will also want reassuring. They have become concerned after Nissan’s expansion in the US backfired. Nissan’s operating profit margin stood at 4.3 per cent in the latest quarter, just half that of Toyota.

Renault and Nissan also face threats to their core operations, with the US and Chinese slowdowns hurting the Japanese group, while the French carmaker is exposed to a stagnating European environment and volatile conditions in emerging markets, as well as being forced to exit Iran.

Since their peaks in 2007, shares in Nissan have fallen 39 per cent while Renault has dropped 53 per cent.

Two decades on from the start of their alliance, executives on both sides openly admit to lapses that would never have been acknowledged during the era dominated by Mr Ghosn’s obsession with numerical targets.

Decisions have become slower, and efficiencies were not as substantial as suggested in headline-grabbing “synergy targets” — figures that former executives said could easily be manipulated.

“In the existing set-up, we spent a lot of time to report to many, many layers of each of our companies, and this creates viscosity,” Thierry Bolloré, Renault’s chief executive, said at a recent news conference in Japan. “And our clear will is to make sure that we get rid of that viscosity.”

Those long-held synergy targets will probably be “sidelined” in order to focus on specific projects such as autonomous driving where the two sides think they can successfully pool resources, according to people close to the alliance.

“Joint purchasing was very effective but in other areas, we were stretching ourselves,” said one of the people.

Some suppliers who have worked closely with Nissan questioned whether Mr Ghosn’s numerical targets were solely to blame for the issues the alliance now faces.

“If you are going to set a common objective for everyone to pursue, it’s impossible to do that without any numerical target,” said Akihiko Shido, chief executive of Yorozu, an automotive parts maker. “Numerical target is not a negative legacy (of the Ghosn era) but the top management needs to set it so that people do not lose direction.”

First, however, both Renault and Nissan executives agree that substantial talks cannot begin until the alliance is stabilised under a new board. This will be formed by the head of the three carmakers — Renault, Nissan and Mitsubishi — as well as Mr Senard.

Critically, in addition to speeding up decision making, executives hope the new board will put each company in the alliance on an equal footing, addressing Nissan’s grievances over the unbalanced capital structure that gives the French carmaker a bigger say.

“2019 is a crucial year. We are going to see if Bolloré works well in his new role,” an official with knowledge of Renault’s operations said. “We are also going to see if the Japanese are ready to move forward in good faith.”




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