Ghosn arrest raises questions about Renault-Nissan alliance’s future

November 19, 2018 18:45 CET

PARIS — Carlos Ghosn’s potential ouster as chairman of Nissan after his arrest for alleged violations of Japan’s financial laws raises the question: Can the Renault-Nissan-Mitsubishi alliance survive without him?

Ghosn’s arrest doesn’t mean he will be found guilty and it’s unclear how long the legal process will take, but his arrest most likely signals the end of his 20-year relationship with Nissan, which Ghosn, turned around, earning him “business superstar” status in Japan and even a manga comic book on his life.

Ghosn’s standing in the complex Franco-Japanese industrial alliance also appears to be at risk. Ghosn, 64, guided the alliance to vie with Volkswagen Group and Toyota to be the world’s biggest automaker by volume, selling more than 10 million vehicles globally under 10 different brands.

Renault board’s lead independent director issued a statement Monday saying only that the board would meet soon and that he and two other independent directors wished to express their “dedication to the defense of Renault’s interest in the alliance.”

President Emmanuel Macron of France, which holds two seats on the board and a 15 percent stake in Renault, also expressed concern for the alliance, saying the government “would remain vigilant regarding the stability of the alliance” and vowed to support Renault employees.

‘Feeling of outrage’

Nissan CEO Hiroto Saikawa, who succeeded Ghosn in 2017, did not mince words on Monday in a press conference called after Ghosn’s arrest. “This is a negative impact of the long regime of Mr. Ghosn,” Saikawa, 65, said of the accusations against Ghosn. “This is a good opportunity to revise the way we work.”

Saikawa said the Nissan board will meet Thursday to discuss Ghosn’s dismissal. “The alliance partnership itself will not be affected by this event,” Saikawa said.

Saikawa, pictured, said too much power had been 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 to Ghosn, said he could not give specifics on the personal use of company money but that the wrongdoing was serious and had gone on for years. “To have so greatly violated the trust of many, I feel full of disappointment and regret,” Saikawa said. “It’s not just disappointment, but a stronger feeling of outrage, and for me, despondency.”

Alliance gulf opening

Max Warburton, senior analyst at Bernstein, said: “It is hard not to conclude that there may be a gulf opening up between Renault and Nissan.”

However, Bernstein suggested that fears about Renault and Nissan surviving as separate companies, should the alliance unravel, may be overdone. “The alliance has never been fully functional and integrated,” Warburton said in a note to investors. “The real synergies between the companies are surprisingly modest. Renault could be profitable even without Nissan.”

Renault could find other industrial partners, he said, or the importance of Ghosn may be overrated. Either way, he said, “It will be a long time before we have any clarity, but the importance of the alliance has probably been exaggerated.”

The framework of the alliance has been contentious almost since it began in 1999, when Renault took control of much larger 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 of Renault — and no voting rights. The presence of a French government share has largely ensured that any talk of a full merger remained just that. The companies remain separately traded, but share a growing percentage of platforms and components, and many of their operations are directed by cross-company teams. Last year, Nissan sold 5.8 million vehicles, versus 3.8 million for Renault, and before this week its market capitalization was roughly three times that of Renault’s.

But in recent months, attention has increasingly turned to how the complex web of cross-shareholdings between the alliance partners might be simplified to ensure it can thrive following the eventual departure of its main architect.

In March, sources close to the matter told Reuters the alliance partners were discussing plans for a closer tie-up in which Nissan would acquire the bulk of the French state’s 15 percent stake in Renault.

Nissan has chafed at being under the control of a smaller company. Ghosn’s continued hold on power — he is CEO and chairman at Renault as well as chairman at Mitsubishi and CEO of the overall alliance holding company — has sparked concern that power is too centralized. Ghosn never anointed a successor to the top alliance post, and several chief operating officers at Renault departed on less-than-friendly terms.

Ghosn’s pay has become an issue in recent years. He has drawn criticism 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 in his final year as Nissan CEO in 2016, and 7.4 million euros at Renault in 2017.

Ghosn’s role shifts

For his part, Ghosn acknowledged this year that he needed to address questions about succession and the future structure of the alliance. “People have legitimate concerns about the durability of the alliance,” Ghosn said in February. “Will the alliance survive me? That is really the question.”

Last autumn, Ghosn unveiled new five-year strategic plans for both the alliance and Renault Group, and this spring announced the creation of new cross company teams to improve synergies in the areas of engineering, manufacturing and purchasing, among others. Ghosn handed his day-to-day operations role at Renault to Thierry Bollore and took a 20 percent pay cut there. He said he wasn’t expecting to finish his new four-year term at Renault.

“I am concentrating my attention more on strategic issues, relationships with partners in the alliance and developing synergies, and selecting the top people for the future of Renault,” 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 of the stakeholders worry, so I need to respond,” Ghosn said. “They are asking for reassurance that this effort — which has been developing for the last 19 years — won’t have problems because we’ll have more conflicts than synergies.”

“There are some simple and concrete questions we need to answer, for example, what is the succession plan?” he continued. “There is no emergency at the moment, things are going well, but the sooner we answer these concerns the better. That’s 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 sooner rather than later, which means you can expect it to happen in the first part of my mandate.”

Bloomberg and Reuters contributed to this report

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