The relation between the two car companies, French Renault
Renault took on the challenge to put Nissan in order at times of maximum danger in 1999
The firm was a basket case of mismanagement which scared away Ford (early on)
Undoubtedly a much closer call than Renault let on
Compounding dubious industrial value of the Nissan car line-up with a tarnished brand name and high debt, the cultures of Japanese and French firms were poles apart, and Japanese loss of face was a recipe for silent resistance by the rank-and-file
In appearance, the French firm might have taken a gamble
It did not
Renault's strategic choice was a fight for survival of a mid-sized automotive firm in a globalized market
Crucial and sensible at the time, this strategic sense of purpose has weighed on Renault's relationship with Nissan ever since
The French firm and its Board can be faulted for their reluctance in bringing their original strategic insight to a logical conclusion
In a globalized car market, a global firm has a fighting chance, a French mid-sized firm in alliance with a Japanese equally mid-sized firm has not
At first, with Nissan on the brink, it was too early to consider a merger of equals... and then, it is was too late with Nissan pulling ahead of its French partner
Governmental interference - by the Japanese and by the French - equally eager to vaunt a national champion - could have been foretold
The French, with a sense of entitlement derived from their significant stake (43%) in Nissan's equity, and the Japanese, out of national pride, refuted the very foundation of strategic commitment
The overblown expectations of both partners ultimately broke the grip Mr. Ghosn had on the Alliance of both firms
At no point in this sorry tale did French or Japanese officials offer credible contributions to strategy
Understandably so because their focus has solely been on national interests
In the end, the two firms remain medium-sized and remain financially constrained
To wage battle in a global marketplace, calling for large investments in the production of electrical vehicles, a new strategy is on the drawing board
Integrated carmakers are going the way of the dinosaurs
Fragmented supply chains, sharing expertise with novel industrial partners - battery makers, semiconductor and software designers - are the new reality
Audacious and risky, Renault's strategy grapples with the fall-out
Snatching victory from the jaws of defeat
Carlos Ghosn was the architect of the Japanese firm’s revival
Taking on the culture shocks by the sheer weight of his personality, Mr. Ghosn dared his Japanese colleagues at Nissan to overturn traditional supply chain practices which had burdened Nissan, in a no-win game, with 15% to 25% overcharge in purchasing costs
There is no doubt that Mr. Ghosn and his cadre of Western experts were like a breath of fresh air
Critically, they encouraged a new generation of Japanese managers to rise to the challenge through a set of cross-functional teams, to identify and spearhead the radical changes that had to be made
And they did
In a January 2002 Harvard Business Review, Mr. Ghosn discussed in detail how cross-functional teams in areas of responsibility ranged from research and development to organizational structure to product complexity addressed the key drivers of performance
The revival plan, with a myriad of cost savings devised by Nissan’s own managers, set the firm on a growth path which proved remarkably successful in the following decade
The importance of respect
Notably, Mr. Ghosn concludes his HBR remarks by insisting on the respect shown to Nissan’s identity and corporate culture
With the benefit of hindsight, respect seems tainted by nostalgia of the best of old times
During Nissan's industrial revival, respect bred trust and was all the more powerful as it was unanticipated
Trust however is fickle
Trust needed to be validated again and again to secure continuity between the firms
This was not to be
Renault’s large stake in Nissan, 43%, remained a ‘half-way’ house
Shareholder imbalance would become a hotbed of mistrust and downright defiance seeping across the industrial organization of the Japanese firm
Short of full control, the dependency was feeding Japanese suspicion of French potential abuse and justifying Japanese reservations of ‘true’ association, especially in research and development
The High Hand (of the French State)
The High Hand is the best hand in any round of poker and the French could not quite give up hope to win the jackpot
Only too happy to boast about the Renault-Nissan Alliance global dominance, meddling French officials carried little weight but were undoubtedly irksome to the Japanese
French politics made sure there was worse to come
In 2015, the Japanese sense of victimization was aggravated by shareholder manipulations favoring the State, a clear abuse of power, as we reported in ‘Affaire Carlos Ghosn”
- first by increasing its shareholding by 4.73% in April 2015 from 15% to just under 20%, days before Renault was set to pass company by-laws specifically blocking the award of double voting rights favoring the State shareholding, effectively forcing Renault to submit to the common rule pursuant to the ‘Florange’ law
- by selling the 4.73% stake to institutional investors in November 2017, bringing ownership of the French State again down to 15.1%, just above Nissan’s share
Obviously, by selling the 4.73% stake to Nissan, France could have paved the way for a more trusting operational cooperation, by rebalancing the cross-shareholding agreement, an option staunchly defended by Mr. Ghosn since 2015
This was not to be the road chosen by French officials, clearly more concerned by their controlling stake of Renault on that day than by industrial reality of the Alliance tomorrow
Announcing the sale, the French State reaffirmed that the governance agreements with Renault regarding the double voting rights were to remain entirely in place, closing the door for a capital structure integration between the two companies
Attempts by Carlos Ghosn to assuage Nissan turned out to be no more than a lull in the storm, as reported in Ozymandias - the Fall of an Automotive Empire
In 2018, according to Mr. Ghosn’s associate Greg Kelly, vindicated by Tokyo District court which acquitted him on March 3, 2022 (after retaining him in Japan for 1000 days),
- the ouster of Mr. Ghosn stemmed from Renault’s decision to force the integration of the two main Alliance partners, Renault and Nissan: “It came out at [my] trial that an early 2018 resolution by Renault’s board instructing Ghosn to merge Nissan and Renault triggered the coup.”
- “That resolution also made it clear that if Ghosn failed to merge the operations, he risked losing his contract as Renault CEO the following June.”
There is no way to confirm these assertions, which appear credible
However, only the outcome – and the future of the Alliance – should matter now
Revamp or retreat
At Renault, a strategic rethink was inevitable to mend the broken relationship with Nissan
However, negotiations around terms of a ‘revamped’ Nissan-Renault Alliance have proven to be difficult
Leaked in early October ’22, postponed in early December ’22, an announcement is expected to be made in late January ‘23, according to Bloomberg
The pre-announcement has been floated by the financial press, if only in parts
Renault’s retreat, supplemented by some face-saving transitory measures, appears to be final
- Renault will reduce its stake in Nissan from 43% to 15% - in line with Nissan’s stake in Renault - a demand repeatedly voiced by the firm in the past and a non-starter for the French at the time
- The balance (28%) is transferred to a Trust which will sell down its holding by agreement of both firms, and no more than 5% at a time
- Renault will benefit from dividend payout from the Trust stake, as long as it lasts
Voting rights on the Trust shares are not public knowledge as of this writing...
The leaked part of the agreement could be called good ‘housekeeping’ to resolve old grudges and address deep-seated and rampant mistrust, in an Alliance in name only
The ‘revamp’ will be by far the most critical part of the forthcoming agreement
Renault could expect extremely consequential commitments by Nissan, to compensate for the radical resizing of its stake
What such a 'commitment' might be remains in doubt
- The French carmaker is floating the launch of a stand-alone electrical vehicle (EV) firm
- A 15% stake of Nissan in the venture is expected to $750 million
The launch of an EV-firm, in combination with internal restructuring at Renault, is in step with the radical transformation cast on the industry
However, contribution of technological expertise on electrification by the Japanese firm in the EV-firm has been in discussion for more than a year
With Nissan's well-known reluctance to share intellectual property, the groundwork of the renewed 'Alliance' remains frailer than Renault seems to let on
The cartwheels of Renault's 2023 strategy
According to Wikipedia, a cartwheel is a sideways rotary movement of the body. It is performed by bringing the hands to the floor one at a time while the body inverts
The rejection of a merger of equals, advocated by Carlos Ghosn in 2015, closed a major strategic venue
In lieu of full collaboration with Nissan, Renault has to imagine multipronged associations to weather the novel challenges of transportation
- financial stakeholders to support research and production formats of the future
- technological stakeholders to accelerate the launch of new car line-ups
- marketing stakeholders to buttress Renault's presence of global markets
The strategic bet, still under review by Renault and its potential partners, should be as bold as the Nissan bailout in 1999
The range and the variety of potential alliances speaks volumes about the complexity of the project
- According to Reuters, a powertrain company with an annual production capacity of more than 5 million "low-emission and hybrid engines and transmissions" will be established with China's Geely Automobile Holdings
. Saudi Aramco is under discussion to take a 20% stake in the joint venture, leaving Renault and Geely with 40% each - The stand-alone electrical vehicle (EV) firm, planned by Renault, remains under review. The terms of Nissan's technical participation (and the level of the firm's financial stake) are undoubtedly complex
- In a revival of the former Alliance between the French and the Japanese firms, a joint production and distribution in India might be on solid ground
In the fight for survival of a mid-sized automotive firm in a globalized market, the trial is out
Formal announcements are expected by late January
In auspicious ways, the defeat of Renault's global ambitions makes a compelling case for a holding with multiple stakeholders and protective of a brand - oddly glorious after all