Via Financial Times

In the bar at Yokohama’s swish InterContinental Hotel in late October, Renault chairman Jean-Dominique Senard was drinking with the future leadership team of Nissan when he received a call from a French government official.

Fiat-Chrysler, the Italian-American carmaker that months earlier had walked out on Renault, was to merge with its French arch-rival PSA.

The implication for those around the table was obvious — Renault and Nissan would have to set aside their substantial differences and make the alliance work.

“We cannot survive if we don’t move quickly now to do real sharing,” says Mr Senard, who plans to unveil several combined projects in the new year designed to demonstrate that, finally, the alliance can function.

A year on from the arrest of Carlos Ghosn, who held the companies together, the alliance, which includes Mitsubishi Motors, is fighting for its place in a car industry beset by falling sales, the global trade war, and burdensome investments into electric vehicles.

While PSA and FCA are merging to pool resources, and Ford and Volkswagen have created their own alliance to combine some investments, the oldest auto alliance risks being left behind.

Carlos Ghosn, former chairman of Nissan Motor Co., center, sits in a vehicle as he leaves his lawyer's office in Tokyo, Japan, on Wednesday, March 6, 2018. Ghosn walked out of a Tokyo prison on bail after 108 days in detention, vowing to fight allegations of financial crimes that could imprison the former Nissan chairman for as long as a decade. Photographer: Takaaki Iwabu/Bloomberg
Carlos Ghosn’s stunning arrest last year on charges of financial misconduct broke open the nationalist fissures in the Renault-Nissan alliance

Apart from jointly procuring components, the true cost savings achieved by the alliance have been slight, while many of the achievements held up during the Ghosn years have been revealed to be more smoke and mirrors.

Left without FCA as a potential partner, Renault’s focus has been forced back to its Japanese bedfellow of two decades’ standing.

The two companies had been corralled into co-operation for more than a decade by Carlos Ghosn, the totemic leader who set them on a convergence course. Yet his stunning arrest last November on charges of financial misconduct broke open the nationalist fissures that had been inching wider under his tenure. He denies all the charges.

In January, Mr Senard was parachuted into Renault by the company’s largest shareholder, the French state.

His age — he is 66 — prevented him, under Renault rules, from being named chief executive, so he took the title of chairman, with specific orders to restore peace to the riven enterprises.

It looked like a doomed task. By the middle of the year, Renault and Nissan’s chief executives Thierry Bolloré and Hiroto Saikawa, who had co-operated with each other while Mr Ghosn was in charge, were not on speaking terms and refusing to return phone calls, according to people on both sides of the alliance.

Board decisions, once taken, were never implemented, undermined by systemic disregard for the parties across the table and the bedlam that followed Mr Ghosn’s arrest. Paralysis set in.

A factory employee works on a car assembly line at the Renault factory, in Maubeuge, northern France, on November 8, 2018. (Photo by LUDOVIC MARIN / AFP) (Photo credit should read LUDOVIC MARIN/AFP via Getty Images)
The Renault factory in Maubeuge, northern France. The carmaker owns 43 per cent of Nissan © Ludovic Marin/AFP

To Mr Senard, who earlier in his career pushed through a painful restructuring of aluminium group Pechiney and closed factories at Michelin while chief executive of the tyremaker, the extent of the turmoil was breathtaking.

“I had my doubts it would survive,” he admits in an interview in Paris. “Sometimes I say to myself alone in my office, good gracious, this is really tough.”

When asked directly if there was a moment over the past year he thought the whole edifice would come crashing down, Mr Senard smiles: “If I answer now, no, I never had that, you would not believe me and you would be right.”

The depths of dysfunction became apparent ahead of one board meeting, when the two sides refused to bring sensitive benchmarking data — details of comparisons about profits and costs with rivals. An exasperated Mr Senard said he would not attend unless the documents were shared. He also became embroiled in the infighting, threatening Mr Saikawa in June over Nissan’s refusal to appoint Mr Bolloré to several key board committees.

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Until Mr Senard was appointed chairman in January, Mr Saikawa said his efforts to connect with Renault were hobbled by suspicions that people inside Nissan had been behind Mr Ghosn’s downfall, something the Japanese company firmly denies: “In the beginning, it was a huge burden that we couldn’t hold any regular communication.”

Both companies realised that change at the top was needed. But Mr Bolloré, having lived in Mr Ghosn’s shadow for so many years, was not about to go quietly. He sought to build power structures of his own within the company, using behaviour that echoed some of the more domineering instincts of his former mentor, according to people within Renault.

Mr Senard tried to convince him to leave quietly, without success. His eventual ousting, in October, was greeted with widespread relief outside his circle. Mr Bolloré declined to comment for this article.

(FILES) In this file photo taken on July 25, 2019 Nissan Motors CEO Hiroto Saikawa leaves a press conference after announcing first quarter financial results at the company headquarters in Yokohama. - The CEO of crisis-hit Japanese automaker Nissan admitted on September 5, 2019 he received more pay than he was entitled to but denied wrongdoing, as the firm's former chief faces financial misconduct charges. (Photo by TOSHIFUMI KITAMURA / AFP)TOSHIFUMI KITAMURA/AFP/Getty Images
Hiroto Saikawa resigned as chief executive of Nissan after disclosures of improperly paid compensation © Toshifumi Kitamura/AFP

Mr Saikawa’s departure was no less cathartic at Nissan. On the day he resigned following disclosures of improperly paid compensation, staff circulated WhatsApp pictures of champagne bottles.

From the factory floor to the boardrooms, the leadership changes cleared air that had been poisoned by months of hostility. “When I came out of the last board meeting, I said to myself, gee, this is another world,” says Mr Senard.

Nissan’s new chief executive Makoto Uchida began last week, while Renault is at the closing stages of appointing a new chief.

The frontrunner is believed to be Luca de Meo, who leads Volkswagen’s Spanish Seat brand, a role that makes him no stranger to negotiating national identities within a single business.

The boardroom turnover marks the end of the bloodletting at the businesses to rid them of executives — and nationalist forces — who seemed to work actively against the partnership.

“If you wanted to kill the alliance, you would not have done anything else,” says Mr Senard, his diplomatic mask slipping in a rare flash of anger, leaning forward with his index finger raised to mark the moment. “I know exactly who was behind that. These people are no longer in the company.” He adds: “For the alliance, the future is bright. I would not have said that two months ago.”

FILE PHOTO: Renault CEO Thierry Bollore attends the 89th Geneva International Motor Show in Geneva, Switzerland March 5, 2019. REUTERS/Denis Balibouse/File Photo
Thierry Bolloré was ousted as Renault’s chief executive in October © Denis Balibouse/Reuters

Yet real change will take far longer. “It runs deep down into the organisation, layers and layers and layers deep,” says one former high-ranking Nissan director. “Getting rid of a couple of people will not change the organisation”.

The new year may bring answers, with a badly needed business reset planned for January. New joint projects will be launched, pooling development into areas such as electric vehicles and self-driving technology.

Each new venture will be headed by one person from one of the carmakers, who reports into the alliance board, with staff seconded on to the team from either side. The aim is to avoid the mirage of co-operation that existed under Mr Ghosn.

Gone too will be the prior obsession with becoming the largest carmaker in the world, which drove a sales strategy that undermined profitability at the two companies, and obscured the lack of co-operation under the surface.

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“This number one worldview, it was true factually when you do the numbers,” says Mr Senard. “But it was totally artificial when you dig into the subject.”

But investors who have heard claims of cost savings before will need convincing that the new projects are bearing fruit — and profits. “The areas of co-operation look so flimsy,” says Philippe Houchois, an auto analyst at Jefferies. “It would really help investors if they were able to quantify this co-operation.”

Yet among executives who witnessed the infighting during Mr Ghosn’s apparently golden years, a deep scepticism remains about the ability of the companies to play nicely together.

The chaotic year at Renault and Nissan

In this Wednesday, April 3, 2019, file photo, former Nissan Chairman Carlos Ghosn, center, leaves his lawyer's office in Tokyo. Tokyo prosecutors arrested Ghosn on Thursday, April 4, 2019 for a fourth time on fresh allegations that cut short his brief time outside detention. (Sadayuki Goto/Kyodo News via AP, File)
© AP

November 2018

Renault and Nissan chairman Carlos Ghosn is arrested in Tokyo, later charged with financial misconduct

January 2019

Jean-Dominique Senard is appointed as chairman of Renault, with the aim of restoring the alliance

May 2019

Renault and Fiat Chrysler are revealed to be in merger discussions

June 2019

FCA walks away from talks after just 10 days, blaming the French state

September 2019

Hiroto Saikawa resigns as chief executive of Nissan following revelations of incorrect pay

October 2019

The Renault board votes to remove chief executive Thierry Bolloré

October 2019

PSA and FCA announce plans to merge to create world’s fourth largest carmaker

“I don’t think you’ll find a single person in either business not being paid by the alliance that was supportive of the alliance,” says one former director. “I think ultimately it dissolves.”

Mr Saikawa disputes the claim, telling the FT: “The alliance is already part of the DNA for the new management team and the younger leaders in their thirties and forties, who joined the company after the Renault partnership had already been established.”

Still, the new structure also lacks a single leader for the businesses — with alliance decisions taken by the three chief executives in a four-person board chaired by Mr Senard. While this was done to avoid a repetition of the imperial style of Mr Ghosn, it risks hampering decision-making on thorny issues such as combining manufacturing operations or cutting weaker engineering elements.

“To make the alliance work, the decisions that have to be taken are really tough decisions,” says one former senior executive. “What you’re missing is the guy who is in command. [Changing chief executives] is a positive factor, but you need the driver but the driver is not there.”

The real fear inside both companies, particularly within Nissan, was always the prospect of a full merger.

Renault owns 43 per cent of Nissan as well as having power to name certain directors, while the Japanese group owns a 15 per cent non-voting stake in its French partner despite contributing more in terms of profits and revenue. Nissan also holds a stake in Mitsubishi.

The French state, which company insiders say still views Renault more as a state asset than an investment, does not wish to see its holding diluted, while Nissan executives are worried about any deal that reinforces French control over the combined group.

Mr Ghosn claims that a plot to overthrow him was launched within Nissan in order to prevent such a merger.

With a year’s hindsight, Mr Senard says that a merger “probably isn’t the ultimate step”, at least in the medium term. “It was seen in Japan as a real threat to its independence and to its pride,” he says.

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But even amid the height of the chaos over the summer, talks were still being held behind the scenes about the future shape of the alliance. Over the summer, Mr Senard, Mr Saikawa and Pierre Fleuriot and Masakazu Toyoda, the most senior non-executive directors at Renault and Nissan, discussed ways to level their capital structure.

At the time, Nissan officials were seeking voting rights to be attached to their stake in Renault, while it wanted the French company’s stake in Nissan to be effectively below one-third so that Renault would not have veto power over acquisitions and other strategic decisions, according to people close to the Japanese company.

A merger was discussed as recently as February by Mr Senard and Mr Saikawa, though Mr Senard told the Financial Times that a combined entity is now “out of my mind”. He stresses that the merger was just one of a range of options on the table — including breaking up the whole thing.

Talks over changing the ownership structure, however, continued, with Mr Senard and Mr Toyoda communicating amid the havoc via their lawyers.

A deal that sees the two companies reorder their respective stakes may follow a successful launch of new combined projects. “The first thing is to deliver,” says Mr Senard. “My obsession now is to show some change in 2020.”

Both companies urgently need to get their stagnating financial performance under control. Nissan’s cash flows are roughly neutral and could go negative if its performance deteriorates further.

With the company widely expected to reduce its annual dividends on a collapse in profits, that would put further pressure on Renault, which analysts say faces a cash crunch in the near future.

“We model virtually no dividend from Nissan to Renault,” says Mr Houchois at Jefferies. “Without it, they are absolutely naked, everyone can see how vulnerable they are now.”

Last month, Nissan warned its annual net profit is expected to fall 66 per cent from a year earlier as sales fell in all of its core markets including the US.

“People may think Nissan hit a bottom in the last quarter, but that’s probably too optimistic,” said one Hong Kong-based investor.

The need for survival is infused with new urgency. “Both sides appear to believe that they are too small to survive alone and, without obvious alternative partners, they need to find a way to coexist and co-operate,” says Max Warburton, an auto analyst at Bernstein who believes the groups will eventually go their separate ways.

Neither Mr Senard, or Mr Uchida, have yet outlined how the alliance will deliver that recovery in earnings, yet the bets the Renault chairman is taking on the future are twofold.

He thinks a recovery in earnings is the necessary proof to make sure the alliance can survive in the near term. Just as importantly, he believes he has to give both sides room to breathe. “This alliance can only work if we close ranks and work in common sense, but keep the feeling that Renault is a French company, and Nissan a proud Japanese one.”