Renault-Nissan Alliance, the myth of "necessary rebalancing"

The rebalancing of the Alliance is now a 'chestnut' in the automotive press. In fact, the Alliance is unbalanced because what founded it was a call for help from a major manufacturer to which a lesser manufacturer responded and which did its job so well that the imbalance was confirmed. Add to this the arbitrations of the Alliance's boss, which are not very conducive to rebalancing, and we have a question which, for the sake of propriety, we refuse to close by reaffirming the right of the most capitalistically powerful. By dint of perseverance, the groundwork is being laid for a wholesale abandonment of legitimate control of one manufacturer by another. If, instead of resisting this pressure, we submit to it, the chestnut tree will die and the Alliance with it.

Since the forced departure of Carlos Ghosn (autumn 2018), since the rather clumsy management of the application of the Florange law to Renault (autumn 2015), since the imbalance in turnover, profitability and capitalisation has been affirmed, since the RAMA agreements and, finally, since the departure in 1999, the Alliance has been threatened. If this is the case, it is not, fundamentally, because the edifice rested on the shoulders of the man who held it at arm's length for almost 20 years. Renault, under the leadership of Louis Schweitzer, was doing wonderfully in 1999 and its management considered that it was urgent to internationalise and "intercontinentalise" the company, i.e. to strengthen itself in the enlarged Europe and to get out of Europe: the takeovers of Samsung Motors (as early as 1990) and of Dacia and the takeover of Nissan embodied this conviction. Renault had a mission to turn around Nissan and had a free hand to do so, as long as it remained "elegant" and did not humiliate Nissan and Japan.

The problem, of course, was that the question of what the organisational structure should be once the turnaround was complete was left open. Given the speed with which the turnaround was achieved, the issue quickly became important because, by having a presence in the US and China, Nissan was structurally larger and more profitable than the company that had turned it around and controlled it. This issue could have been partly resolved if it had been decided at the time that China would be a territory where, as in Russia, Brazil or India, the two manufacturers would try to succeed together.

As soon as Nissan could count on the leverage offered by Renault and its networks in Europe, Renault could rightly expect Nissan to take advantage of its anteriority and its very good relations with Dongfeng. We know that this was not the case and that Carlos Ghosn unilaterally decreed the famous Yalta which was in a way the zero case of application of the leader-follower principle (*). With hindsight, this decision by Carlos Ghosn, as well as the decision to remain at the head of the two companies when, in 2005, L. Schweitzer left the reins of Renault to him, generated the "Alliance problem".

Today, many actors claim that, structurally, the Alliance was unbalanced and A.G. Verdevoye quotes the following Verdevoye quotes "an internal source of the French manufacturer" who expresses the sort of false evidence shared: "One day, the Alliance will have to be rebalanced in one way or another".
Apart from the fact that there is nothing obvious about this (**), the question that, at the very least, must be asked is whether the time, the methods and the projects associated with this curious project are appropriate. The feeling that one gets from observing what has been going on since the arrest of Ghosn and the arrival seven months later of J.-D. Senard is that, for more than three years, Renault's managers have not known what to do with the Alliance and would like to "move on". This is the case of the President, who we remember militated for the FCA operation which he would have liked to lead, and who does not seem to have appreciated the fact that his reference shareholder ordered him not to let the prey go for the shadow and to take care of the Alliance. This is the case of Luca De Meo whose references to the Alliance are rare.

On the Renault side, the teams still refer to the Alliance and the mutual contributions are underlined. On the Nissan side, the "convergences" that were so much talked about in 2017 no longer seem to be a priority and the formal acceptance of the "leader-follower" principle - presented as new in Spring 2020 when it was supposed to have prevailed for years - is still struggling to be translated into reality. More generally, since the arrival of L. De Meo, there has been a dynamic in terms of brands, products, technologies and factories which refers to the use that the new leader has made of the financial situation which Renault was in when he arrived to mobilise the teams. By adding to this the opportunities which the combination of short-time working and the semi-conductor crisis have given him to obtain, at least temporarily, a real "pricing power", Renault seems to be in a position to face up to the deadlines to come, despite its Russian setbacks.

Since this revival of form does not owe much to the Alliance, it may be tempting to seek to continue on its own or with others. This is understandable. 
The problem is that, when Nissan was doing well, the American and Chinese rents allowed it to leave Renault far behind in terms of volumes and profitability but left Renault with the consequent and recurrent dividends associated with its 43% shareholding. By selling, at the worst moment, 28% for 4 billion euros knowing that the same operation would have brought in 12 in 2015, Renault would give up this windfall forever and it is not sure that the game is worth the candle.

Renaut would also lose its ability - admittedly problematic - to influence the course of life and strategy of Nissan. The future of the Alliance and its already rather problematic content would find it difficult to emerge strengthened: the option currently favoured is de facto the renunciation of 23 years of work in order to recover a few euros and a little peace of mind. There are undoubtedly better things to do, but to do this we would have to go back to the Nissan file.

Indeed, when we look at the electrics on both sides of the Alliance, we find analysts who claim that, in this area, it would be Nissan who would have the lead. In fact, the common platform used to develop the Ariya at Nissan and the Megane E-Tech at Renault is that developed by Nissan. However, reading the tests in the American or European press, it appears that the enthusiasm concerning the Renault product is hardly the same for Nissan which, it is said, has lost the advantage of the pioneer acquired with Leaf.  

More generally, Nissan's management seems very uninspired and it is as if the obsession with the Alliance, its rebalancing and the associated internal wars had been eating up all the energy or all the 'available brain time' of the top management for years. The fact that the accounts presented in the spring are positive cannot reassure us, Nissan is struggling and in choosing its management team in such a way that it is not too anti-Renault - without being able to be completely sure of this - we have probably omitted to ask ourselves if it would be capable not only of bringing the accounts out of the red but also of bringing the company out of the sort of strategic disinheritance in which it is lost. 

Abandoning the Alliance in 2022 and thus proving Carlos Ghosn's claim that it owes him everything is most probably not the best option. More than twenty years of working together to bring cooperation and convergence to life, willy-nilly, deserve more than this too easy sponge. Nissan is not in the catastrophic state it was in in 1999, but Nissan is not doing well and it is the role of the reference shareholder to be concerned about it. In any case, in order to deepen the Alliance or to unwind it without losing too many feathers, Renault has everything to gain from Nissan being in good shape.

17/10/2022

(*) See the interview given to the authors by L. Schweitzer in L'Epopée Logan.
(**) The unanimity of the investors and their advisors cannot be taken as an argument. See the comments reported by N. Bourassi in La Tribune.