After Ghosn, the auto-alliance faces an uncertain future

TOKYO – Just days after sealing their historic automobile alliance on March 27, 1999, Renault and Nissan executives inadvertently revealed a fundamental disagreement that was at the heart of their new partnership.

Moments after a press conference in New York, Louis Schweitzer, President and CEO of Renault, discussed the possibility of a future merger of the two companies.

At the same time, Yoshikazu Hanawa, President and CEO of Nissan Motor, expressed the opposite point just a few steps away. "It's a different alliance.It's not a merger.It's not a takeover," said Hanawa, according to a Wall Street Journal report. "It will be like that for a long time, forever."

For the remainder of his term, Schweitzer was a covenant guardian. But now, almost 20 years later, the old debate about the fundamental nature of the relationship is raging again. In recent months, the Renault camp has called for deeper "irreversible" integration between the two companies. The situation at Nissan is the same as it was in 1999: to death against a merger.

Other things have changed though. Nissan is no longer a struggling automotive company that desperately needs a recovering artist to reduce its costs and reduce them to the maximum. Renault, the dominant partner of the early years, saw its position in the global automotive market be below that of Nissan. And Carlos Ghosn, the man who has maintained this difficult alliance for nearly two decades, is now being sued by the Japanese authorities for alleged underreporting of his treatment.

When Tokyo District Public Prosecutors boarded the Ghosn Gulf Stream jet – tail number N155AN – at Haneda Airport in Tokyo on the afternoon of 19 November, he prepared a plan. which, he hoped, would finally solve the Nissan-Renault problem. It would crown a stellar career whose strong point was the rescue of the Japanese automaker.

Ghosn had a busy schedule in Japan, including a meeting with Tokyo Governor Yuriko Koike on the future of mobility.

Instead, he found himself sitting in a cell of about 5 square meters inside the Tokyo Detention Center. A few days later, Nissan's board of directors ousted him as president and his alliance partner, Mitsubishi Motors, followed suit.

As Ghosn prepares to fight the charges against it, the Renault, Nissan and Mitsubishi alliances have the task of restoring investor confidence while remaining attentive to technological changes, such as autonomous driving. Nissan itself is facing serious questions regarding its corporate governance following allegations regarding Ghosn's use of the company's funds and the processing of its compensation information .

The fight for power between Nissan and Renault has come to light, Nissan hoping to use the Ghosn scandal as an opportunity to increase its influence within the partnership to reflect its higher sales and corporate value. . Renault, which owns 43% of Nissan's capital, hopes to strengthen the control of its Japanese partner, either through a merger or through further integration of management.

The future of the alliance has become "unpredictable," said Takaki Nakanishi, chairman of the Nakanishi Research Institute.

"We do not know how all actors, including the French government, will act."

The turmoil also triggered a political quarrel between France and Japan. The French government holds 15.01% of Renault's capital, which holds 43.4% of Nissan's capital. Nissan, in turn, holds a smaller stake – 15% – in Renault. This unequal arrangement is the legacy of Nissan's rescue by Renault.

"The debate on [the future of] The alliance is highly political, the French government is talking about its own investment here, "said an analyst at an international consulting firm. We have entered a new phase of struggle for the defense of the national interest between France and Japan, particularly in employment. . "

The events that led to Ghosn's arrest were set in motion six months earlier, when a senior Nissan official began to scrutinize Ghosn's confidential financial information. He was shocked to discover any evidence of misconduct. "It does not have to continue," he recalls as he goes through the documents.

A very secret investigation team has been formed within the company, including this insider. The investigation was kept secret by many leaders of the company, including Ghosn. Sources told Nikkei that investigators had discovered that Ghosn had bought luxury homes in Copacabana and Beirut with company money. Expensive family bills were also sent to the company, sources said, revealing how the 64-year-old ruler had blurred the boundaries between his private and public affairs.

About the beginning of the internal investigation, Ghosn announced the study of the links between Nissan and Renault. The French government had told Ghosn that he wanted the alliance with Nissan to be irreversible.

Ghosn knew that Nissan's board of directors would oppose a full merger. Nissan President and CEO Hiroto Saikawa, who took over the daily management of Ghosn last year, had already made his objections known to the public.

People close to Ghosn said that one of his ideas had been to create a holding company that would have stakes in both automakers, allowing them to remain separate entities.

Even this has raised suspicions. Ghosn may have ceded some of the power he held on Nissan by giving up the role of general manager in Saikawa. But the big decisions were still in his hands.

The alarm bells rang out when Ghosn later hinted to other executives that after his move to the new structure, he intended to install himself at the top of the new entity.

In September, the board agreed to review the capital relations between Renault and Nissan. But the details of what that would imply were left out.

A Nissan official believes that Ghosn "would formally decide on the new structure next spring," which could coincide with a lavish ceremony in Paris celebrating the 20th anniversary of the alliance in March. If Ghosn had achieved his ambition by strengthening his grip on both companies, the scandal might never have been revealed.

Even as Ghosn set the stage, Nissan appealed to outside authorities. The company had forwarded to prosecutors the information gathered during its internal investigation. Renault and the French government were kept in the dark – a sore point for Paris.

"We have no information on the charges against Carlos Ghosn by Nissan, nor on the charges brought by Nissan to the Japanese justice system," complained Bruno Le Maire, French Minister of the Economy. and Finance.

"Founder of the alliance"

Schweitzer, the former president of Renault, dispatched Ghosn in 1999 to save Nissan, which was suffering from "three excesses" – too much capacity, too much manpower and too much debt.

Ghosn, a French citizen born in Brazil, received the name of "The Cost Killer" for his campaign of job cuts and efficiency at Renault. Once at Nissan, he challenged Japanese traditional business practices such as lifetime employment, seniority system and keiretsu – the united network of companies united by participation links, investments and other commercial relationships. He upset Nissan's naive business culture, listened to younger employees and distributed merit promotions, regardless of gender or nationality.

Because of its bold cost-cutting measures, major shocks have occurred in the automotive spare parts, steel, chemicals and other industries. The industrial upheaval has been called the "Ghosn shock". He is still credited with giving life to Japanese corporate culture and showing the way forward for Japan Inc.

Few would deny that Ghosn has achieved much more than cost savings. His habit of working from early morning until late at night earned him another nickname, "Seven-Eleven".

Along the way, he gave the example to the leaders of other Japanese companies. It was living proof that it was possible to break out of outdated management traditions.

However, he may have fallen to ruin in 2005, when he also became CEO of Renault.

"The capital relationship between Nissan and Renault, based on cross-shareholdings, was not conceived with the assumption that the two companies would be headed by one person," said a former senior executive involved in formation of the alliance.

Nevertheless, after Schweitzer's retirement from the board in 2009, Ghosn strove to create a builder able to compete with the world's largest builder. Thanks to investments in China and the acquisition of Mitsubishi in 2016, the Nissan-Renault alliance has been catapulted into the exclusive club of car manufacturers producing more than 10 million vehicles a year, alongside Toyota Motor and Volkswagen Group. Around the same time, Ghosn began to call himself the "founder of the alliance".

But as his grip on the companies tightened, Ghosn began to lose some of his most competent lieutenants. The executives he once relied on jumped out of the ship, depriving the group of talent but also of people who could have controlled his impulses.

Andy Palmer, the former Executive Vice President of Nissan, one of the defectors, made eloquent remarks during a visit to Japan in early November. Palmer, now the CEO of British luxury sports car builder Aston Martin, said he was gone in 2014 because he realized that he could never reach the summit as long as Ghosn is there.

Palmer told Nikkei that he had no intention of getting into power in his new job. "Many CEOs fail to [groom] successors, "he said.

At the time Palmer left Nissan, the alliance lost another key leader. Carlos Tavares, who held the position of chief operating officer of Renault and was widely regarded as Ghosn's alleged heir, joined the group PSA, the French rival of the automaker.

In the interview with Nikkei, Palmer wondered about Nissan's future given that Ghosn had lost two vital lieutenants. "He dropped both arms," ​​said Palmer.

Another key executive, Joseph Peter, Nissan's chief financial officer, left the company in May. A senior Nissan executive said the chief financial officer made several critical comments about the president's leadership, sparking speculation about a conflict with Ghosn.

Saikawa occupying daily details, Ghosn tours to Japan have become less frequent. Nissan employees say that even when he was in Japan, Mr. Ghosn was less present at the office and more distant operations.

As Ghosn's deputy commander, Saikawa helped advance the reforms. He is known to have led negotiations with tough counterparts, including affiliated suppliers to Keiretsu and major steelmakers, and, after joining the ranks of leaders, representatives of the French government and Mitsubishi Motors.

Since becoming CEO, Saikawa has had to deal with a slowdown in Nissan's operations in North America and the aftermath of a scandal in which vehicle inspections have been falsified.

The connection between Saikawa and Ghosn seemed to have disappeared the very night his former leader was arrested. At an extraordinary press conference, Saikawa did not apologize when he described Ghosn's "serious acts of misconduct".

Some members of the Renault alliance have suggested that Saikawa was leading a "re-japanization campaign" at Nissan and that the Ghosn scandal was being used as a tool to regain power.

"Do not take this as a coup," Saikawa said at the press conference following Ghosn's arrest.

A distorted relationship

The future of the alliance has already sparked a lively public exchange between Japanese and French officials. During an appearance on television after the Ghosn scandal, the French Minister of the Economy and Finance, Bruno Le Maire, expressed his support for the alliance and declared that it was not There was no reason to change its structure.

"We agreed with my Japanese counterpart that the rules of governance would not change," said The Mayor about meeting with Hiroshige Seko, Japan's Minister of Economy, Trade and Industry. November 22nd.

Seko retaliated later against his French counterpart. "It is not at all that we make promises of governance with other countries," said Seko at a press conference.

Such differences will color the discussions about the future of the revolutionary automobile alliance. Nakanishi noted that under Ghosn's leadership, Nissan and Renault were forming an "equivalent alliance" whose capital relations were distorted. With Ghosn, this needs to be fixed.

"The two companies could each hold a stake of about 20%, that would be one of the options," said Nakanishi.

A breakup of the alliance would leave each member in a weaker position to compete in a rapidly changing sector, he said. "Mutual trust is the key to advancing their relationship," he said.

Yet disagreements about the nature of the relationship have been a recurring theme from the very beginning. In March 1999, when Schweitzer and Hanawa disagreed as to whether the two companies would merge, Nissan's chief at the time offered a joke.

"Well, you know that in a relationship, a man and a woman may have different opinions about the meaning of the relationship," he said.

Nikkei senior writer Kunio Saijo, Nikkei commentator Atsushi Nakayama, and Nikkei editors Akihide Anzai and Masayasu Ito contributed to the writing of the report.