The deceptively high price of a untangling the Nissan-Renault alliance

TOKYO — Carlos Ghosn was the engineer and the duct tape of the Renault-Nissan-Mitsubishi alliance. With-out him, it might look like the whole thing is going to fall apart.

But with platforms, purchasing and plants shared across the French-Japanese partnership, unwinding Ghosn’s creation could do more damage than keeping it together.

That is the dilemma facing executives in Paris, Yokohama and Tokyo after Ghosn’s arrest in Japan on suspicion of financial misconduct and his subsequent dismissal as Nissan’s chairman.

“Nissan will keep the alliance as much as possible,” said Koji Endo, a senior auto analyst at SBI Securities Co. “If they dismantle it, they would face significantly higher costs.”

Ghosn’s downfall has spurred speculation among pundits and politicians about an alliance meltdown. Even Mitsubishi CEO Osamu Masuko, whose company joined the alliance in 2016, suggested no one could match the charismatic leader’s unifying authority.

“I don’t think there is anyone else on Earth like Ghosn who could run Renault, Nissan and Mitsubishi,” Masuko told reporters in Tokyo.

‘Point of no return’

Ghosn compelled the companies to cooperate through sheer force of will. But since seeding the alliance in 1999, he has interwoven the companies in ways making them difficult to pry apart.

“At the operational level, they have already passed the point of no return,” said Tatsuo Yoshida, a senior auto analyst at Sawakami Asset Management in Tokyo. “It is almost impossible to get divorced.”

Even in the best of times, Ghosn’s was an almost superhuman juggling act that kept him airborne much of the past two decades, jetting between Tokyo and Paris.

The automakers are stitched together in a complex, somewhat counterintuitive, web of cross-shareholdings. Renault has a controlling 43 percent of Nissan. But Nissan, the bigger, more profitable partner, owns just 15 percent of Renault and has no voting rights. Nissan also has a controlling, 34 percent stake in Mitsubishi. But Renault and Mitsubishi have no cross-shareholdings.

Complicating the picture is the French government’s 15 percent ownership of Renault. Wielding double voting rights, the government is Renault’s biggest single shareholder. Nissan sometimes chafes at being under the smaller company’s control and takes a dim view of any inkling of government meddling.

“Up until Monday, of course there were people negative about the alliance, but they were in the minority,” one Nissan executive said, speaking on condition of anonymity. “Now I’m afraid some conflict maybe has increased and negative opinion is rising.”

The executive said it was important for both companies to now present a united front.

Indeed, after ousting Ghosn as chairman late Thursday, Nissan reaffirmed support of its partnership with Renault.

“The board acknowledged the significance of the matter and confirmed that the long-standing Alliance partnership with Renault remains unchanged and that the mission is to minimize the potential impact and confusion on the day-to-day cooperation,” Nissan said in a statement.

In a telling sign of unity, the board — rumored to be riven with division along Nissan-Renault lines — decided unanimously to depose Ghosn. Voting in sync were the two directors from the French automaker, including Bernard Rey, an executive handpicked by Ghosn way back in 1999 to be among the 30 Renault leaders he would bring to Japan to spearhead Nissan’s revival.

A lot to lose

The Renault-Nissan-Mitsubishi alliance has expanded into the world’s biggest auto empire, with global sales of 10.6 million vehicles in 2017. Massive scale brings billions of dollars in annual synergies — savings from shared functions.

Last year, these joint savings surged 14 percent to 5.7 billion euros ($ 6.5 billion). And executives plan to nearly double that, to 10 billion euros, by 2022.

These days, sharing the burden is a must because of the hefty investments needed for new technologies in autonomous driving, connected cars and electric vehicles. Amid a rapidly changing industry, size truly matters.

The key, in alliance parlance, is so-called convergence among the companies’ business units. It aids partners through incremental revenues, cost savings and cost-avoidance. Purchasing departments, meanwhile, can haggle pricing lower by leveraging economies of scale.

The partners often build vehicles for one another, maxing out capacity to ensure more profitable operations. Renault’s plant in South Korea, for instance, supplies the U.S. with about a third of its hot-selling Nissan Rogue crossovers.

Shared assets

Further savings come from teaming on product development. The Rogue rides on a new family of shared platforms for the alliance. The architecture is used in the Nissan Qashqai crossover, as well as Renault vehicles such as the Espace crossover and Talisman sedan.

It is dubbed the Common Module Family platform, and the alliance reckons it can eventually underpin 70 percent of all the brands’ vehicles. Doing so, executives promise, should slash purchasing costs by up to 30 percent and engineering costs by up to 40 percent.

The same goes for engines and gearboxes. Three-fourths of the companies’ vehicles run on shared powertrains.

When it comes to investing in next-generation technology, the alliance also pools resources and shares spoils. Alliance Ventures, the venture capital unit set up in January, has a $ 1 billion war chest for the next five years. It is investing in everything from high-tech mapping to autonomous driving.

And then there is Google. Renault, Nissan and Mitsubishi said in September they would team with the Silicon Valley giant to embed its Android operating system in their vehicles.

The tie-up has had its misfires. Renault and Nissan, for example, parted ways on critical battery technology over performance and cost.

Critics note that a lot of the benefits are projected but not yet harvested. Max Warburton, senior analyst at research brokerage AllianceBernstein, said Nissan and Renault would not necessarily suffer by going solo.

“The real synergies between the companies are surprisingly modest,” Warburton wrote after Ghosn’s arrest. “The importance of the alliance has probably been exaggerated.”

Nissan board member Toshiyuki Shiga is among those still seeing value. He said the alliance is needed in this era of rapid change. Besides, he told broadcaster NHK, Ghosn wasn’t going to rule forever.

“Sooner or later, the time would come when we would have to discuss how to advance the alliance without Mr. Ghosn, what we call the linchpin of the alliance,” Shiga said. “So, that time has now come, sooner rather than later.”

Naoto Okamura and Peter Sigal contributed to this report.

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