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Renault, Nissan: Alliance Turnaround Still on Track

Pandemic adds new challenge for recovery plan
#asia #europe #Mitsubishi

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Renault, Nissan and Mitsubishi are touting a three-year plan to prove they know how to get their shaky alliance back in gear.

That blueprint is set to be announced in mid-May. Impressing investors, upon whose assessment the market value of the three car companies depends, will be critical.

“If the plan is not well explained and understood,” Nissan CEO Makoto Uchida tells The Wall Street Journal, “then [Nissan’s] share price is not going to recover.”

Carrying the Weight

Avoiding that catastrophe is key, since Nissan has for years been delivering most of the partnership’s sales.

It was, that is, until Nissan’s sales began to sag and profits tanked. By the end of 2019, revenue was shrinking 13% and net income had plummeted 88%.

Sales and revenue were dropping at Renault too. Last year, the French company’s adjusted net profit swung to a $154 million annual loss. Today the share price for each company is roughly half what it was in early January.

Nissan is trimming capacity, reducing costly sales incentives, shedding unprofitable models and trying to rush badly needed new products to market. But the coronavirus pandemic has upended those efforts. These days, Uchida says, “I’m not sure any car company can make an accurate budget.”

Renault Chairman Jean-Dominique Senard concurs. “We’re not getting any revenues, because we’re not selling anything” on account of the pandemic, he tells the Journal.

Joined at the Hip

That scenario isn’t likely to change much over the next few months, even assuming the pandemic plateaus by then.

Revitalizing the complex alliance will be staggeringly complex. Renault and Nissan are operationally joined at the hip as a result of their 21 years of increasingly integrating everything from purchasing and engineering to vehicle platforms and assembly plants. (Mitsubishi Motors, which is controlled by Nissan, joined the partnership in 2017.)

Today, vehicles made by the two companies share about 40% of their components. The alliance hopes to double that ratio in coming years, a move expected to save billions of dollars. The partnership also is hunting for other ways to further avoid duplicating product development work.

Equity Imbalance

The mechanics of achieving new performance goals is one thing. Fixing the equity structure, a longtime goal of Nissan, is another.

Cracks in the partnership appeared well before Carlos Ghosn, the former chairman of all three companies, was arrested in 2018 on charges of financial wrongdoing at Nissan. The resulting management drama—including stepped up oversight and a parade of three Nissan CEOs within one year—has drawn new attention to the alliance’s unbalanced equity structure.

Renault controls a 43% voting stake in Nissan, and Nissan holds a nonvoting 15% share in Renault. The French company has resisted any change in the arrangement. So has the French government, which owns 15% of Renault and plays an active role in the company’s business decisions.

First Steps

This issue continues to fester, even as the leaders of the three carmakers publicly profess strong commitment to strengthening their partnership.

The partners appear unlikely to be ready to address the equity issue when they roll out their turnaround plan next month. But streamlining their alliance with an overdue mechanical tune-up will be a good place to start.

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