Renault-Nissan-Mitsubishi Crisis Update

It’s been an interesting few months for the Renault-Nissan-Mitsubishi Alliance. As we have described before, it seems that Nissan were getting more uncomfortable being the revenue generator of the group yet had no voting rights, so couldn’t progress any of their plans inside the alliance.

Then when Carlos Ghosn was arrested on financial fraud charges, the wheels literally fell off the grouping. Ghosn was under pressure from the French Government to effectively take full control of Nissan and merge the two bigger players of the alliance. That would destroy any chance that Nissan had of getting their ideas and input into practice.

Ghosn had been gradually merging functions under a single management person, so all engineering came under one person, manufacturing under another etc. Nissan clearly saw that as an issue and it became apparent that the structure was causing friction between the partners. This meant that decision making slowed down and as a result, new technology and products were being delayed. The friction came from one side not wanting technology developed by the other, so parts and equipment would be argued over, causing the delays in getting it to a manufacturing stage.

The interesting part of Ghosn’s plan was to trim costs within engineering and manufacturing such that there were more common components and the vehicles could become modular – very similar to architectures deployed by Ford and the VW Group. The plan was to increase sales from 10 million to 14 million units a year and at the same time trim $11b of costs by utilising the modular approach. Even up to the start of the year, Nissan was saying that the strategy was still active, however in recent weeks, they have started to dismiss the strategy as half-baked.

Manufacturing is a key function that Nissan is uncomfortable with – from a longer term perspective. Today, Renault builds Nissan vehicles in some of their factories to improve output rates from those factories, which today is good because Nissan is flat out in their own facilities. However they worry about a downturn in sales and that makes them nervous about Japanese jobs because they felt that Ghosn would simply shutter the Japan factories in favour of the Renault ones, thus satisfying the French Government who want high employment – remember that the Government is a big shareholder of Renault, who control all the voting rights in the alliance!

Meanwhile, Ghosn’s lawyers have mounted an attack on Nissan directly accusing them of bringing Japan’s justice system into disrepute and damaging the business environment. They have also accused Nissan of mounting a legal challenge in France against the structure Ghosn was implementing. The attacks on Ghosn also intensified with another arrest warrant released this month – this time because Nissan claims that they lost $5m because of his actions. Ghosn is already out on bail and Nissan claims that he transferred money between entities and kept some for himself. These allegations had already been raised as part of the earlier charges and appear to have been split from them now.

Renault have also tried to distance themselves from Ghosn which could backfire on them. Clearly there were transactions – and board/management decisions – made that could be construed to be dodgy. He was not alone in making those decisions or ordering the transactions to be made. Both Renault and Nissan have a very big part to play in what transpired and they are both suggesting that they are innocent. I simply cannot believe that Ghosn was able to do what is claimed on his own and therefore an independent investigation should be held that finds the cabal who were involved.

If the board has agreed to pay Ghosn in a particular way, then the board must go and/or be prosecuted because they sanctioned the actions taken. My concern is that Ghosn will be a scapegoat to cover endemic issues within the alliance.

I’m sure that we will see a lot of spin from all parties in the coming months and we feel sorry for Mitsubishi, the smaller partner, because they are being dragged into a situation that could damage them as well.