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Nissan and Renault Are Rid of Carlos Ghosn. Now, Can They Save Their Partnership?

Category: Business,Finance

TOKYO — It was a simple plan. Renault and Nissan, two partners in a vast auto-making alliance, would pool their resources to build a new low-cost car in, and for, emerging markets.

Each company, working from a factory near Chennai, India, would add its own branding and finishes, but the platform — the vehicles’ bones — would be the same. Carlos Ghosn, the alliance’s chief executive, believed that shared engineering was necessary for the French and Japanese companies to prosper in an increasingly competitive industry.

But the two teams — despite both being led by French engineers — could not agree on a design, people familiar with the matter said. When Nissan’s cars hit the market in 2014 and Renault’s in 2015, they were different, even at the chassis. Mr. Ghosn was frustrated and disappointed, one of the people said, and saw the companies as ignoring his direct instructions.

Today, Mr. Ghosn sits in a Tokyo jail. And the two executives now at the top of the alliance must figure out how to overcome the fierce corporate pride that has fueled Renault and Nissan’s past rivalry and secure the companies’ successful cooperation.

The challenge will fall to Renault’s new chairman, Jean-Dominique Senard, who has a reputation as a careful negotiator, and Nissan’s chief executive, Hiroto Saikawa, who has pointedly defended his company’s autonomy in the past.

Renault, which on paper controls Nissan, has scrambled in recent weeks to keep its partner happy. Renault has joined Nissan in turning up the legal pressure against Mr. Ghosn, who was ousted from the alliance after his November arrest in Japan on allegations of financial wrongdoing.

The groups created a new leadership board for the alliance last month that gives equal weight to the Japanese side of the partnership, which includes Nissan and Mitsubishi Motors. And Renault has kept out of the way as Nissan executives moved to dismantle the structures they say Mr. Ghosn used to control the three companies.

Still, Renault is keeping one of the biggest sources of tension off the table: its outsize stake in Nissan. That has been an irritant for Nissan, which is now bigger and more powerful than the French company that bailed it out in 1999.

As a global market for electric cars and autonomous driving grows, Renault needs Nissan’s manufacturing power and knowledge of how to sell cars around the world, including in the United States.

Keeping the status quo “invites a degree of instability” into the alliance, said Peter Wells, a professor at the Center for Automotive Industry Research at Cardiff University in Wales. “Those arrangements reflected the strengths of those companies at the time they were made. But Nissan’s position is now stronger than Renault’s.”

Renault, Nissan and Mitsubishi — which together accounted for the sale of 10.76 million cars in 2018 — have pledged that they will make decisions on operations and governance by consensus, unwinding the centralized power structure that Mr. Ghosn built, which allowed him to call most of the shots. The joint decision-making approach, which Mr. Saikawa has described as “epoch-making” and “win-win-win,” is similar to the way the alliance operated when Renault first took over Nissan.

The new era kicked off Friday in Paris, where the top executives of the three automakers met to review automotive projects and technology aimed at outperforming rivals. Members from the boards of directors and executive committees of Nissan and Mitsubishi were wined and dined the night before at a rare dinner with their Renault counterparts in a restaurant atop Renault’s flagship showroom on the Champs-Élysées.

The alliance board, which includes Mr. Senard and the chief executives of Renault, Nissan and Mitsubishi, plans to meet monthly, alternating between the French and Japanese capitals, to enhance their cooperation, according to a person with knowledge of the arrangement, who was not authorized to speak publicly.

It remains to be seen how effective the new arrangement will be in an ultracompetitive auto market. Mr. Ghosn criticized a manage-by-consensus approach during a videotaped statement last week, suggesting that the alliance would have little chance of success with diffuse leadership.

“For people who say there are only two options — consensus or dictatorship — that means they don’t know what leadership is about,” Mr. Ghosn said in the video, released a day after he was rearrested in Japan on new allegations of financial misconduct.

Last week, a Tokyo court ruled that Mr. Ghosn will remain in custody until Monday. He has denied all wrongdoing and blamed Nissan executives for his ouster, saying they feared he was tying the company too tightly to Renault.

Company executives maintain that, whatever corporate tensions have existed, Renault and Nissan engineers and designers are working well together, most notably on the development of electric vehicles.

“Everybody is working on operational matters in a very efficient way,” said Gilles Normand, Renault’s senior vice president for electric vehicles, during an interview at the Geneva International Motor Show in March.

Operationally, Nissan is the bigger success. Under Mr. Ghosn, the company slashed costs and focused on building its market share around the world. Last year, its vehicles accounted for almost half the alliance’s sales worldwide. Nissan makes and sells cars in three of the world’s largest auto markets: the United States, China and Japan. Renault has no meaningful presence in any of them, though it performs well in the European Union.

But Renault has a 43 percent stake in Nissan, a position that it has amassed since 1999, when it saved the Japanese company from near bankruptcy. Nissan holds just a 15 percent nonvoting share in Renault. Mr. Saikawa has repeatedly pushed for a rebalancing of the shareholding structure, especially after the French government, Renault’s biggest shareholder, abruptly doubled its voting rights in Renault in 2015. That sparked fears in Japan that a foreign government could try to influence Nissan.

Renault and Nissan have both said rebalancing is not on the table — at least for now. During a news conference at Nissan’s headquarters in Yokohama last month, Mr. Senard said the companies must cooperate or die.

“We are in a destructive industry,” he said. “We will have to be close, each to the other, because if not, if we are alone, we will never succeed.”

Consolidation and cost-saving are the watchwords of today’s auto industry. BMW and Daimler said in March that they would cooperate on the development of autonomous driving technology. Ford and Volkswagen are developing a lightweight pickup truck together, and analysts expect the partnership to deepen. Fiat Chrysler is openly looking for a merger partner.

India was a natural market for Nissan and Renault to pursue. Its economy is one of the world’s fastest-growing. Its middle class increasingly aspires to own cars. But consumer demand for low-cost cars forces companies to pursue the kinds of razor-thin margins that can be achieved only by scale.

After its early disagreements in Chennai, the alliance made progress. By 2017, the bulk of the cars made there shared the same basic architecture. And the partners have said 70 percent of their vehicles worldwide will be based on common designs by 2020.

One former alliance executive said the India experience was a stumble that had not been forgotten. “Both companies were unable to arrive at a mutually agreeable and beneficial understanding on sharing the platforms, which hurt sales,” said Kaushik Madhavan, an auto industry analyst who early on managed product planning for Nissan in Chennai.

Today, “both brands have very good models, many of which can potentially be relevant to the Indian market,” he said. “But internal squabbles and uncertainty in decision-making is affecting both brands in India.”

Nissan’s shareholders are still not convinced that the companies can work together. At a special meeting in early April, an attendee questioned Mr. Saikawa about a recent disagreement between Renault and Nissan over a hybrid car technology — promoted as e-Power — that has done well in the Japanese market. According to Nissan marketing, e-Power integrates a car’s gasoline engine to help charge its high-output battery.

If Renault had more control over its partner, it “would have rejected all of the things Nissan wanted to do,” the attendee said in an accusatory tone. “E-Power never would have made it to the public.”

“When one of the partners has more control or power, this will happen.”

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