Ghosn Steering Renault-Nissan Alliance Away From National Identities
It’s unlikely Ghosn views citizenship in the same way most others do. He was born in Brazil to a French mother and Lebanese father, lived in Lebanon, studied in France and worked in Brazil before joining Renault.
PARIS – Carlos Ghosn, CEO and chairman of Renault SA and Nissan Motor Co. Ltd., in recent interviews and business decisions, indirectly has been outlining a future in which the auto makers’ alliance becomes a sort of non-national entity
Renault owns a controlling 43.4% of Nissan, and Nissan holds a 15% share of Renault. But the heart of the enterprise appears to be drifting away from Boulogne-Billancourt, the Paris suburb that houses Renault’s executive offices, and toward Nissan’s new headquarters in Yokohama, Japan.
At the same time, the Renault-Nissan Alliance is poised to be the big winner if battery- powered electric vehicles catch on with a public tired of petroleum problems.
Since Ghosn took over leadership at Nissan in 1999, the auto maker has been increasing its market share in the U.S., growing from 4.1% (including Infiniti) in 1999 to 7.4% in 2009, according to Ward’s data.
Nissan also is fast expanding in China, where it sold 756,000 cars last year. Renault is absent from both countries.
“The Alliance splits the international markets to avoid dispersion of its resources,” Ghosn says in a radio interview in France. “If you make a frontal attack on too many markets, you don’t break through anywhere because of insufficient force.”
Renault, he notes, is concentrating on Russia and India.
Nissan has sufficient force to follow Renault to both India and Russia. In Russia, their partner OAO AvtoVAZ will manufacture Nissan vehicles in 2012, a year before it begins building Renaults.
Ghosn’s view of business is global and grandiose. He often has said he would like the Alliance to have a North American partner, and in June 2006 met with billionaire investor Kirk Kerkorian to talk about investing in what was then General Motors Corp., whose problems were well apparent.
In an interview with BusinessWeek magazine before taking his proposal to GM officials, Ghosn shared his thoughts on big companies working together.
“If you want to expand the Alliance, you're not going to get into smaller ventures with many other car manufacturers. It's very unlikely that (these GM talks) will get down to anything other than a ‘yes’ or ‘no,’” he said. “That's why, for me, the exchange of shares is not so much a condition as it is a fundamental point of creating a community of interest.”
But GM Chairman and CEO Rick Wagoner was not interested and persuaded the company board of directors to back him. The talks ended, and Kerkorian sold his GM shares well before they lost their value in the 2009 bankruptcy.
In February 2008, just before the global economic crisis came roaring in, Renault made a straight-forward investment, buying 25% of state-owned AvtoVAZ, the stumbling Russian market leader.
Nissan already had a plant in St. Petersburg, and Renault’s factory was in Moscow. Russia was a market of 3 million units a year at the time, with AvtoVAZ’s Lada brand holding a 23% share.
Renault hoped to quickly improve AvtoVAZ’s operations and quality, while also building a low-cost supply base that would feed into the alliance partners’ other operations, as well.
The worldwide financial storm delayed that plan, but Ghosn soon had another piece in his growing global network to go along with the already established Renault Samsung Motors Co. Ltd. joint venture in South Korea and Automobile Dacia SA subsidiary in Romania.
This April, the Alliance bought 3.1% of German luxury-car maker Daimler AG, and Daimler took the same stake in Renault and Nissan, each.
The exchange of shares will make engineers working on common projects more likely to be open with one other, says Ghosn, and transparency will help make the projects a success.
Among other things, Renault is helping Daimler with the next generation of Smart cars and a diesel engine for the Mercedes-Benz Vito van. Daimler is helping Nissan with gasoline and diesel mills for the Infiniti line.
It’s unlikely Ghosn views citizenship in the same way most other people do. He was born in Brazil to a French mother and Lebanese father, lived in Lebanon, studied in France and worked in Brazil before coming to Renault and taking French citizenship.
“Renault is not anymore a French car maker,” he told the Financial Times in May, referring to the growth of sales in emerging markets. The comment raised hackles in France, where the country owns 15% of the auto maker and tens of thousands of workers have built the enterprise over decades.
Ghosn later backtracked and explained himself in an interview with the French radio station Europe 1.
“Renault is French. Renault has its base in France, but it has a global job,” he said. “For Renault, France is not just any market, it is the first market. However, it is true the future of the enterprise is not just France.
“(Auto makers) cannot survive in the auto industry as it is without a global plan. Developing vehicles and technology will continue to be strongly anchored in the country of origin.”
Renault’s technical center in Guyancourt “will remain a very important center of conception of Renault cars, even in 10 or 20 years,” Ghosn added.
At least for now.
Renault is the only major auto maker in the global industry that does not have a large presence in China, which has become the world’s biggest light-vehicle market. Nissan sold 756,000 cars there last year, up 39% from 2009. In contrast, Renault delivered a mere 5,321 units.
PSA Peugeot Citroen, Renault’s French rival, has made China a key element of its strategic future and now has two joint ventures. Thanks to China, Peugeot now says it outsells the Renault brand worldwide.
Renault launched a venture in China in 1993 to make the Trafic van, but it was abandoned in 2003. Will the auto maker ever return?
“It’s one of the open questions for our next strategic plan” coming in 2011, Chief Operating Officer Patrick Pelata says in a recent interview with the French newspaper Le Figaro. Renault will count on Nissan for help in entering China “when the time comes.”
Up to now, Nissan has not been much help in installing Renault anywhere, even in its own domestic market, with early dreams of selling Renaults in Japan now abandoned.
Nissan is the leading brand in Mexico, with a 20.1% share in 2009. The Japanese auto maker builds some Renaults in its Mexican plant, but Renault’s share remains tiny, with 11,500 car sales last year giving it just a 1.5% share.
In an interview with Paris Match, the leading French “people” magazine, Ghosn says the Alliance’s “objective is to soon reach 10% of markets everywhere. We have today 6% in China and 8% in the United States.”
Of course, both those markets are thanks to Nissan. Indeed, Ghosn recently told the Economic Club of Detroit that bringing Renault back to the distressed American market would be very difficult, and the auto maker would concentrate on Russia, instead.
This summer, Renault, along with other stakeholders, agreed to recapitalize AvtoVAZ.
Renault is contributing $300 million, mainly in technology, to prepare the Russian auto maker to produce a new line of cars based on Renault’s low-cost Logan brought to market in 2005.
But when production begins in 2012, the first cars off the line will wear Nissan or AvtoVAZ badges. Not until 2013 will Renaults be produced.
India is another target. Renault led the alliance into a joint venture, now collapsed, with Mahindra & Mahindra Ltd. and still is pursuing a second plan to build an inexpensive car with motorcycle maker Bajaj Auto Ltd.
Nissan is the lead partner in a Nissan-Renault wholly owned plant under construction in India. However, Renault is the market leader in Morocco where it is building a plant it will share with Nissan.
In the stock swapping deal with Daimler, Renault reduced its shareholding in Nissan from 44.3% to 43.4%, so the stakes of Nissan and Renault would be the same. Nissan continues to hold 15% of Renault.
In the early days, Renault and Nissan appeared to be moving from one short-term strategic plan to the next when it came to electric vehicles, but never looking too far ahead.
And then Ghosn met Israeli President Shimon Peres and Better Place entrepreneur Shah Agassi at the World Economic Forum in Davos, Switzerland, in January 2007. Peres and Agassi said they were looking for an auto maker to bring EVs to Israel, and Ghosn said he had just the car.
A year later, Renault and California infrastructure-specialist Better Place announced the future Renault Fluence Z.E. Just two years later, Renault and Nissan now have deals with 40 countries to bring eight EVs to life.
The Alliance so far has invested €4 billion ($5 billion) to develop electric cars, and each partner has 1,000 engineers and technicians working on future vehicles, four at each auto maker.
Alone in the industry, Ghosn predicts by 2020 10% of the global market will be electric vehicles. Most industry experts expect a much smaller share.
Nissan clearly is taking the critical lead in EV development. The battery is the key element of an EV, and Ghosn has encouraged Nissan engineers working on lithium-ion batteries in a joint venture with Japan’s NEC Corp.
When Israel proposed a massive tax break for EVs through 2015, Renault saw a business plan could work using the next 4-door version of the Megane family, to be called the Fluence, and the batteries that Nissan’s AESC Corp. would have ready by 2010.
Once Renault could foresee a volume of 10,000 to 20,000 batteries, Nissan engineers could predict lower costs, and both auto makers began making more business plans.
Renault and Nissan engineers have worked together to develop an electric powertrain, and they both will use the same elements. The first EVs to arrive on the market at the end of this year will be the Fluence Z.E. sedan in Israel and compact Nissan Leaf in Japan and the U.S.
Nissan already has more than 16,000 U.S. orders for the Leaf and 6,000 in Japan. Agassi says he has ordered 100,000 Fluence Z.E.s for Israel and Denmark, where Better Place is building stations that will swap empty EV batteries for full ones faster than you can fill up a fuel tank.
“Renault and Nissan are the pioneers and are ahead of everyone in the field of the electric car,” Ghosn tells Europe 1. “We are not manufacturers of electric cars. We produce a system; we supply and recycle batteries. We're also are helping a number of countries that ask us how to proceed: Israel, Denmark, Portugal.”
The automotive world is changing, and “if you can’t adapt, you are going to disappear,” he adds. “There is a profound evolution of the vision of the automobile. It is up to us to offer the cars that correspond to that vision, or else we will disappear. The objective of the Renault-Nissan Alliance is to sell 500,000 electric vehicles before 2015.”
The success of the Ghosn era won’t really be known until later in the decade, when the results are in on the EV gamble. The CEO won’t be 65 until March 9, 2019.
“Carlos Ghosn is a good manager,” says an industry leader who has worked for several global suppliers. “He knows how to motivate people, give them goals.”
But not all the bets are in.
Ghosn’s 3- and 5-year plans worked successfully at Nissan in the early part of the decade. But when the global economy crashed in 2008, his companies could no longer brag that they always reached their targets.
Renault’s share in Western Europe has bounced back this year to near the levels it enjoyed during Louis Schweitzer’s reign, from 1990 to 2005. But Nissan’s share in Japan remains well below where it was before Ghosn arrived in 1999.
However, Renault and Nissan steadily have grown closer under Ghosn’s dual leadership. A single purchasing organization assures the best terms from suppliers.
What had been a voluntary search for synergies has become a mandatory search, more and more announcements come under the banner of the Alliance, and there even is an Alliance blog.
Yet, Ghosn insists the two auto makers are separate, telling the French news agency AFP the Alliance succeeds “because it is not a merger. We never make a decision in Paris for Nissan, and vice-versa.”