New Renault-Nissan-Mitsubishi Plan Is More Of A Mishmash Than An Alliance

When people talk about corporate mergers and strategic alliances, they use flowery words like “synergy” and “efficiencies.” In practice, the economic benefits are often outweighed by the clashes that occur when two or more corporate cultures collide. It’s a little like American football and a rugby trying to merge. They both offer the same product — large men moving a leather ball up and down a playing field. Think how much money they could save by not building separate stadiums, traveling on the same airplanes, and sharing dorm rooms!

When Renault and Nissan decided to work together many years ago, everyone expected the new partnership — which was called an alliance, not a merger — to create magic in the marketplace. It hasn’t worked out that way. Nissan chafed under the power sharing arrangement and eventually persuaded Japanese authorities to throw Carlos Ghosn, the supposed leader of the alliance, in prison. Things have gone rapidly downhill since then.

Many industry observers thought the working arrangement between the companies (Mitsubishi got thrown into the mix a few years ago as an afterthought) would unravel, but this week, new alliance chairman Jean-Dominique Senard announced that the companies have agreed to a new business arrangement designed to enhance cooperation between the three firms and cut the costs of developing new models by as much as 40%.

In essence, each company will now be responsible for certain markets. Renault will be take the lead in Europe, Russia, South Africa, and North Africa. Nissan will focus on Japan, the US, and China. Mitsubishi will get whatever is left over. In other words, things will pretty much go back to the way they were before the so-called alliance even started.

The difference is, instead of all three companies creating their own platforms (the Renault Zoe and the Nissan LEAF are both electric cars, but they have little in common), each company will take the lead in developing new automotive products that will be shared with the others. These “mother cars” will become the basis for “follower cars” from other divisions, according to Autocar.

Nissan will primarily be in charge of electric vehicle development, autonomous driving technology, and connectivity. The sharing and standardizing approach is expected to reduce development costs by 40%. At present, the three companies use a total of 7 platforms. Under the new plan, the number of platforms will be reduced to 4. There is a possibility the next Renault SUV could be built at Nissan’s Sunderland factory in the UK were the Nissan LEAF is currently manufactured.

In a statement, Senard said, “We will focus on efficiency and competitiveness, rather than volume. The new framework will allow each Alliance member to enhance its core capabilities and benefit from the capabilities of the other firms. The aim is to increase the profitability and competitiveness.” Then he quietly got in a dig about the turmoil that has afflicted the alliance since long before Carlos Ghosn was arrested. “The leader-follow model isn’t about being a leader against each other; it’s about each Alliance firm becoming a leader in the automotive industry. There is no doubt about how this scheme will work in the future. If there have been doubts in the market, there are no doubts today.” He specifically downplayed the idea that the three companies are planning an actual merger any time soon.

Analysts Are Underwhelmed

Several industry analysts are unimpressed with the announced changes. Frank Schwope, a German auto analyst, tells Forbes the restructured alliance will be less efficient than an outright merger and it won’t end Nissan’s unhappiness with the power imbalance. “The new alliance model is intended to reduce costs and stabilize the alliance. A merger of the companies, as Carlos Ghosn once intended, has long been off the table. However this alliance is much more unstable than a merger. It is questionable whether the new model also eliminates the dissatisfaction of the Japanese partner Nissan (who’s profit) has often supported Renault’s results in recent years. Ultimately, Nissan sees itself as the stronger partner, although Renault holds 43% of Nissan shares,” Schwope said.

France Offers Economic Support For Electric Cars

The backdrop for all this restructuring talk is the virtual collapse of the auto industry in Europe due to factory closures during the coronavirus pandemic. There have been rumors that Renault is planning to shutter some of its factories in France ever since the proposed merger with FCA last year. The French government objected strenuously to that merger primarily because it called for such closures.

This week, French President Emmanuel Macron announced that his government has come up with an €8 billion package of economic incentives designed to jumpstart the nation’s auto industry as those shuttered factories reopen. It includes a €12,000 cash incentive for buyers of electric cars and other incentives to scrap the most highly polluting gasoline and diesel powered vehicles on the road in France. Another piece of the puzzle is loan guarantees for French manufacturers, but only if they agree to keep existing factories open. The car industry employs some 400,000 people in France

“Our country wouldn’t be the same without its great brands — Renault, Peugeot, Citroen,” Macron said according to Time. France has seen car production fall by as much as 90% during the recent shutdowns. Macron has set a goal of producing 1 million electric cars in France by 2025. “Our country should embody this avant-garde,” he said. “We need not only to save (the industry) but transform it.”

All around the world, car makers are begging for government help to restart operations after months of loses due to the pandemic. But such pleas are getting a cold shoulder from some who argue public money should not be used to prop up businesses that were unprofitable before the virus hit. They think investments in renewable energy and a sustainable economy would be a better use of those funds.

This is a time of extraordinary challenges in the car business. Few companies will emerge unscathed by the pandemic, and two years from now the auto industry could look very different from what it does today, with the carcasses of once proud companies littering the financial landscape.