From an India perspective, the best piece of news about the recast of the Renault-Nissan alliance is that the country will continue to be an important market for the duo.
As the press statement issued on Monday reiterates, “…. reloading the partnership with high-value-creation operational projects. This would consist of key projects in Latin America, India and Europe, which would be deployed along three dimensions: markets, vehicles and technologies.”
The Renault-Nissan plant in Chennai has a capacity of 480,000 units of which only a paltry portion is being utilised currently. Over the years, Renault has seen greater levels of success with products like the Duster, Kwid, Triber and Kiger but is now on the back foot with competition getting way more intense in the form of Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Hyundai, Kia, etc.
Nissan has had very little to show and it is the Magnite that has finally bucked the trend and given the company something to flex its muscles in India. With such low volumes, there would have been a great deal of concern if the Chennai operations would be sustainable and Monday’s press release must come as a huge sigh of relief for Renault-Nissan.
Clearly, better times lie ahead for the partners, which will come in the form of new investments and products. While this is welcome news, they will still need to contend with the reality of aggressive rivals and the need to step on the gas quickly.
With Russia now out of the question thanks to the war in Ukraine, coupled with the growing spectre of a recession in Europe and China slowing down, India is now among the bright spots in the universe for global carmakers. It is now up to Renault and Nissan to quickly get going and come out with a product blitzkrieg that will hopefully have customers back in showrooms. How they pull it off over the next 2-3 years will remain a challenge.
Rocky Ride For Partners
Over the last four years, since the arrest of Carlos Ghosn in November 2018, it has been a rocky ride for the partners. The former Chairman of Renault-Nissan was like the proverbial stick of glue, who held the alliance together (along with Mitsubishi, which entered the fold in 2016) and when he was packed off to jail in a high voltage drama, the script just went to pieces.
Given that tumultuous backdrop, the intent of the partners to bury the hatchet now and focus on high growth markets along with energy options like electric, give cause for hope. Talks have been going on for months and reports doing the rounds indicated that Nissan would go the extra mile in ensuring a greater level playing field with Renault.
It is no secret that this was the Japanese automaker’s biggest grouse — that it was being relegated to the sidelines despite the fact that it was rapidly emerging as the stronger of the two players. This was a different Nissan compared to the battered and vulnerable entity that was snapped up by Renault in 1999, when the charismatic Ghosn pulled off a comeback story that would make its way into Manga comics!
Renault had a near 44% stake in Nissan to the latter’s 15% as part of the equity cross holding deal, in addition to the fact that its Japanese ally had no voting rights. This was perhaps okay in the initial years following the rebuilding of Nissan but became a huge sore point with time.
After all, it was now becoming a stronger company than its French partner but to continue being a secondary player with fewer privileges must have rankled big time. When news began doing the rounds in 2018 that a merger was now being contemplated, it was the last straw for Nissan. In fact, this was touted as the key reason for Ghosn’s arrest even while other reasons like financial impropriety were cited.
Disruptive Mobility Landscape
Ironically, the former Chairman was working on a bigger merger of Renault-Nissan-Mitsubishi with Fiat Chrysler Automobiles (FCA) and may have pulled it off had he not been arrested. As he was cooling his heels in jail, FCA did reach out to the new Renault management for merger talks but withdrew the offer in barely 10 days. Apparently, the French government, which holds 15% in Renault, was not too happy with this new turn of events and wanted the alliance with Nissan to be strengthened instead.
Of course, FCA eventually merged with Groupe PSA, while the Renault-Nissan alliance continued to face strong headwinds. The pandemic period saw little improvement as the world went into a tailspin and all companies had to put their house in order with some belt-tightening measures. Nissan announced that it was going to slash jobs worldwide and things looked bleak.
However, with the global automobile industry now firmly on the electric trail which meant a fresh round of investments and added competencies, it was quite clear that two heads were better than one. Even before the pandemic, big entities worldwide were in consolidation mode given the fact that there were tumultuous challenges ahead in a disruptive mobility landscape.
Toyota forged separate tie-ups with Suzuki and Mazda for India and North America, while ensuring that its subsidiary, Daihatsu, would have a clearer roadmap in ASEAN. The Volkswagen group redefined its priorities by getting Skoda to manage operations in key markets like India, while drawing up different business models in other markets. Stellantis, the newly created entity of PSA and FCA, was planning to fire on all cylinders too.
Enhancing Strategic Agility With New Initiatives
Given this changing terrain, there was really no point in Renault and Nissan continuing to be at loggerheads, especially when they had had such a tremendous headstart over the others. The key was to rebuild the alliance and just be more accommodating compared to the past.
The French automaker, on its own, was planning to hive off its internal combustion engine business as a separate venture with Geely of China, while creating a new arm for electric. This is where it would need a helping hand from Nissan in taking this to the next level since e-mobility was clearly the way forward for all carmakers.
This has now been articulated in Monday’s press statement, where the future will lie on “enhancing strategic agility with new initiatives that partners can join… Nissan to invest in Ampere, the EV & software pure player founded by Renault Group, aiming to become a strategic shareholder”.
Beyond this, of course, is the all-important aspect of Renault reducing its stake from 44% to 15% and finally being at par with Nissan as part of the effort to “foster accelerated operational efficiencies”. As the release states, “Renault Group and Nissan would retain a 15% cross-shareholding, with a lock-up obligation, as well as a standstill obligation. They would both be able to freely exercise the voting rights attached to their 15% direct shareholding, with a 15% cap.”