Marchionne, Ghosn cause the biggest shockwaves of 2018

Two of the most powerful names in the global automobile industry made the news in 2018, and for entirely different reasons.

When the year began, both Sergio Marchionne and Carlos Ghosn were going strong in their respective positions as the heads of Fiat Chrysler Automobiles (FCA) and Renault-Nissan.

Nobody in their wildest dreams would have thought that one of them would die tragically halfway through 2018 while the other would end up behind bars. It was like a double-tsunami effect, which stunned auto-makers across the world even while FCA and Renault-Nissan are slowly picking up the pieces and moving on. Sergio Marchionne’s death still seems a bit surreal given that he was the face of his company for 15 years since he took charge of a beleaguered Fiat and drove it back to a much stronger position.

Carlos Ghosn, likewise, was the miracle man who played a pivotal role in Renault’s acquisition of Nissan in 1999 and, even more recently, bringing Mitsubishi into the fold. When he was arrested a month ago in Japan for alleged financial irregularities, it was a huge fall for a personality who was truly a larger-than-life figure.

Steering the ships

Yet, there is no denying the fact that both Marchionne and Ghosn played very important roles in steering their companies to new levels of growth. Their leadership styles may have been different but what they had in common was enormous charisma, a sharp eye for detail and a longterm vision.

Fiat was in tatters when Marchionne was put in the driver’s seat to try and pull it out of the abyss. At that point in time, there was little survival hope for the Italian auto-maker as it seemed to be lurching from one crisis to another. Marchionne quickly began putting the house in order with some aggressive measures focussed on pruning costs and manpower coupled with a sharper product strategy. Wasteful businesses would no longer be part of the Fiat legacy and it was now time to think lean and mean.

The big break came in 2008-09 when the Lehman crisis had the world paralysed and Detroit’s motoring landscape in a state of disarray. Chrysler, which was just getting back on its feet after a disastrous merger with Daimler, found itself gasping for survival and this is when Marchionne saw a huge opportunity for Fiat.

Bailing out Chrysler

Chrysler was thrown a lifeline and the US Government was only too pleased have another car-maker rescue one of its own icons. This was a terrible period when big brands like General Motors and Ford were struggling too. Marchionne worked around the clock to ensure that the Fiat-Chrysler marriage worked to perfection and the FCA of today is a strong entity with Jeep as its flagship brand.

There is absolutely no question that had it not been for Marchionne, this may not have come to pass. He knew that the acquisition of Chrysler was a golden opportunity for Fiat to grow its presence considerably across the world. Equally, he had the foresight to understand that most of the Italian car-maker’s brands were rapidly losing relevance and this is where Chrysler could play a big role.

Today, Jeep is the biggest growth driver for FCA accounting for a third of its overall global volumes. Back home in India, its new avatar Jeep Compass has hit the bull’s-eye and enabled the company to finally make some headway in this market where it has had precious little to show over the last two decades of its existence.

And for this to happen, not only in India but other markets, Fiat has Marchionne to thank. The erstwhile Italian brand which was rudderless when he took charge is now a more credible opponent to reckon with. Marchionne, however, was quick to realise that further consolidation was inevitable with new challenges emerging in the marketplace. This puts in perspective why he reached out to General Motors for a merger with FCA even while the latter was not remotely interested in the proposal.

Beyond business, Marchionne was a journalist’s delight and those who were fortunate to have spent some time with him have rich anecdotes to narrate. His death was tragic because it happened way too early. Marchionne was just 66 and even while it was apparent that a succession plan was underway, his counsel would have still been invaluable to FCA for many more years.

Ghost of Ghosn’s past

Carlos Ghosn, in contrast, is a disgraced man today who has a long haul ahead in cleansing his reputation when he gets the opportunity. For someone so astute, he would have been stunned by the way Nissan went about so meticulously with his arrest. There were no warning signals and when he was whisked away to a detention centre in Japan, the world gasped in astonishment.

This is because Ghosn was just not any other person but the key strategist for the Renault-Nissan alliance two decades earlier. His presence at auto shows was enough to set energy levels racing as people soaked in every syllable he uttered. Ghosn was doubtless the poster boy of the global automobile industry who was held in awe for the way he pulled off the Nissan alliance and, more recently, Mitsubishi.

He had a clear vision for the three-way partnership and knew what it meant in terms of synergies on costs, platforms and component sourcing. Beyond this, Ghosn understood that the future landscape was going to be even more challenging with connected cars, electric mobility and a host of other disruptions.

Remember it was he who doffed his hat to Ratan Tata for making the Nano a reality with its astonishing price tag of ₹1 lakh. Never mind that the people’s car eventually lost its way in the market; Ghosn was convinced that this kind of costing structure was critical for emerging markets and here’s where frugal engineering became a fashionable term.

The Nano prompted Ghosn to look for a similar costing model, which lead Renault-Nissan to forging a partnership with Bajaj Auto for the ULC (ultra low cost) car. And even while this did not work on the desired lines, the seeds had been sown to follow this path leading to the creation of the Renault Kwid.

Ghosn understood what it took to succeed in emerging markets and this is why he was so bullish on the Renault-Nissan alliance whose first joint manufacturing business model was in India. He was now keen on taking this to the next level with the Nissan-Mitsubishi alliance and leverage the combined strengths in other parts of the world.

Now with his arrest, it is a million-dollar question on what will happen next. There are no two ways about the fact that the partnership between Renault and Nissan is now under strain. The underdog of yesteryear has become the more dominant player today and the French will need to navigate through this turbulence very carefully with its stronger Japanese ally. It’s not going to be the easiest of tasks and it is fair to infer that the two key players are in pause mode for the moment even while they will go all out to comfort shareholders that all’s well. And even while there is no denying the fact that institutions will outlive individuals, Ghosn’s absence will be profoundly felt.

The challenge is for the Renault-Nissan alliance to put everything behind and start off on the right note all over again. Obviously, this is easier said than done with each of the partners bitter and wary of each other especially after this drama where Nissan acted on its own without keeping Renault in the loop.

What everyone will be waiting to hear is what Ghosn has to say about the entire episode. There were indications that he would be released some days ago but his re-arrest means more silence from his end, at least for now. It now remains to be seen when the ousted Nissan chief will be out of jail and give his side of the story.

Suzuki-Toyota alliance

Beyond these two big headline-makers, 2018 saw Toyota and Suzuki strengthening their India alliance through new initiatives like product swaps. The Baleno and Vitara Brezza will also be part of the Toyota kitty for India while the Corolla heads out to the Suzuki stable. Indications are that the re-engineered products will be out on the roads by 2019-20 and it will be interesting to gauge market response.

Clearly, the two Japanese companies are determined to make the partnership work and this is where their heads, Akio Toyoda and Osamu Suzuki, will have key roles to play. Going by recent examples of Nissan-Mitsubishi, and Honda-Yamaha in the two-wheeler space, it is quite evident that Japan Inc is in some kind of consolidation mode keeping an eye on global trends as well as the overwhelming presence of China.

Suzuki has had its share of global partnership experiences with General Motors and Volkswagen, which did not quite yield the desired results. Toyota is a much better fit culturally and, as the larger of the two, will ensure Suzuki’s survival in this rapidly changing arena. India is, of course, a different ballgame where Suzuki is the clear market leader and Toyota has had little to show beyond the Innova brand but this is about a longterm partnership. Toyota has also joined hands with fellow Japanese counterpart, Mazda, for North America and is already leveraging the competencies of its subsidiary, Daihatsu, for ASEAN.

However, given the growing role of India and the fact that it will soon emerge the third-largest automobile producer of the world, the Suzuki partnership will be the real big one for Toyota to move forward and grow its presence. There is a lot to learn from each other in terms of processes and products especially with new mobility trends now set to become the norm.

Enter the dragon

The year has also been a reminder for the growing clout of China in the automobile arena. Geely is now a significant shareholder in both Volvo Trucks and Daimler AG, which means that it is seriously aggressive about the future.

When Marchionne was alive, talks were doing the rounds of Great Wall Motors eyeing the Jeep brand but nothing really came out of it. However, expect the likes of Geely to keep their eyes open for attractive acquisitions like FCA especially when there are success stories like Volvo Cars to showcase to the world.

Likewise, Dongfeng is a key stakeholder in Groupe PSA, the maker of the Peugeot and Citroen brands. The French auto-maker was in all kinds of trouble during the global slowdown of 2009 and required its present Chinese ally to act as the knight in shining armor. This partnership will grow beyond China to ASEAN though India is not on the radar right now.

On the subject of China, its recent round of trade wars with the US has been a source of concern to the automobile industry. The two seem to have temporarily buried the hatchet but there is no telling what will happen tomorrow given the unpredictable nature of their political leadership. The other source of geopolitical tension is the UK where the realities of a no-deal Brexit are slowly beginning to sink in. Of particular concern to India is Jaguar Land Rover whose business could be impacted (along with other car-makers like Nissan and PSA) adding to the woes of its slowing China business.

JLR has, in fact, been facing strong headwinds lately even while its Indian owner, Tata Motors, is determined to put things back on track. The following year is going to be challenging simply because of the sheer unpredictable nature of the overall global market.

India, meanwhile, is entering an uncertain phase too with national elections due in mid-2019 followed by the grim reality of entering a new era of Bharat Stage VI emission norms. Things have not been too good for the industry lately with tricky issues like fuel prices, material costs and inadequate rains.

In this backdrop, auto-makers are also grappling with added challenges like BS VI and the realities of more expensive products from 2020.

The road ahead is clearly difficult for a price-sensitive market like India but it is this acid test that will separate the men from the boys.

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