Nissan walks the tightrope as headwinds get stronger

Murali Gopalan | Updated on: Aug 09, 2019

Job cuts, falling profits and fractured rapport with Renault pose huge challenges

These are not the easiest of times for Nissan Motor Company. The Japanese auto-maker has had to contend with falling profits, massive job cuts in the next few years as well as attempting to mend a relationship with Renault, its ally of over two decades.

India has clearly not been spared the guillotine on the jobs front with the company making known its intent to sack 1,710 people. This amounts to nearly 14 per cent of the total job losses planned at 12,500 over the next three-four years. It is still not clear which divisions will be the most severely affected and all indications point to the shop floor.

Datsun’s future

The future of the Datsun brand also hangs in the balance as the company struggles to realign its product portfolio to stay relevant in an intensely competitive global arena. Nissan bet big on Datsun’s resurrection as an entry-level brand for emerging markets like India, Indonesia, Brazil, Russia and South Africa. Clearly, it has not delivered its promised potential and it remains to be seen if the company will persevere with the brand or junk it completely. Datsun has not taken off in India for sure even while there were huge hopes with the redi-GO.

What is especially worrisome is Nissan’s rapport with Renault, which is clearly under a lot of strain. Media reports have suggested the possibility of the French company paring its stake from the present level of 43 per cent. Nissan has a 15 per cent stake in Renault but devoid of voting rights even while it was, till not-so-long ago, the stronger of the two.

Not any longer, with Renault clearly the more formidable right now but that has done little in terms of the relationship’s dynamics. It was former Chairman, Carlos Ghosn, who was clearly the pivot of this bonding as he singlehandedly spearheaded the formation of the alliance two decades ago.

Till he was at the helm of affairs, which was till last November when he was arrested in a dramatic turn of events, things were going smooth even while there were reports doing the rounds that Nissan was miffed with its smaller role. It was clearly a lot angrier when talks of a merger surfaced subsequently and Ghosn’s abrupt arrest only seemed to reaffirm that he was the fall guy for this move.

Of course, the charges against the former Chairman are a lot more serious though nothing has been proved yet and he continues to reiterate that he is innocent. It is quite interesting, though, that the change in leadership at Renault post-Ghosn as well as the move to set the overall alliance’s house in order seemed to have yielded little thus far.

FCA speculation

On the contrary, the partners have a lot of work ahead in healing wounds that still continue to be raw even while speculation is rife that the alliance is under severe strain. One of the big tipping points occurred when Fiat Chrysler Automobiles (FCA) reached out to Renault for a merger with Nissan clearly out of the proposed business model.

Within 10 days of making this move, FCA withdrew the offer as it was quite clear that the French government did not want the Nissan alliance to suffer as a result. After all, it has a 15 per cent stake in Renault giving it the status of an important shareholder. The top management at Renault was keen on the FCA alliance but was clearly told to mend bridges with Nissan first.

Whether this is happening on the desired path is still not clear even while Nissan is skating on thin ice right now. The alliance also includes Mitsubishi, in which Nissan has a 34 per cent stake. There were huge plans in place for this trio (Renault-Nissan-Mitsubishi) but with Ghosn’s arrest, the ship looks distinctly rudderless. Contemplating a divorce will not be a cakewalk for sure since there are huge issues at stake right from joint investments, product programmes, manufacturing (India being a case in point) as well as manpower. Perhaps this explains why recent reports seem to suggest that a new joint venture company could be formed (to house these assets in all likelihood) while Renault and Nissan stay autonomous thereafter.

There is no confirmation coming on any of these developments, though it would be far more pragmatic for the partners to put their past differences behind and do their best to get going all over again. It is not going to be easy for sure but this is a much better option than calling it quits and bringing down the curtains on a carefully built foundation.

Consolidation ahead?

Japan is incidentally seeing a lot of consolidation happening with its auto-makers with the more prominent being Toyota and Suzuki for India. Toyota will also team up with subsidiary, Daihatsu, for the ASEAN region and with Mazda for the North American market.

In the two-wheeler space, Honda and Yamaha, once bitter rivals, have decided to come together in a small segment of sub-50 cc scooters for Japan. The idea is to pool in investments but there is no telling if they will contemplate something bigger beyond this.

Additionally, there is a consortium being formed in the electric two-wheeler space for Japan where Honda, Yamaha, Suzuki and Kawasaki will team up. Likewise, there could be something bigger in store for Nissan-Mitsubishi except that they will need a much stronger Japanese brand to steer them ahead.

For now, this seems like a pipe dream given that Renault and Nissan are still together even while FCA could still end up re-entering the scene. The bigger challenge for Nissan is to get back into shape though this will take time.

From India’s point of view, the alliance is critical since the Chennai facility was planned as a strategic manufacturing hub even while over half its capacity is still unused. The coming weeks/months will unravel what is in store for the alliance and it will require serious intent to ensure that things stay on course. This is where the mind should rule over the heart especially when there are thousands of jobs at stake.

Published on August 09, 2019
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