Renault, FCA merger talks signal advent of new leadership

Murali Gopalan | Updated on: May 30, 2019
John Elkann, Chairman of FCA

John Elkann, Chairman of FCA

Jean-Dominique Senard, Chairman of Renault

Jean-Dominique Senard, Chairman of Renault

After the heady days of Ghosn and Marchionne, it is now over to Senard and Elkann

The proposed merger between Renault and Fiat Chrysler Automobiles (FCA) is remarkable by virtue of the fact that it is happening in the aftermath of a huge leadership vacuum crisis.

In the case of FCA, its charismatic CEO, Sergio Marchionne, a massive advocate of consolidation in the automobile industry, died last year. Renault, in its turn, was completely caught off guard when its larger-than-life CEO, Carlos Ghosn, was arrested seven months ago. What was even more dramatic in this case was that it was Nissan that pulled off the coup leaving its French ally virtually shellshocked.

Fast forward to this week and you can see that FCA and Renault have moved on after these twin blows and are now working overtime to make the merger happen. Their respective chairmen, John Elkann of FCA, and Jean-Dominique Senard of Renault, have worked quietly behind the scenes and are now poised to create a new entity with combined sales of nearly nine million vehicles.

Third largest

If things go according to plan and the merger sails through without a hitch, Renault-FCA will be the third largest player in the world after Toyota and Volkswagen. Both companies will benefit from access to new markets in North America, Russia and Asia while making the most of shared competencies in areas like electrification and connected cars.

There is really no question that both Senard and Elkann played a big role in working out the modalities of this new partnership, which will take some months before it becomes a reality. It would be a special triumph considering that mergers and acquisitions marked the DNA of both Marchionne and Ghosn, their charismatic predecessors.

After all, it was the former who strategised the entire exercise of buying out Chrysler when Detroit was down and out in the aftermath of the 2008 Lehman crisis. Marchionne worked relentlessly with the sole focus of bringing this American brand in the Fiat portfolio as he was more than aware that the need of the hour was scale.

FCA’s merger push

And just look what the Jeep brand has done for FCA across the world. Not only does it account for over a third of the company’s sales but has helped chart out a new course in emerging markets like India, Brazil and Mexico, which are now the global manufacturing hubs for the Jeep Compass.

Yet, Marchionne was not content and sought out General Motors for a merger with FCA. From his point of view, the task of rebuilding FCA was still not complete especially with new mobility challenges looming large on the global landscape. GM was not remotely interested in the proposal though it is well know by now that Marchionne tried very hard to make it happen.

As for Ghosn, he achieved cult status two decades ago when he led the way in making a success of the Renault-Nissan alliance. The Japanese company was in dire straits then and it was Ghosn who was entrusted with the responsibility of turning it around. The success of the Renault-Nissan alliance is largely due to his untiring efforts in cutting costs and restructuring operations while optimising synergies at the back end. Given this backdrop, it was a tragic irony of sorts that Ghosn was done in by the same company he had help resuscitate when it was virtually down and out. The courts will decide if he was indeed guilty of the alleged crimes of financial embezzlement but it was a sad finale to the career of a man who was once admired for his vision and clarity of thought.

Marchionne’s sudden passing was a shocker but there was at least a succession plan in place when his able lieutenant, Mike Manley, took over. In the case of Ghosn, the entire arrest drama created a deep divide between Renault and Nissan. The appointment of Senard has clearly helped in stabilising the relationship but some of the wounds have still not healed completely.

This is where the Renault-FCA merger will create its own dynamics vis-a-vis Nissan. It’s public knowledge by now that Nissan will not be part of the exercise even though it may just be roped in at a later stage.

Dynamics with Nissan

For now, this essentially remains a merger between two European brands while Renault’s decades-long Japanese ally has been relegated to the sidelines.

Going by the pace of events since Ghosn’s arrest, Nissan probably will not have too many sympathisers at this point in time. The company was not remotely interested in a merger with Renault and always believed that it was getting a raw deal in the partnership. After all, it has a 15 per cent stake in Renault (to the latter’s 44 per cent) with no voting rights. Things have also changed quite dramatically from the time when Nissan was given a lifeline by its French partner. Over the years, it has emerged the stronger of the two and this is what compounded its angst with Renault. In fact, speculation is rife that Ghosn was jailed because he was pushing hard for a merger, which Nissan was completely averse to.

It does not take away the fact that the former Chairman of the alliance will still have to answer for all the allegations of financial irregularities. Would he have got away lightly had he not aggressively pitched for a merger? Nobody really knows and the following months will reveal whether he was culpable of his crimes or just ended up being a patsy in a larger corporate plot.

In the meantime, things have just gotten worse for Nissan with its profits falling compounded with a grim outlook of the future.

Trouble in Japan

The Ghosn arrest may have sent out a strong message on its stance regarding financial impropriety but Nissan has been on a downward spiral since. The fact that it has now got the cold shoulder in the proposed Renault-FCA merger suggests that it may have overplayed its cards with its French partner.

Yet, the two know only too well that a conciliatory approach is the best way forward. There have been a lot of tensions lately but both Renault and Nissan are aware that it makes little sense to quarrel and break up an alliance that has been carefully built over two decades.

Mitsubishi is also part of this set-up and it was in 2016 when Nissan acquired a controlling stake in its beleaguered Japanese ally. Once again, it was Ghosn who was the mastermind behind this move that was expected to play a big role in terms of cost savings and synergies.

Even while Nissan-Mitsubishi will be part of the Renault fold, the entry of FCA has changed the pecking order in priorities. There is little Nissan can do at this point in time especially when it was opposed to the idea of a merger with Renault in the first place. At that point in time, it was the stronger of the two despite its smaller stake and absence of voting rights.

Today, Nissan is not as formidable and there are a host of problems to reckon with in the leadership space. Some big names have exited the company and more could be in the pipeline. The Ghosn arrest caught the attention of the world and even while Japan’s ‘hostage justice’ system came in for criticism, Nissan could effectively convey that it had been at the receiving end of financial fraud and manipulation.

Today, things have changed and how! Shareholders will not be too happy with the company’s performance and Ghosn is only a distant memory now. The Japanese auto-maker has to grapple with a host of challenges right now and cannot assert itself with Renault as forcefully as it did in the recent past.

The way forward

Of course, it remains to be seen what eventually unfolds in the coming months. For now, both Renault and FCA are keen on making the merger happen but there is no telling what obstacles could crop up en route.

The French and Italian governments have to be brought on board while a host of reassurances need to be made that there will be no worker layoffs.

Yet, there is no taking away the fact that this is a mega proposal that has the potential to rewrite history if the partners truly pool in their skills to meet the challenges of the following decade. At one point in time, it was widely thought that FCA would join hands with Groupe PSA. If one French partner was not ready, there was always another whose skills could be tapped!

Renault and FCA will be keen on making things happen simply because both know that a partnership is better than going it alone especially in these disruptive times.

Would this have been possible had Marchionne and Ghosn still been around in their respective leadership positions? Very unlikely perhaps and this is where both Elkann and Senard deserve kudos for charting out a new course for their companies.

Published on May 30, 2019
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