Renault and Nissan deepen their alliance in bid to survive the coronavirus crisis

The world’s biggest carmaking alliance said Wednesday that it would abandon the growth at all costs strategy pursued by former boss Carlos Ghosn, whose arrest in 2018 on financial misconduct charges threw the group into disarray.

“The alliance’s new model focuses on efficiency and competitiveness rather than on volumes,” Jean-Dominique Senard, the chairman of Renault, told reporters. “Our aim is to increase the competitiveness and profitability of each of the three companies.”

The new strategy will see each alliance member taking the lead in specific geographies while the others follow. Nissan (NSANF), for example, will lead the way in North America, the Middle East and key markets in Asia including China and Japan. Renault (RNLSY) will take first position in Europe and South America, while Mitsubishi has been assigned parts of southeast Asian and Oceania.

The alliance will apply a similar strategy to technology and engineering. Nissan will take the lead on autonomous driving, while Renault will tackle Android-based connected car technologies. The companies will also reduce the overall number of models they sell, build more cars on shared platforms and design them to use more of the same parts. Renault and Nissan are expected to announce job cuts and plant closures later this week.

The two companies have been partners since 1999, cooperating on strategy and product development while never taking the plunge and completing a full merger. Together with junior partner Mitsubishi Motors, the unique alliance employs roughly 450,000 people and in 2018 it sold roughly one in every nine cars around the world.

The companies have so far largely maintained separate manufacturing facilities. But under the new strategy, more plants will produce cars for each brand. In Latin America, for example, two factories will produce Renault and Nissan SUVs.

An assembly line near Paris that produces both the electric Renault Zoe and the hybrid Nissan Micra.

The deepening of the commitment marks a major change: As recently as last year, Renault had been looking outside the alliance to cut costs, holding merger talks with Fiat Chrysler. The Italian-American company went on to agree to a merger with the owner of Peugeot and Citroen, closing off a potential avenue for collaboration for Renault.

The departure of Ghosn, who has denied acting improperly, sparked a series of leadership changes at both carmakers, confusion over their strategy and questions over whether the sputtering relationship had outlived its usefulness. Nissan and Renault, which are linked through a series of equity stakes, in January denied reports that they were breaking up.

Then the coronavirus hit, plunging the alliance deeper into crisis and necessitating a sweeping overhaul.

Nissan will reportedly announce this week that it will reduce its global production capacity by 20% and close a plant in Barcelona. Japanese media reported that Nissan could slash its workforce by 20,000. Renault could also stop making two models in Spain and move that production to Nissan’s massive plant in England, according to the Financial Times.

Renault and Nissan were already struggling

Renault was in trouble before the pandemic hit. The French carmaker reported its worst financial performance in a decade last year, with net profit dropping 99% to just €19 million ($21 million). Its share price has plummeted 69% since the start of 2019.

In April, the company’s global sales dropped by nearly 70% compared to the same month last year as the pandemic slammed Europe and North America. The company halted production at its 12 facilities in France in the middle of March, resuming operations at most plants only this month.

There has also been turmoil in the leadership ranks, with Ghosn’s immediate successor as CEO, Thierry Bolloré, being ousted last October in what he denounced as a “coup.” Bolloré’s successor, Luca de Meo, doesn’t start work until July.

France to inject almost $9 billion into ailing auto industry

France’s finance minister, Bruno Le Maire, warned Friday that Renault is in “serious financial difficulty.” “Renault can disappear,” he told Europe 1 radio.

The French government owns 15% of Renault, and is currently negotiating the terms of a €5 billion ($5.4 billion) loan for the company. The finance minister said last week that Renault must not close a factory north of Paris — one of the few facilities that currently produces cars for Nissan.

“We sign when we know what Renault’s strategy is,” Le Maire told the radio station. The company’s plans must include a transition to more eco-friendly vehicles. “We want Renault to be more productive and to produce even more of its vehicles, particularly electric, in France,” he added.

On Tuesday, French President Emmanuel Macron announced an $8.8 billion aid package for the country’s embattled auto industry. The plan includes big incentives for consumers to buy new cars, with the government offering subsidies worth more than $7,000 for electric vehicles and $2,000 for a hybrid.

Nissan, which reports financial results for fiscal year 2019 on Thursday, has endured four straight quarters of declining profits. Operating profit fell to 54.3 billio
n yen ($504 million) for the three months ended in December, plunging 83% from the same quarter a year before.

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