Renault Nissan alliance under strain again

Friday, 31 July 2020

Renault's alliance with Nissan Motor is showing increasing strain, with the Japanese partner mostly to blame for the French carmaker's record 7.29 billion euro (NZ$14 billion) first-half loss.

Nissan alone accounted for 4.80 billion euros (NZ$8.5 billion) of that amount, including 4.29 billion euros (NZ$7.6 billion) of impairments and restructuring costs, the automaker said. Renault refrained from giving any financial guidance for the full year because of uncertainty around the coronavirus pandemic, though it said it is on track for cost savings.

The global carmaking alliance, which also includes Mitsubishi Motors, was shaken to its core in November 2018 with the arrest of Carlos Ghosn, who was chairman of all three companies. The partnership was meant create a global powerhouse to compete against Volkswagen and Toyota.

Instead, it was beset by management turmoil at Nissan and Renault, while a strategy to pursue volume growth was proven wrong when worldwide automobiles sales began to decline in 2018. Now, the covid-19 outbreak is bringing into question the alliance's very survival.

The Alliance looked to be going from strength to strength when Mitsubishi was included, but a number of scandals and the coronavirus have hit hard.

* Nissan sues Ghosn, seeks $140 million in damages

* Ghosn's escape fuels concern about Renault-Nissan ties

* Renault-Nissan typical of uneasy East-West auto alliances

The Alliance was first rocked by the arrest of chairman Carlos Ghosn in 2018.

'Even Nissan is starting to look better than Renault,' said Koji Endo, an analyst at SBI Securities in Tokyo. 'The risks are starting to look much bigger than the opportunities.'

Renault's vehicle sales plunged by more than a third during the first half, when showrooms and factories were shut for weeks due to the pandemic. The carmaker also was denied a payout that would have bolstered its earnings as Nissan, in which it owns a 43 per cent stake, decided to forgo paying a dividend.

The massive loss comes as the companies focus on deeper cooperation, with Nissan leading the development of autonomous cars, while Renault leads EVs.

Renault is working with Nissan executives 'to make sure the fire doesn't take over the whole house,' Chief Executive Officer Luca de Meo said.

Nissan's shares slumped more than 10 per cent after it made the announcement on its dividend and forecast a far worse-than-projected operating loss of 470 billion yen (NZ$6.7 billion) for this fiscal year. The Yokohama-based company, which posted its biggest loss in two decades last year, unveiled a cost-saving plan in May that includes cutting capacity and annual fixed costs by 300 billion yen (NZ$4.3 billion).

Renault also announced a plan that month to eliminate about 14,600 jobs worldwide and to lower production capacity by almost a fifth in a bid to cut costs by more than 2 billion euros (NZ$3.6 billion). About 600 million euros (NZ$1 billion) of that is forecast for this year. De Meo will oversee politically tricky job cuts in France and a strategy to recalibrate the company's brands and model lineup.

'Although the situation is unprecedented, it is not final,' de Meo, who took the reins this month, said in Thursday's statement on the first-half results. 'I have every confidence in the group's ability to recover.'

A new strategy would be introduced in January focusing on value rather than volumes that would revamp brands and geographic priorities, he said.

The three companies unveiled steps in May aimed at fostering deeper cooperation. Nissan will take the lead on autonomous driving, Renault on the body of electric cars and some electric powertrains while Mitsubishi Motors will work on plug-in hybrids, they said. But the numbers released by the automakers this week show that they will need to bring in more cash and restore their balance sheets before making investments, even though they are critical to compete in the age of electrification and autonomous vehicles.

'I have no doubt' the alliance will survive, Deputy CEO Clotilde Delbos said in an interview on Bloomberg Television. 'It's even more when we have difficulties that we see the necessity to share costs, technology and to be strong in our alliance.'

Renault reported a group operating loss of 2 billion euros (NZ$3.5 billion) in the first half, compared with income of 1.52 billion euros (NZ$2.7 billion) a year earlier, and said the automotive cash burn was 6.4 billion euros (NZ$11.4 billion).

The company turned to its most powerful shareholder, the French state, for help during the health crisis, accepting a government-backed credit facility of 5 billion euros. At the end of June, the carmaker said it held 16.8 billion euros (NZ$27.8 billion) of liquidity, compared with 10.3 billion euros (NZ$18.3 billion) on March 30.

This week, the company poached a top designer away from rival PSA Group, and Delbos has cited a successful revamp at the maker of Peugeot and Citroen cars as a reason to focus on profitability rather than volume. PSA won investor praise for sticking to its financial outlook and reporting a first-half profit on July 28.

Renault and Nissan are regrouping from a two-decade era of aggressive expansion under Ghosn, who has denied the charges of financial misconduct levied against him by Nissan and the Japanese government. After making a dramatic escape from Japan at the end of 2019 and making his way to Lebanon, Ghosn held a news conference in Beirut. 'What we see today is a masquerade of an alliance,' he said at the time.