News Article

As pandemic rocks carmakers, Nissan-Renault-Mitsubishi alliance more crucial than ever

The coronavirus pandemic turbulence of the automobile industry could prove a defining moment for the Renault SA, Nissan Motor Co. and Mitsubishi Motors Corp. alliance as they plan drastic cost reductions for survival.

The car-production trio is set to announce a series of measures targeting closer operational integration on Wednesday. These were promised at the beginning of the year, and have been made more critical by the steep drop in sales, and unprecedented production halts rocking the industry.

After coming close to splitting up last year, the alliance may instead be vital for the companies to survive the global health crisis.

With Nissan and Renault both preparing to outline their own measures on two subsequent days, they will at least have the chance to demonstrate progress in moving beyond last year’s management paralysis and infighting and attempt to derive some gains from their decades-old business relationship.

“The alliance model is incomplete, very fragile and inefficient because the companies just don’t collaborate enough,” Jean-Louis Sempe, an automobile industry analyst with Invest Securities SA in Paris said. “The sector has no comprehension of how it works.”

Tetsuji Inoue, a spokesman for Tokyo-based Mitsubishi Motors, refused to comment. A representative for Nissan was not in a position to comment immediately.

“We affirm that the Alliance is vital to each company’s strategic growth and enhanced competitiveness,” said a spokesperson for Renault.

Even before the outbreak of the virus, the businesses were struggling to correct the partnership and turn around slumping sales and profitability.

At the end of April, Nissan reported losses for the fiscal year that ended March and postponed its earnings declaration, which will now be published on Thursday, the same day as a planned restructuring strategy. The automaker has been in turmoil since the arrest of former Chairman Carlos Ghosn in November 2018, with both an ageing car lineup management upheaval.

“The longer they concentrate on the alliance, the more difficult it becomes to see through required reform measures,” said Tokai Tokyo Research Center analyst Seiji Sugiura. “At the same time, they need to use the alliance. It’s a dilemma.”

According to Sempe, the activities of this week are crucial for Renault, with European car sales down 78 per cent in April and the automaker appealing to the French government for €5 billion in loan guarantees to boost reserves.

Renault ‘s timing is sensitive, as CEO-designate Luca de Meo will only formally take the helm July 1, a month-long wait following the acrimonious ouster of Thierry Bollore in October that left Clotilde Delbos, Chief Financial Officer, in charge along with Jean-Dominique Senard.

Delbos has promised €2 billion in cost savings over three years, yet after Renault burned through €5 billion in the first quarter, pressure has increased for a detailed restructure prior to De Meo arriving.

Having already admitted that the company doesn’t have the luxury to wait, she also vowed no taboos in pursuing reduction avenues. The plan for Renault would involve the closure of four sites in France, including the Flins plant, reported Wednesday by French newspaper Le Canard Enchaine.

“If the restructuring does not include the closures of the plants, then there may be some disappointment,” Sempe said.”Renault, on the other hand, can’t ask France for €5 billion, and then turn around and close down a factory.”

Delbos revealed that there are “no strings attached” to the state-backed loan and that the global industrial presence, subcontractor policies, and non-core assets of the company would be checked to minimise the breakeven amount.

Yet for the French government, which owns a 15 per cent stake and has representatives on the board, there may very well be restrictions.

Finance Minister Bruno Le Maire has promised an industry support plan that would include efforts to enhance purchases of new and lower-emission and electric vehicles, while at the same time urging companies to bring production

“I’m not worried about French plants,” said Renault’s CFDT union spokesperson Franck Daout. He predicted that the company could cut down on models, reduce the cost of engineering and development and halt certain projects that partners could take up.

A so-called leader-follower plan announced by the alliance in January is an attempt divvy up technology, platforms and powertrains, potentially using one team for all three companies. Geographically, Nissan will take the lead in China, Renault in Europe and Mitsubishi in Southeast Asia. The French carmaker has since withdrawn from China, and Nissan is expected to downsize its European footprint.

According to CEO Takao Kato, the benefits were clear for Mitsubishi Motors, the alliances at times-forgotten member. Small car collaboration has yielded benefits, and Nissan’s autonomous vehicle technology is critically important, he said at a May 19 earnings briefing. “There are very significant benefits of using the alliance.”

The reaction to the pandemic next week will drive home precisely how much dimmer Renault ‘s prospects have risen since Ghosn announced a six-year strategy for rapid growth and development with much fanfare in 2017, especially in China. Renault ‘s targets on sales, production and profits are nowhere near to being met.

Part of the French car manufacturers troubles are also rooted in 43 per cent-owned Nissan, which is looking to cut about ¥300 billion ($2.8 billion) in yearly fixed costs and book restructuring charges as the virus outbreak further depresses the carmaker’s sales figures. In addition to the recently closed operation in Indonesia, the Yokohama-based company will also retire the Datsun brand and close down one production line.

Given that Nissan is preparing to reduce capacity from 7 million to around 5.4 million vehicles per year, one key question is whether Renault will be able to do the same, given the pressure it faces not to cut staff and especially in the current environment of economically destructive shutdowns.

“If after 20 years this is all they have to show for the alliance, it’s proof that the partnership isn’t really effective,” said Sugiura.

CIMB Bank - Best exchange rate SG > MY

Login to your account below

Fill the forms bellow to register

Retrieve your password

Please enter your username or email address to reset your password.