Renault-Nissan Rethinking Their Relationship

In an extended interview with Reuters, Nissan-Renault CEO Carlos Ghosn talks about the balancing act of leading two global automakers while maintaining their unique identities, a balance Ghosn says he wants to try to preserve even as the alliance looks to restructure its capital. Renault’s 44.3% stake in Nissan has caused some trouble with financial analysts because, as Ghosn puts it,

we are challenged (by financial markets) over how much capital we have imprisoned into the structure of the alliance. It’s a fair challenge. We are going to be studying and analyzing this with outsiders also, what are the ways to respond to these expectations from the financial markets without challenging the operating model which consists of keeping the two companies vibrant, motivated, engaged and keeping their identities

Does that mean a full merger? A new corporate structure? Where is Ghosn looking for answers as he attempts to give the markets what they want while maintaining the delicate balance between the needs of his two firms?

On one point, Ghosn seems to be clear: a full merger is not in the works.

We will be reviewing the financial structure not to end up with a merger … but to respond to the main concern of investors saying, “Maybe you’re using too much capital for your financial structure.” Every single time you make a merger, somebody is losing his identity. And saying something different is just rubbish. It is not validated by any example in the car industry that this works. Not one example. So that’s why we’re trying to avoid this by saying we want two companies which are vibrant, proud, eager for their own performance but at the same time, which want synergies.

Ghosn refused to give more details, saying the issue needs closer study, but analysts suggest that the main alternative to a merger would be a divestment by Renault of its large stake in Nissan. After all, Renault needs only a third of the Japanese automaker’s equity to maintain control, and Nissan owns only 15 percent of Renault. This would free up cash while leaving the alliance largely intact in its current form.

Meanwhile, Ghosn’s term as Nissan CEO is up this year, but the Brazilian-Lebanese dynamo says he’d like to stay on head of Nissan through the end of his term as Renault CEO, which ends in 2014.Says Ghosn:

As long as I’m heading Renault, I would like to propose that I continue to head Nissan because I think it’s good for Nissan to have the same CEO. It guarantees partnership, the same level of decision.

And if he has to pick someone else for the Nissan CEO job?

Definitely it should be somebody who is recognized at Nissan. That’s number one. Personally I have a preference for a Japanese. (But) this doesn’t depend on me because the shareholders have their own say.

And Ghosn’s emphasis on Japan is not coincidental, as he explains that, while Toyota and others run from Japanese production, Nissan has embraced production in the Yen zone.

My main resources, my main strengths, my main talents and expertise are in Japan. On the other side, we’re going to have to deal with unfavorable exchange rates for a while. So in function of these two elements, and our sales forecast — fortunately for us, we are in a strong growth — we are envisioning that we will be producing more than 1 million cars in Japan (a year) for the foreseeable future, even at this exchange rate level. With the strong growth, I need capacity. Because we are growing, thanks to the emerging markets and thanks to our investments in China, Russia, etc, and in the Middle East, we need this capacity in Japan. If the yen goes to 90, 95, 100 yen (to the dollar), then the 1 million is going to be a piece of cake. If it’s stuck at 80 or 85, it’s going to be tough.

The question: if Renault unlocks its equity in Nissan, will investors go for it, despite many concerns about the Japanese currency? Ghosn hopes to make a move on the alliance’s capital structure by 2013.