With Honda and Nissan making known their merger intentions, it now remains to be seen what this will imply for Renault.
There has been no official statement from the French automaker which for decades has had a 43% stake in Nissan with the latter, in turn, holding 15% in Renault. In recent times, nearly 28% of the Renault stake is now in a trust which means it is left with 15%.
The official line thus far is that the imminent merger with Honda will have no bearing on Nissan’s relationship with Renault but that may not be pragmatic going forward. The two Japanese companies, along with Mitsubishi (in which Nissan has 34% stake), would rather start their marriage on a clean slate where any memory of the past is wiped out.
It is also no secret that since the time Carlos Ghosn was ousted following his dramatic arrest in 2018, the relationship between Renault and Nissan has been anything but smooth. Heads have rolled along the way and recent restructuring moves on the equity structure have clearly indicated that there is a sense of fatigue, and even finality, setting in on the partnership.
What was seen as a masterstroke 25 years ago when the Renault-Nissan alliance was formed (especially when seen in sharp contrast to the disastrous Daimler, Chrysler merger) has now reached a stage when each of the companies would much rather follow its own growth path going forward. The automobile arena is changing rapidly with new challenges like electrification, the Chinese onslaught in electric vehicles, tariff threats coming in from the US and so on.
Options for Renault
As much as Nissan is now heading towards a merger with Honda, Renault may be equally inclined to deepening the partnership with Geely of China or even Aramco, in its quest for new powertrain and energy options. “For now, the message that is being sought to be conveyed is that there is no impact on the Renault, Nissan alliance with the Honda merger but reality is something else. The time has come for them to part ways amicably,” says an industry expert.
If that were to be the case, the divestment of equity could be a complex exercise. A large part of Renault’s stake in Nissan is in a trust and the valuation will become critical in the event of a complete exit. Beyond this is the 15% stake each company holds in the other’s equity base. Would Nissan be in a position to buy out its stake in Renault and vice-versa? Eventually, the key lies in untangling the holdings and paving the way for a smooth merger.
India has a special position in this exercise given that it houses the alliance’s manufacturing facility. Nissan is the majority shareholder here with 51% while Renault holds the balance 49%. For many years, since the commissioning of this plant in Chennai, this was a 70:30 alliance which was recently changed to 51:49.
This occurred in February 2023 when big ticket announcements were made regarding investments of over INR 5,000 crore for the Chennai operations. Likewise, the Renault Nissan Technology Business Centre, again in Chennai, has the French automaker taking up 51% to Nissan’s 49%.
Changing the structure
In the new business model of Honda and Nissan, it will be interesting to see how the existing structure will be rebooted. Honda has two car plants in India of which only one, in Rajasthan, is being used for production while the other in Greater Noida has no role to play in terms of car manufacturing. Nissan, of course, has the sprawling Chennai unit in its alliance with Renault which has a capacity of over 4.5 lakh units but only used to the extent of 40% or thereabouts.
“Nissan will either buy out Renault’s 49% stake in the plant to take complete control or choose to sell its 51% as part of an exit deal. Either ways, the remaining partner will have its task cut out in optimising capacity,” says an auto industry veteran. Assuming that it choses to sell its stake, Nissan may still opt for a contract manufacturing pact with Renault to produce its cars.
At this point in time, continues the veteran, things are just “way too fluid” to make any kind of prediction about the road ahead in India. The alliance is already not being able to increase production numbers in Chennai and that could be a big source of concern in a market where Maruti, Hyundai, Kia, Tatas and Mahindras are surging ahead.
Honda in rebuild mode
Honda Cars has also had its share of problems in India which prompted it to shelve production at Greater Noida and focus on Rajasthan instead as part of a restructuring exercise. It is now getting back on track and plans to play a more proactive role in the SUV space which is the centre of action in the subcontinent.
The Nissan merger may see some interesting synergies play out at the backend in terms of common sourcing as well as pooling in R&D and engineering competencies. Electrification will also get a boost but all this can only work out when the partners are completely in sync with each other as is the case with Toyota and Suzuki in India.
Carlos Ghosn, the former CEO of Renault-Nissan, has recently gone on record to say that this merger would not yield the desired results. He has also said previously that during his tenure, and just before the arrest in Tokyo six years ago, there was a move to merge Renault-Nissan with Fiat Chrysler Automobiles (FCA).
Leadership makes the difference
Had this actually happened, there is no telling if Nissan would have felt the need to go with Honda in the first place. What is even more interesting is that FCA had reached out to Renault with a merger proposal even after the Ghosn arrest but withdrew the offer in barely 10 days since it felt that this was heading nowhere. Nissan, needless to add, was not too pleased with this move either.
All this, of course, remains in the ‘what if’ realm and Ghosn is pretty much forgotten as he now leads a low profile life in war-torn Lebanon. The bottomline is that there are some leaders who have made a difference to the companies they were in charge of. Apart from Ghosn, there was the late Sergio Marchionne who turned Fiat around with the acquisition of Chrysler during the global slowdown in 2009.
The most recent is Carlos Tavares whose exit will be particularly felt in Stellantis because of its gigantic structure comprising Groupe PSA, FCA, Opel, Vauxhall and Leapmotor of China. Will such a gargantuan entity be able to hold its own at a time when Europe is wobbly thanks largely to the growing crisis in Germany? Only time will tell.
