Renault and Nissan close in on deal to save longtime alliance

Renault and Nissan are close to a deal to save their dysfunctional alliance, which rescued the Japanese carmaker from near-bankruptcy 20 years ago and was meant to be a model for how rivals worked together.

The deal under discussion would reduce Renault’s outsized voting rights over its now larger Japanese partner, according to six people with knowledge of the details.

Nissan has also agreed to invest in Renault’s electric vehicle and software business, which the French carmaker is spinning out as part of a new strategy to be announced next month. But it is not planning to put money into Renault’s legacy combustion engine business, the people said.

An agreement on the main points of the deal is expected in the coming weeks, ahead of a Tokyo board meeting of alliance members in mid-November.

“It doesn’t mean that everything will be agreed but one thing is clear: both sides are putting their best efforts to conclude,” said one person close to Nissan.

The negotiations, which involve rewriting the original agreement, are a last gasp attempt to restore an alliance that was once seen as an industry blueprint for achieving scale and efficiency.

But a growing power imbalance over the years, as the French state intervened in its capacity as a Renault shareholder, and differences in corporate culture from the outset, meant the partnership struggled to function on a practical level, insiders said.

Then came the swift and brutal fall of former alliance supremo Carlos Ghosn in 2018 and the long-term survival of the partnership looked ever more unlikely.

Now, however, the two carmakers are hoping that a complete restructuring of the alliance will create the goodwill and the incentives to pursue joint projects.

“It’s been clear for some time now that the status quo cannot endure,” said one person close to Renault.

“These talks are clearly not for a divorce but for an evolution into a healthy relationship,” said one person with knowledge of the Japanese government’s position.

Importantly, while the details will take time to iron out, both sides are confident agreement can be reached.

People familiar with the talks said Renault would sell down its 43 per cent stake in Nissan, most likely to 15 per cent — mirroring Nissan’s stake in Renault.

This sale would be around $3.6bn based on Nissan’s current market value, but would happen slowly over time, with shares held in a form of trust, the people added. That would allow Renault to continue to benefit from the cash flow from Nissan’s profits while Nissan would have control of the trust and the first right to buy its shares.

The fact that the talks are happening at all, according to people close to the businesses, is an indication of greater trust between the two sides and the recognition of the urgent need to restructure the alliance to improve financial performance.

---

The alliance was formed in 1999 during a dismal economic period for Japan.

For almost two decades, it was held together by the charisma and showmanship of Ghosn, who juggled the CEO roles at both businesses and was also chair of the partnership.

Ghosn’s arrest, over financial misconduct charges he denies, exposed the deep-seated tensions in the partnership, and the two groups struggled to launch any significant joint projects beyond their merged purchasing operations in the years afterwards.

Even before Ghosn’s arrest, the alliance had its problems. One French worker recalls a year of back and forth with Japanese colleagues on sharing cloth supplies for car seats before a decision could be reached.

“It would just take a long time to build trust,” the person said. Another said the regional bias of Renault towards markets in Europe and Latin America and Nissan towards China and the US created unhelpful silos.

French government intervention over the years also irked Nissan. As finance minister in 2015, president Emmanuel Macron pushed for the state to double its voting rights at Renault using a new French law, while Nissan had none at Renault.

A changing of guard at both companies has also injected fresh impetus to fix the alliance.

Luca de Meo, who has been CEO since summer 2020 alongside chair Jean-Dominique Senard, has developed a close relationship with Nissan chief executive Makoto Uchida, and Ashwani Gupta, chief operating officer who is heading the negotiations.

De Meo’s restructuring of Renault to improve its efficiency has offered an opportunity to rest the alliance, both sides agree.

“We’re looking at something more pragmatic now,” another person at Renault said. One person close to Nissan said the management teams of the two companies “are fully aligned”.

One major element of the alliance that is likely to change significantly is the closely guarded 2015 “Rama” deal created under Ghosn, which codified some of the alliance’s most unpopular elements, such as who had powers to appoint directors.

People close to the talks say there is a willingness to make the successor agreement public to foster trust and transparency.

Renault is holding a capital markets day on November 8, which will include details of the spin outs of its EV and combustion engine businesses, and a reshaping of the company into teams focused on specialisms like software.

Nissan could buy up to 15 per cent of the EV business, which Renault aims to list next year, the people said. The engine business is likely to be headquartered in London, one person close to the negotiations said, rather than France.

Several people cited Nissan’s agreement this year that Renault would build the electric successor to the Micra at a French factory as the type of deal the two could build on.

“We have some tangible projects which we are demonstrating that we are moving forward to make the alliance stronger and stronger,” Gupta told a Financial Times summit this year.

There remain some potential sources of tension, however, such as Renault’s plan to sell part of its engine business to Geely, which would involve sharing some Nissan intellectual property with the Chinese group.

While the Japanese government has not expressed concerns about this, there could be resistance from Nissan engineers, said one person close to the alliance.

People close to Nissan said the company was willing to consider sharing IP on combustion engine technology, but was more wary about electric vehicle and autonomous driving IP.

The bigger question is whether the latest talks are the last chance for the two sides to salvage their partnership.

“Since Ghosn disappeared, the alliance has been just a name with no real substance,” said CLSA auto analyst Christopher Richter.

“Maybe with a rebalancing of the structure, they can make it work and if not they can agree to move on.”

This article has been updated to clarify that the French state pushed to double its voting rights, rather than Renault, and that the engine business will have its HQ in London.

Additional reporting by Eri Sugiura in Tokyo