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Bloomberg

Carlos Gonn’s grand alliance shows cracks two years after his arrest

(Bloomberg) – Two years after the stunning arrest of Carlos Gon for alleged financial crime, within the Nissan Motor Co. discussions are under way that could reshape the world’s largest automotive alliance and develop a key part of its former president̵

7;s legacy. exploring ways to sell part or all of its 34% stake in Mitsubishi Motors Corp., said people with knowledge of the subject. There is growing fear that Nissan will take longer for the company to recover from the pandemic crisis, said people who asked not to be identified because the discussions were not public. Sales could be the first step in a broader review of the tripartite alliance, which includes Renault SA, with Nissan shares jumping 5.4% to their highest level since June, leaving shares down 26% this year. Shares of Mitsubishi Motors sank but recovered to close 2.5% higher in Tokyo. Renault shares rose 4.3% in Paris. “There are no plans to change the capital structure with Mitsubishi,” Nissan said in a statement. Mitsubishi Motors said in a statement that there had been no discussion about reviewing their capital relations and that the carmaker “will continue to cooperate within the alliance”. A Renault spokesman declined to comment. When Gon saved Mitsubishi Motors in 2016 with an investment and an invitation to the alliance of $ 2.3 billion, it didn’t take him long to boast of a “new force in the global automotive industry.” He had even bigger plans – to create a holding company for the automobile empire, capable of dethroning Toyota Motor Corp. and Volkswagen AG as the world’s largest carmaker. That all changed on November 19, 2018, when Ghosn and former Nissan CEO Greg Kelly were arrested in Tokyo and accused of reporting underestimation of the former president’s compensation. Both denied wrongdoing. Additional charges were later filed accusing Gon of misusing the company’s assets, which he denied. Chaos engulfed the alliance. Ghosn loyalists were ousted as executives at Nissan and Renault struggled to control to fill the power vacuum. There was deep resentment at the French carmaker, which was not included as Nissan insiders spent months working with Japanese prosecutors to arrange for the ouster of the powerful president. Goss was released, re-arrested and released on bail in 2019. He escaped trial by making a daring undercover escape in December of that year on a private plane and making his way to Lebanon. One or two blows to the decline in global car demand and the pandemic have wiped out more than $ 44 billion of the total market value of the alliance’s three partners. “The best thing is to end the alliance,” said Tokyo analyst Tokai Seiji Sugiura, a frequent critic of the partnership who writes extensively about the companies in Japanese periodicals. “They must either become one or separate.” One unsettled variable for Nissan is finding a buyer, according to people familiar with the discussions. The carmaker can sell to one of the companies in the group, such as Mitsubishi Corp., which already owns 20% of Mitsubishi Motors. Finding another buyer or turning to the open market are also options. Nothing has been decided, people said. The sale would bring only a relatively modest amount of money. The holding was worth about $ 950 million at the end of trading last week, less than half of what Nissan paid four years ago. Mitsubishi Motors forecasts an operating loss of $ 1.3 billion for the fiscal year ending in March, and earlier this year was forced to halt production of the Pajero SUV and other larger car lines, leaving it to focus on smaller cars. and markets in Southeast Asia. Nissan’s results, released last week, suggest that restructuring efforts are gaining momentum, although the carmaker still forecasts a $ 3.2 billion loss for the fiscal year. It is in the process of issuing debt, raising a total of nearly 900 billion yen in financing. While the sale of shares would fundamentally change Nissan’s capital ties with one of its key partners, the three carmakers are likely to prove that the alliance remains intact operationally, people said. They will emphasize that the partnership can work without participation and that the sale can also free them to cooperate with other partners, said one of the people. “A question that has emerged in recent investor calls is whether the alliance can continue to work together without cross-ownership, and we see no reason why not,” wrote Tom Narayan, an RBC Capital Markets analyst with a retention rating equivalent. of Renault, on Monday. “We see today’s news as positive for RNO’s stock, as it underscores the captured value of Nissan’s stake and points to the possibility of continuing the alliance without cross-ownership.” Rescue mission The alliance began two decades ago when Renault invaded to save Nissan with a cash injection, saving the major carmaker from bankruptcy. The French carmaker sent Ghosn, which turned Nissan over and eventually took over the management of the two companies. While they took the opportunity to pool their purchasing power, this was not combined with meaningful joint product development. At the time Ghosn was arrested, there was deep resentment from Nissan that it had little influence over the partnership, despite sending billions of dollars in dividends a year to Renault, which has more control over the larger Japanese company through its 43% stake. . Nissan owns 15% of Renault and has no voting rights. To get through the turmoil following Ghosn’s arrest, the alliance unveiled a new operational structure in May, promising deeper co-operation. The share of cars produced on common platforms will double to about 80% by 2024, executives promised. The new strategy, called “follower of the leader”, is designed to force teams to work together by assigning a company to lead specific technologies or regions and ultimately taking responsibility for success or failure. “Mitsubishi Motors is working on its” Small but Beautiful “business transformation plan, which they announced in July,” Nissan said in a statement. “It is essential for each alliance partner to focus on its core competencies and maximize the use of the other’s assets to fulfill its interim plan.” The plan would make the alliance so closely intertwined that “there is no step back.” Renault chairman Jean-Dominique Senar said. The 67-year-old Frenchman is also chairman of the alliance’s operational council, which oversees the carmakers’ union, whose relatively new top managers have not had much time or opportunity to work together. Makoto Uchida took the top job at Nissan less than a year ago, while Luca de Meo started in July as Renault’s second CEO after Ghosn’s arrest. Osamu Masuko, chairman of Mitsubishi Motors, who struck a deal with Ghosn and was the carmaker’s main link to Nissan, died in August. Greater Forces It remains to be seen whether the cost-focused Leaders’ Followers Plan will provide the significant innovations needed to address the larger forces driving through the global automotive industry. Regulators are stepping up pressure to adopt electric vehicles, while autonomous driving technology has the potential to reshape the concept of car ownership. Electric vehicles are an excellent example of an area in which the alliance has missed opportunities. Although Renault and Nissan were ahead of many rivals when they released their respective EV models, Zoe and Leaf, they are still based on different platforms years after their debut. The next generation of electric vehicles of the alliance partners will share a jointly developed base. “The alliance is clearly an untapped potential,” said Societe Generale analyst Stephen Reitman. Senard said he never understood. Renault and Nissan have also pledged to turn the page on Ghosn’s relentless drive for growth and sales. However, in the midst of a pandemic, Renault Me Meo also warned that Renault and Nissan should solve their own internal problems to make sure the house “Every company is in trouble,” Gon said in an interview in August. “I don’t think they know where they’re going. No more vision. I think the best people have left or they will go. “Renault’s record loss in the first half and exposure to a weakening European market complicates its turnaround efforts. While de Meo keeps the PSA Group’s experience close to death as evidence As recovery is possible, Covid-19 makes pre-pandemic problems such as factory overcapacity even more difficult to deal with. Taken together with other developments – including the merger of French carmaker flirting with Fiat Chrysler Automobiles NV last year – it is clear that the overthrow of Ghosn has left the alliance on more volatile ground. Every carmaker has turned inward, making some wonder if the partnership can survive. “For better or worse, Ghosn kept it together,” said Tatsuo Yoshida, an analyst at Bloomberg Intelligence. (Updates with Renault shares in paragraph 3 and analyst commentary in paragraph 15.) For more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news . © 2020 Bloomberg LP


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