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Carlos Ghosn’s Grand Alliance shows cracks two years after his arrest

(Bloomberg) – Two years after Carlos Ghosn’s impressive arrest for alleged financial misconduct, talks are underway within Nissan Motor Co. that could transform the world’s largest auto alliance and wind down a vital part of its former chairman’s legacy to seek opportunities , part or all of 34% stake in Mitsubishi Motors Corp. to sell, said those aware of the matter. There is growing concern within Nissan that it will take longer for the company to recover from the crisis sparked by the pandemic, said people who asked not to be identified because the discussions are not public. A sale could be the first step in a broader review of the three-way alliance, which Renault SA is a part of. Nissan stock rose 5.4% to its highest level since June, and dropped 26% this year. Mitsubishi Motors stock fell but rebounded, closing 2.5% higher in Tokyo. The Renault share rose even 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 was no discussion to review their equity relationship and that the automaker “will continue to work within the alliance”. A Renault representative declined to comment. When Ghosn rescued Mitsubishi Motors in 2016 with an investment of 2.3 billion US dollars and an invitation to the alliance, it wasn’t long before he boasted of the “new force in the global auto industry”. He had bigger plans – to found a holding company for an auto empire, Toyota Motor Corp. and dethrone Volkswagen AG as the world’s largest automobile manufacturer. All of that changed on November 19, 2018 when Ghosn and former Nissan director Greg Kelly were arrested in Tokyo on charges of failing to adequately report the former chairman’s compensation. Both have denied wrongdoing. Additional charges were later brought accusing Ghosn of misusing the company’s assets, which he has denied. Chaos gripped the Alliance. Ghosn loyalists were ousted while Nissan and Renault executives battled for control to fill the power vacuum. There was deep resentment against the French automaker, which was pulled out of circulation when Nissan insiders worked with Japanese prosecutors for months to orchestrate the overthrow of the powerful chairman. Ghosn was released in 2019, arrested again, and released on bail. He escaped the process by making a daring undercover escape on a private jet in December this year and making his way to Lebanon. The double blow of a decline in global auto demand and the pandemic has wiped out the combined market value of the three alliance partners by more than $ 44 billion. “The best thing is to end the alliance,” said Seiji Sugiura, an analyst at Tokyo Tokai Research, a frequent critic of the partnership who has written extensively about the companies in Japanese magazines. “They should either become one or part.” One unexplained variable for Nissan is finding a buyer, according to those familiar with the considerations. The automaker could sell to one of the group’s companies such as Mitsubishi Corp. sell, which already holds 20% in Mitsubishi Motors. Finding another buyer or moving to the open market are also options. Nothing was decided, people said. A sale would only make a relatively modest amount of money. The stake was valued at around $ 950 million at the close of trading last week, less than half what Nissan paid four years ago. Mitsubishi Motors forecast an operating loss of $ 1.3 billion for the fiscal year ended March, and was forced to close earlier this year. Production of the Pajero SUV and other major vehicle lines is focused on smaller cars and markets in Southeast Asia. Nissan’s results, released last week, suggest that restructuring efforts are picking up pace, even though the automaker continues to forecast a $ 3.2 billion operating loss for the fiscal year. While a stock sale would fundamentally change Nissan’s capital tie-up with one of its key partners, the three automakers will likely ensure the alliance remains operationally intact, people said. They will emphasize that the partnership can work without the participation and that the sale can also free them up to work with other partners, said one of the respondents: “A question that has been raised in the last investor calls is whether the alliance without they may continue to cross-stake and we don’t see why not, ”wrote Tom Narayan, an RBC Capital Markets analyst with the equivalent of a hold rating for Renault, on Monday. “We view today’s news as positive for RNO stock as it highlights the value of the company’s Nissan stake and suggests the possibility of continuing the alliance without mutual involvement.” The alliance began two decades ago as Renault To save money, Nissan stepped in with an injection of money that saved the larger automaker from bankruptcy. The French automaker sent Ghosn, who turned to Nissan and eventually took over the running of both companies. While they benefited from being able to pool their purchasing power, this did not go hand in hand with meaningful joint product development. When Ghosn was arrested, Nissan felt deep resentment that the partnership had little impact, despite sending billions in annual dividends to Renault, which exerted more control over the larger Japanese company through its 43% stake. Nissan owns 15% of Renault and has no voting rights. In order to overcome the turmoil since Ghosn’s arrest, the alliance presented a new operating structure in May that promises closer cooperation. The proportion of cars manufactured on shared platforms will double to around 80% by 2024, the executives promised. The new strategy, dubbed “Leader-Follower”, aims to force teams to work together by naming a company that will lead certain technologies or regions and ultimately take responsibility for success or failure. “Mitsubishi Motors is working on its” small but beautiful “business transformation plan that they announced in July,” Nissan said in its statement. “It is important for each alliance partner to concentrate on their core competencies and to maximize the benefits of the other in order to realize their medium-term plan.” The plan would link the alliance so closely that “no step backwards” would be possible, so the chairman of Renault Jean-Dominique Senard said. The 67-year-old Frenchman is also the chairman of the Alliance’s operations committee, which oversees the union of automakers whose relatively new directors haven’t had much time or opportunity to work together. Makoto Uchida took the top job at Nissan less than a year ago when Luca de Meo started as Renault’s second CEO since Ghosn’s arrest in July. Osamu Masuko, the chairman of Mitsubishi Motors who forged the deal with Ghosn and was the automaker’s primary link with Nissan, died in August necessary to cope with the larger forces dragging through the global auto industry. Regulators are increasing pressure to use electric vehicles, while autonomous driving technology can potentially transform the concept of car ownership. Electric vehicles are a prime example of an area in which Allianz has missed opportunities. Although Renault and Nissan were ahead of many competitors in introducing their respective EV models, the Zoe and Leaf, they are still based on different platforms years after their debut. The alliance partners’ next generation electric vehicles will share a jointly developed base: “The alliance is clearly unfulfilled,” said Stephen Reitman, analyst at Societe Generale. The companies ditched Ghosn’s method of measuring the success of the alliance through synergies, aiming to top $ 10 billion in 2022, but based on numbers, Senard has said he never got it. Renault and Nissan are also committed to turning Ghosn’s relentless pursuit of growth and sales volume on its head. But amid the pandemic, Renault’s de Meo also warned Renault and Nissan will have to fix their own internal issues to keep the house safe from going up in flames. “Every company is in trouble now,” Ghosn said in an August interview. “I don’t think they know where they’re going. There is no more vision. In my opinion the best people have left or will go. “Renault’s record loss in the first half of the year and involvement in a weakening European market are making turnaround efforts difficult. While de Meo has cited rival PSA Group’s near-death experience as evidence that recovery is possible, Covid-19 is making it even more difficult to resolve pre-pandemic issues like factory overcapacity. Along with other developments – including the merger of French automaker Flirt with Fiat Chrysler Automobiles NV last year – it’s clear that Ghosn’s fall left the alliance on shakier ground. Every automaker has turned inward, which has led some to wonder whether the partnership can survive: “For better or for worse, Ghosn has held them together,” said Tatsuo Yoshida, an analyst with Bloomberg Intelligence. (Updates with Renault stock in paragraph 3 and analyst comment in paragraph 15.) For more articles like this, visit bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2020 Bloomberg LP