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Renault and Nissan are bickering partners who need each other

Nov 22

Renault and Nissan are bickering partners who need each other

Ania Nussbaum I Bloomberg

It was a lopsided union when Renault SA rescued Nissan Motor Co. in 1999. Today, it’s harder to tell which of the bickering common-law spouses needs the other more.

Tensions regarding the future of the carmakers’ partnership -- and whether it should become a full-fledged marriage -- burst into the open after their leader Carlos Ghosn was arrested in Japan on Monday. The chairman of the two companies had been preparing to push for a full merger and was facing resistance from factions within Nissan, including from his protege-turned-foil Hiroto Saikawa, who’s been chief executive officer since last year.

Ghosn’s jailing for alleged under-reporting of his income to fund a lavish lifestyle laid bare the resentments that have built as the two companies alternated successes and struggles over the past two decades.

So far, the market is signaling that Renault may have a bit more at risk. The French carmaker’s shares have fallen about 8.5 percent since the news broke of Ghosn’s arrest, a bit more than the decline of about 5.1 percent for Nissan.

Why the alliance makes sense:

Scale, scale, scale. The alliance, which has included Mitsubishi since late 2016, sold about 10.6 million vehicles last year, giving Volkswagen AG a run for the top position. Big automakers have more chance to survive the changes sweeping the industry, from the rise of zero-emission and autonomous cars to the interloping by tech giants including Google and Apple.

A separation could result in years of disarray. Renault and Nissan cooperate on engineering, manufacturing, supply chain management, purchasing and human resources.

One example of integration is Renault’s Flins plant near Paris, which has been building the Micra small car since 2016. Earlier this month, the automaker unveiled plans to build more of the vehicles bearing the Nissan badge.

Why Nissan needs Renault:

In a breakup, a smart fix would be needed for Nissan models sold in Europe with Renault parts. The Japanese carmaker sold over half a million vehicles on the continent last year.

Nissan is bigger but Renault’s margins have improved. 'Nissan’s revenues are 50 percent higher but generate a similar level of absolute Ebitda,” said Michael Dean, an analyst for Bloomberg Intelligence. He added that the outlook for Nissan earnings was weaker in the medium term.

Why Renault needs Nissan:

Nissan still generates a big volume of profit and sells more cars: roughly 5.8 million last year, versus 3.7 million for Renault. The Japanese company brings more heft to the table when negotiating purchasing terms with suppliers.

Renault is more reliant on Europe, where the outlook for car sales is grim, due to new emission rules weighing on future profit margins and volumes and a seemingly imminent Brexit. The French automaker sells about half of its cars on the continent. That compares with less than 15 percent for Nissan.

Nissan provides links to China, where Renault only has a small presence, and the U.S., where the French carmaker is absent.