In 2013, two Carloses were at the top of the Renault-Nissan alliance. One of them was Carlos Ghosn, the Brazilian architect born in the French-Japanese colossus of car manufacturing. His protégé was Carlos Tavares, Renault's Portuguese chief operating officer, who ensured that good cars got off the production line. But Tavares, an engineer and racing driver, was not happy with the fast Ghosn. As he revealed in an interview that year, his ambition was to lead a major car company, such as General Motors. Ghosn was horrified. Shortly after, Tavares left Renault. A few months later, he was the head of PSA Group, maker of Peugeot and Citroën, Renault's domestic rival. It was the beginning of a series of maneuvers that made him the subject of the auto industry, as did Ghosn before and after his arrest in Japan last year on charges of financial misconduct (which Ghosn denies).
On October 30, boards of PSA and Fiat Chrysler Automobiles (FCA), an Italian-American company, said the two companies planned to unite. Tavares would become managing director of the combined group and John Elkann, chairman of the FCA (which sits on the board of the Economist's parent company), would chair its board. It would create the world's fourth largest automaker in vehicle sales, with a market value of about $ 50 billion. Intermittent discussions between the two companies were interrupted early in the summer when the FCA tried to join Renault, a deal that was thwarted by Renault's largest shareholder, the French government. The merged group would likely find most of the 3.7 billion euros ($ 4.1 billion) in annual savings they hope to achieve in Europe, a stagnant market where stringent environmental regulations are about to make automakers' lives still harder. Competition issues in parts of Europe, energetic unions and messy politics can still get in the way of any deal. Also, it is unclear whether Peugeot is Fiat's preferred partner.
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But the planned mega merger puts the spotlight directly on Tavares. As Max Warburton of Bernstein, a brokerage firm states, "Those who subscribe to The Great Men Theory will be fascinated to see what Tavares could achieve at the FCA if given the chance."
Warburton's "big man theory" is referring to states that big mergers in the auto industry are a murderous task that only a true leader can hope for. The revered Fiat boss Sergio Marchionne has achieved this feat with Chrysler. Ghosn was able to join the Renault-Nissan alliance for many years.
A corollary of the theory of great men is what might be called the "big business hypothesis." Generally attributed to Marchionne, he says huge challenges facing the industry, such as electric vehicles and autonomous cars, require global consolidation. To some extent, Tavares incorporates both doctrines, having quickly reversed the first Peugeot after being hit by the 2008-09 financial crisis, then Opel and Vauxhall, which he bought from GM in 2017. But what really sets him apart It is his ability to turn automakers into, as he said, "performance psychopaths." This relentless dedication to profits, even at the expense of personal greatness or corporate greatness, is a lesson most industry could learn.
The difficult Renault-Nissan connection is an example of this. After Ghosn's fall from grace last November, it was an example of how not to run a car empire. Long before his arrest, the deal had serious flaws. Instead of being a global network built around strong brands and economies of scale throughout the factory, it was more of a global car park. It filled different parts of the world with as many cars as possible from each company (and those from Mitsubishi, the other Japanese alliance partner), regardless of price and quality. I was jealous. Nissan had long been irritated by a shareholder structure that gave less influence than Renault. Worse still, the Japanese company resented the control that the French government, which owns only 15% of Renault, exercised over the partnership. He also feared the French ambitions of assuming it.
Since Ghosn's arrest, things have gone from bad to worse. Renault's aborted merger with the FCA showed how a nosy nosy in the French state became. He stubbornly refused to make concessions to cautious Japanese, for example, by selling Renault's stake in Nissan to rebalance its stake or reducing its own stake in Renault. Meanwhile, the fight distracted the three alliance members from the car-selling business. Nissan sales have shrunk. Profits are falling. Renault volumes are also falling. Its balance sheet is under pressure, especially as it will receive less money from its 43% stake in Nissan, which recently reduced its dividends.
In the eyes of the French government, the best answer is to double the alliance. Renault President Jean-Dominique Senard has promised to do just that, hoping a recent change of leadership at the top of Renault and Nissan will help. Investors prefer a clearer break with the past. Some want Renault to sell some of its Nissan shares and use the money to strengthen its balance sheet as a prelude to a fairer alliance. Others want a complete merger of the two. The bolder expected a big bargain, in which a stronger Renault again courts the FCA, with Nissan in tow.
Back to nuts and bolts
The talks between Peugeot and the FCA, for now, sent the idea of a great bargain off the road. That left Renault and Nissan looking lost. This makes it imperative that they do what Mr. Tavares did with Peugeot, Opel and Vauxhall: put profitability ahead. As Tavares stated, "There will be chaos between now and 2030. Not all manufacturers will survive Darwinism, not all will dominate the electric vehicle track." Some consider consolidation as the best way to deal with the rupture. Others see the need for a great leader who can build and maintain alliances. One thing is certain – no one will succeed without a Tavaresque focus on the bottom line. ■