Renault-Nissan merger proposed as Renault announces record earnings

February 13, 2017

The chief executive officer of both Renault and Nissan, Carlos Ghosn, has said the Renault-Nissan Alliance is ready to form closer capital ties, but only if France sells its stake in Renault. 

The French government instigated a power struggle in the company in April 2015, when it increased its stake in the French carmaker from 15% to nearly 20%, so that ministers could block a proposed board opt-out of laws giving the French state and other long-term stakeholders double voting rights. 

The move was described at the time as temporary and done with little warning to Ghosn or the board, and the resulting stand-off persuaded Nissan that no further consolidation of the Alliance was possible while France continued to hold Renault shares. Tensions resurfaced last month when the head of the APE French state shareholdings agency Martin Vial rejected as ‘false allegations’ a scathing submission by Renault to the government that France acted on insider information when it bought additional shares. Rather than the expected apology, Ghosn’s response cast France as the main barrier to progress for Renault-Nissan. 

He said regarding the factual basis of the submission: ‘Anything imprecise will be rectified, but everything true will be maintained. […] The Japanese would never accept to be part of an entity where - particularly taking into consideration everything which happened - the French state would be a shareholder of Japanese assets.’ 

Fresh calls for further consolidation of the Alliance come as Renault set ambitious new medium term goals on Friday as it announced strong results, with record sales and profit in 2016, and market share rising in all regions. Pre-tax profit surged 50% to €3.3 billion and revenues rose 13% in 2016 from €45 billion to €51 billion, with both figures beating analysts’ expectations. 

It achieved record sales of 3.18m vehicles in the year, which pushed it ahead of French rival PSA Group (Peugeot Citroën) to become France’s top carmaker. PSA sold 3.15m cars last year. 

Following the strong results, Renault announced a new strategic plan to achieve a 7% operating margin by 2022, up from 2016’s record 6.4%, and to reach €70 billion in revenues through growth from emerging markets. The plans, that are a clear indicator of a potential merger, also call for further efficiency savings from closer ties with Nissan. Full details will be announced in October. 

Renault’s market share in Europe grew to 10.1% on the success of its SUVs such as the Captur, Duster, Kadjar and Kwid. It also did well in Morocco with a 37.8% market share, where it produces Dacia and Renault cars in Tangier and Casablanca. 

Further consolidation of Renault and Nissan is a welcome aspiration, with great potential benefits from the sharing of resources and expertise, and economies of scale. However, with En Marche’s Emmanuel Macron now frontrunner to win France’s presidential election in April, ahead of second-placed Front National’s Marine Le Pen, achieving this could be problematic. Macron himself orchestrated the French state’s intervention in Renault in 2015 when in his former role as economy minister. 

The potential of a full merger of Renault-Nissan is undeniable. Already approaching General Motors as the third-largest carmaker worldwide, the Alliance is still growing rapidly, with both its Renault and Mitsubishi arms still with large potential untapped growth. While Renault’s Brazilian and Russian markets are currently ‘stable’, Ghosn says that Russia has the potential to be a ‘cash machine’ once the market recovers. Low-frills Romania-based Dacia is also performing strongly in Europe, with sales up 11% in 2016 to a record 415,000 units. Selling to private value for money-conscious consumers rather than relying on less-lucrative fleet channels like many mass market rivals, analysts predict its profit margin is as high as 10%. The Alliance is only 350,000 vehicles short of Volkswagen, the world’s best-selling carmaker.

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