February 2, 2011. Copyright 2011, Graphic News. All rights reserved

Bold plan required from Renault; Nissan merger would do nicely
By Neil Winton

LONDON, February 2, Graphic News:  French car manufacturer Renault presents its latest three-year corporate plan on February 10 and some investors want to see bold action, including a full merger with its alliance partner Nissan of Japan.

Renault and Nissan have been partners since 1999, when the French company rescued what was then a financial basket case. Renault has a 44.3 percent stake in Nissan, while Nissan has 15 percent of Renault. (The French state still owns 15 percent of Renault). Nissan has made impressive progress since then, and is successful in America where it also has the Infiniti brand, a premium car range competing with BMW and Mercedes.

But Renault has failed to punch its weight financially and when investment bankers do their sums to add up the combined value of the two companies they routinely say the Renault part is worth nothing and Nissan accounts for all of the stock market value.

Carlos Ghosn, CEO of both companies, has already made one stab at transforming Renault's financial performance. In 2006 he unveiled Plan 2009, which crashed and burned with some help from the worst recession in 60 years. The stated aims of the 2009 plan were that:
*Renault would be Europe's most profitable car company by 2009 -- failed.
*Renault would boost annual car sales by 800,000 vehicles to 3.33 million through the introduction of 26 new models -- failed.
*Renault would raise profit margins to 6 percent, up from 2005's 3.2 percent, and the dividend by 33 percent -- failed. (Renault lost 3 billion euros in 2009, compared with a profit of 600 million euros the previous year)
*The Laguna would be in the top three European models in terms of quality -- failed.

Bernstein Research auto analyst Max Warburton said Ghosn's credibility was harmed by a lack of realism in the original plan, and the clear evidence that Renault was not on track to hit the targets even before the recession hit. Ghosn attempted to blame the recession for Renault's total miss, according to Warburton, and was unwilling to admit to management errors and miscalculations.

"In addition, he has always ducked the issue of the Renault-Nissan corporate structure. We'd argue that without a fair appraisal of what he got right or wrong the last time, and some new acknowledgement that the Renault Nissan structure is unsustainable, Ghosn's promises for the next three years will ring hollow with investors," Warburton said.

Warburton said Ghosn -- also known as Le Cost Killer -- has to lay out a convincing plan showing that Renault can be profitable, that harnesses Nissan's cash flows, and shows a more straightforward corporate structure.

"Why not go to 51 percent. Why not merge," Warburton said.

Raising the stake to over 50 percent would allow Renault to control all of Nissan's cash flows.

The French media has been buzzing with rumours ever since February 10 was declared decision day. Latest reports say Ghosn will target an operating margin of five percent over the three years and sales of three million vehicles by 2013 compared with 2.62 million in 2010. The newspaper Le Figaro said in December the operating margin target would be 5.0 to 5.5 percent by 2013.

In 2010 Renault-Nissan sold a total of 7,276,398 vehicles, giving it a global market share of 10.3 percent which placed it third in the global league behind Toyota and GM of the U.S., but ahead of Germany's Volkswagen.

Renault Nissan also has an alliance with Daimler of Germany to build small cars and batteries for electric cars. In 2006, Renault-Nissan briefly flirted with GM, but the talks failed.
/ENDS