Business / Corporate

Renault's troubled ties to Nissan are hurting the bottom line

by Ania Nussbaum

Bloomberg

For months, Renault SA’s partnership with Nissan Motor Co. has been a strain on management and a public relations nightmare. Now the Japanese carmaker’s woes are hitting where it really hurts: the bottom line.

The largest French automaker, which owns 43 percent of Nissan, reported Friday that its partner’s poor performance in the first half cut net income by €21 million ($23.4 million). A year earlier Nissan added €805 million.

Nissan is smarting from slumping U.S. sales and aging vehicle models. The worsening results come at a time of heightened tension within the alliance with Renault in the aftermath of the arrest of their former chairman, Carlos Ghosn, who held the partnership together for almost two decades.

“Our top priority is to help Nissan get out of that situation,” Renault Chief Executive Officer Thierry Bollore said in an interview with Bloomberg Television. While Renault cut a sales target for this year, the carmaker is sticking to its profit outlook despite the industry slump.

In contrast, Nissan on Thursday announced a doubling in the number of jobs it plans to eliminate and unveiled new production cuts, while reporting a 99 percent drop in first-quarter profit. It blamed sales incentives and overexpansion under Ghosn. Nissan’s deteriorating results could help Renault take the upper hand in the teetering partnership.

While Renault owns a stake in Nissan, the Japanese automaker is the bigger partner in their alliance and in turn owns 15 percent of the French carmaker, with no voting rights. The lopsided shareholding arrangement has long been a source of tension.

The alliance partners, which include Mitsubishi Motors Corp., together produce some 10.8 million cars a year, almost double Ford Motor Co.’s global deliveries. The alliance would be second in vehicle sales only to Germany’s Volkswagen AG, with Toyota Motor Corp. a close third. Yet despite the cost benefits of cooperation on purchasing, design and manufacturing, doubts have grown about the future of the alliance.

Since Ghosn’s November arrest in Tokyo on allegations of financial crimes, which he has denied, Renault’s new chairman, Jean-Dominique Senard, has pushed for a merger Nissan didn’t want, and then pursued talks to combine with Fiat Chrysler Automobiles NV without telling its partner. Those talks collapsed after the French government made it clear it wanted Nissan to support the Renault-Fiat deal before entering an agreement.

While talks with Fiat have ended, Bollore said he shares the “same dreams” as Senard of reviving the deal. “The fundamentals for such a deal are there,” although the priority is on helping Nissan turn itself around.

Renault on Friday lowered its outlook for full-year sales, saying revenue will be close to last year’s level rather than grow. But Renault kept its forecast for a group operating margin of 6 percent.

The results capped a mostly gloomy week for the automotive industry. Ford missed earnings estimates and gave a projection for 2019 profit that disappointed investors, while Tesla Inc. posted a worse than expected loss. Suppliers also suffered, with Continental AG shaving its targets. Among the brighter spots, France’s PSA Group booked a record profit margin at its automotive division and Volkswagen AG’s earnings beat estimates.

Renault is counting on new models, higher prices and cost-cutting measures to reach its profit targets in the second half, as well as its “fighting spirit,” Bollore said in a statement. Sales fell 6.7 percent in the first half and operating income dropped 12 percent.

It’s unclear how Nissan’s woes will affect Renault factories, said Franck Daout, a representative of the carmaker’s CFDT union. Renault’s plants in Cleons and Le Mans make parts for Nissan cars, and the manufacturer makes the Nissan Micra in its Flins plant outside of Paris.

Nissan already shifted production of the X-Trail model from Sunderland in the U.K., citing Brexit concerns, and has announced a plan to cut 600 jobs at a plant in Barcelona.