There’s an old Tamil saying which says that truth is not what you see or hear but it is what comes out of deep enquiry.
One was reminded of this saying while following developments in the sensational arrest of Carlos Ghosn last week over alleged financial impropriety. Le Cost Killer, as he was known, fell from the dizzying heights of power and fame to the depths of a cold detention centre in Tokyo literally overnight.
It is easy to believe what is being put out in the public domain by Japanese authorities on Mr. Ghosn simply because it is so believable. And because somewhere within us, we want to believe that the high and mighty suffer from the same frailties as the average Joe.
What if Mr. Ghosn was the powerful head of a mighty alliance that was the largest carmaker in the world? He proved to be an average human being in the end. Allegations of under-reporting of income and use of company assets for personal purposes made against Mr. Ghosn sound so familiar that we run the risk of accepting them at face value and thus missing the larger picture.
Not proved
This is not to suggest that the allegations are a pack of lies; but equally, they’ve not been proved true either. At least, not yet. Meanwhile, we need to look at the surrounding circumstances of this denouement to understand and place the issue in context.
The grim truth is that Mr. Ghosn is locked up now and cannot share his side of the story. All that we have to work with is the information released by the Japanese authorities and the statements by Nissan CEO Hiroto Saikawa. But that’s just one side of the story. The French partner in the alliance, Renault, underlined this fact in its press release a continent away: “the [Renault] Board is unable to comment on the evidence seemingly gathered against Mr. Ghosn by Nissan and the Japanese judicial authorities.”
Second, corporate scandals are not new to Japan. There have been serious lapses by Japanese firms recently. Airbags manufacturer Takata produced faulty products that endangered millions; Suzuki, Yamaha, Mazda and even Nissan faked emissions tests and Kobe Steel falsified quality data on its products used in automobiles, trains and aircraft.
Yet, the authorities did not react the way they have now with Mr. Ghosn.
So, what gives? Mr. Ghosn, with his larger-than-life image and flamboyant lifestyle is the very anti-thesis of what the Japanese believe they stand for. Not for the Japanese stuff such as the Marie-Antoinette themed party that Mr. Ghosn threw for his second marriage in the Palace of Versailles in 2016. This persona of Mr. Ghosn was always jarring for the Japanese but it was tolerated because Nissan needed him.
Mr. Ghosn shoehorned a complex alliance 19 years ago when Nissan was bankrupt, but today Nissan has grown to be bigger and more profitable than its saviour, Renault, and it obviously doesn’t go down well with the Japanese that Mr. Ghosn (and Renault) continues to act like the superior partner.
That takes us to to a deeper, more complex dynamic that appears to be at play. Mr. Ghosn has managed almost the impossible by maintaining an uneven equilibrium between Renault, which holds a majority 43.4% of Nissan, and Nissan in the last two decades.
‘Irreversible’ alliance
And he has been talking of making the alliance “irreversible” which may have upset the false equilibrium and unsettled the Japanese. There were reports earlier this year that the French government was interested in pushing through a merger of Renault with Nissan which did not exactly please the Japanese.
A recent report in the Financial Times says that before his arrest, Mr. Ghosn had been planning a merger between Renault and Nissan, which was opposed by the latter’s board. Mr. Ghosn was seen by Nissan as the man who kept the over-bearing French government at bay and maintained equilibrium in the alliance, giving Nissan the place it deserved.
However, the Japanese major may have been troubled by the thought of being locked in an unequal relationship with Renault in the post-Ghosn years if he was allowed to make the alliance irreversible.
An auto industry veteran who has worked with the Renault-Nissan alliance summed this up best: “Mr. Ghosn went from being a guy who was trying to maintain an equilibrium among a set of unequal factors, to a guy who was likely to forge an irreversible relationship that could leave Nissan perpetually handicapped.”
While Nissan does hold 15% in Renault, it has no voting rights. It has the cash to buy another 15% in Renault but that would take it past the French government (15.01%) which may not be acceptable to the latter.
An increase in Nissan’s stake beyond 25% of Renault would also nullify Renault’s voting rights in Nissan as per Japan’s Companies Act, which Renault might not want. Mr. Ghosn’s arrest must be seen in the context of such complex dynamics.
With the deed now done, what are the options for the alliance? A break-up of the uneasy marriage is obviously the first one. But that will come with tremendous costs in a world that is moving towards common platforms, sourcing and collaborations between OEMs. It will go against the trend and also handicap both partners in their future plans.
Ironically, the alliance is now implementing a plan to synergise its purchasing, engineering, manufacturing and supply-chain management aiming at cost savings of €10 billion by 2022. The synergies have already helped it save €4.3 billion in 2015 and €5.7 billion in 2017.
The second choice is to sustain the present lopsided balance by having a chairman each for Renault and Nissan and a council of chairmen to oversee the alliance. But that would need a strong character at the top, acceptable to both sides, and with Mr. Ghosn now out, there might be none to fill that slot.
The final choice, which appears the most doable even if it comes with its own set of issues, is a renegotiated management structure for the alliance that acknowledges the rise of Nissan in the last two decades and creates a new equilibrium in the relationship.
Striking such a deal may involve either Renault reducing its stake in Nissan or Nissan increasing its stake in Renault that would give it voting powers. Both appear to be easy on paper but will be a challenge to negotiate. Yet, it may be in the best interests of the alliance to find a common ground on these lines and live with each other rather than go their own, separate ways.