How Ghosn turned Renault into a global force

PARIS -- With his resignation as head of Renault Group after nearly 14 years, Carlos Ghosn is leaving behind an automaker remade in his own image: Multinational, multicultural and diversified.

Once a largely regional company under the control of the French government, with a lineup of cars dogged by quality issues, Renault has thrived and expanded under Ghosn. The automaker's sales last year hit a record 3.9 million vehicles, with more than 50 percent coming outside the stagnant European market. Profits reached 6.6 percent in in 2017; revenues were nearly 60 billion euros.

Renault is a leader in electrification and has a clear road map for an era of autonomous, connected and shared mobility. Its low-cost brand, Dacia, has thrived under Ghosn, and given it an entry to emerging and recovering markets around the world. It is part of the largest automotive manufacturing group in the world with alliance partners Nissan and Mitsubishi, selling about 10.6 million passenger vehicles in 2017.

Yet there have been missteps: Ghosn waited perhaps too long to name a successor.

He wrangled with the French state on issues of salary and governance; and Renault's automotive profits have lagged its peers, including French rival PSA Group. His arrest in Japan on accusations of financial crimes, including failing to disclose income and misusing company funds, has exposed an erosion of trust within the Nissan alliance, which depends on shared functions such as purchasing, development and manufacturing.

"Ghosn has overseen the expansion of the business, and it certainly is a far larger company in terms of sales volumes," said Ian Fletcher, principal automotive analyst at IHS Markit. "It is also a more financially consistent business -- particularly in recent years as it completed its 'Drive the Change' strategy, and Renault has firm foundations on which to take on the next few years."

Cost killer

Coming off his success in turning around Nissan, Ghosn took the reins at Renault in 2005 from Louis Schweitzer, who had hired him from Michelin in 1996. He continued attacking costs (living up to his nickname "Le Cost Killer"), including negotiating new contracts with French unions and closing factories -- and shedding tens of thousands of jobs in France -- which most likely helped Renault weather the 2008-9 financial crisis better than some automakers.

Under design director Laurens van den Acker, whom Ghosn hired from Mazda, Renault's model lineup has become more consistent and quality has improved. "There's less of a history of boom and bust on the product front," said Philippe Houchois, a managing director at Jefferies. "There was very little growth at Renault for a number of years, they basically sold the same number of cars, but in the last five or six years growth has taken off," Houchois said.

Some of that growth has come at the core Renault brand, but most can be attributed to Renault's consolidation of Russian automaker AvtoVAZ, which makes the market-leading Lada brand, and the expansion of the low-cost Dacia range, a pet project of Schweitzer's.

"My understanding is that Ghosn wasn't particularly excited about the low-cost car but it became such a success that he embraced the strategy, and with that came a big push into emerging markets and lower income countries," Houchois said. "That has become the massive shift of Renault, away from mostly European exposure and into emerging markets -- but often the higher-risk, lower-income ones" such as Russia, Brazil and India.

Ghosn took a risk in 2011 when he announced that the Renault-Nissan alliance would invest 4 billion euros ($5.6 billion) in electric vehicle development, with the goal of selling 500,000 by 2013. That forecast fell well short of reality, with the alliance hitting that mark only in 2017. Now, a host of competitors are poised to bring out their own electric vehicles, including in the mass market segments, which have been dominated by the Renault Zoe and Nissan Leaf.

"He really pushed Renault and Nissan to be leaders in electrification, and unlike Tesla they did this in affordable mainstream vehicle segments," said Sam Abuelsamid, a senior research analyst at Navigant. "While Elon Musk has captured the public attention and made EVs cool and sexy, Nissan and Renault have made the technology accessible."

"Unfortunately, the market hasn't responded as aggressively as Ghosn had hoped when the Leaf launched, and his push into this market will almost certainly be overshadowed by Tesla," Abuelsamid added.

The focus on electrification may also have left Renault behind the curve on hybrid powertrains in Europe, Fletcher said.  "Being an early entrant in to the EV space has given it an important presence," he said, "but I also think that for a long time that it was overly optimistic on customer acceptance of this emerging technology and blinkered to other electrified powertrain options, which has left it exposed to the significant shift away from diesel.

Hidden tensions

If Ghosn had mastered the operational side of the business, issues of governance increasingly surfaced as his tenure at Renault grew longer. He took on the role of chairman in 2009, a situation that Houchois described as "suboptimal." "It's always good to have some form of outside supervision when a company is evolving fast or transforming itself," he said.

Ghosn has come under fire from the French government, Renault's largest shareholder, which has described his salary as excessive, and called for greater transparency of the Dutch holding company that oversees the alliance, RNBV. Among the accusations facing Ghosn in Japan is that he sought to cover up deferred income from Nissan and used other Dutch entities to funnel payments for houses around the world.

Houchois, for one, says the state and Renault board bear responsibility for allowing Ghosn to consolidate too much power. "Ghosn managed to concentrate power because he always pitched it as, 'Without me, the alliance cannot happen,' " he said. "That deeply annoyed the French state, but they were a little negligent in letting that power drift. In the end, it's up to the shareholders to make sure that doesn't happen."

But even as Ghosn was accumulating power and titles -- at various points he was CEO and chairman of Nissan, chairman of the overall alliance, and chairman of Mitsubishi after Nissan took a controlling stake in the automaker in 2016 -- he reportedly grew distant from day to day operational details. Crucially, he apparently failed to spot resentment at Nissan of Renault's disproportionate share in the company and Ghosn's power -- which boiled over in spectacular fashion after Ghosn's arrest on Nov. 19.

"That’s fairly easy to do if you live in a bit of a bubble and are constantly on the road, and people are feeding you" information, Houchois said. "As outsiders we knew that there was tension at Nissan."

Mixed legacy

Few have disputed that Ghosn's hard work and strategic insights saved Nissan -- and that Renault is a much stronger company today than when he took it over. But both automakers trail their peers in terms of profitability, Houchois noted. Renault's automotive margin was 5.1 percent in 2017 (excluding AvtoVAZ), while PSA's was 6.1 percent even after its purchase of money-losing Opel from GM.

"If Renault benchmarks itself against the past, yes, it's a better business," Houchois said. "If they benchmark themselves against their peers it's not clear that they have actually outperformed."

Ghosn has yet to face trial in Japan, and the future of the alliance has been thrown into question, though Renault, Nissan and the French and Japanese governments have said it is vital that it continue. At this point, then, analysts said Ghosn's tenure Renault and Nissan can be seen as broadly positive, as trends such as electrification, autonomous driving and mobility as a service put more and more pressure on revenues and profits.

"Ghosn certainly had a huge impact on both Renault and Nissan, significantly reforming their respective structures and product development processes," Abuelsamid of Navigant said. "Moving toward component and platform sharing allowed both brands to benefit from significantly more scale."