Renault should sell its 43 percent in Nissan and merge with Fiat Chrysler Automobiles, says Bernstein analyst Max Warburton. In a letter to Renault Chairman Jean-Dominique Senard, Warburton writes that Renault should no longer cling to the idea that its alliance with Nissan can be preserved when all the indications are to the contrary. Below is the full text of the letter:
Dear Jean-Dominique,
I trust that this letter finds you well, despite the exhausting events of recent months. I also hope you don't mind me writing to you like this, and in such a public format. It has been over 10 years since we last met, back when I used to cover Michelin. We have not had the chance to meet since you took over as Renault chairman, but I hope that will be possible soon. In the meantime, I thought I would send you my unsolicited advice on the complex situation you face with Nissan, and with FCA.
I realize you are already surrounded by an army of advisers, both paid and unpaid. So you probably feel that the last thing you need is another opinion -- particularly from someone who is far removed from the action. But sitting some distance from events can sometimes be useful. I have followed Renault, Nissan and Fiat for almost 20 years. I have been able to observe what works and what doesn't work in the auto industry. And without any connections to any of these companies, to the original decision makers or to the French state, I'd argue that I can give an objective, impartial view on things. So here goes: in my opinion, the best way forward for Renault, and for France, is to dump the Nissan stake -- all of it -- and merge with FCA.
You appear to be clinging on to the idea that the Alliance with Nissan can be preserved. But all the indications are to the contrary. Nissan is making it very clear that it doesn't want to be controlled by Renault. After 20 years of playing at being a global citizen, it wants to reassert its Japanese identity. We are in an age of de-globalization and the reassertion of national identities. This is not just a story of 'left-behind' voters, but also of unhappy corporations and executives. There has now been an exodus of international managers from Nissan. The Japanese are back in control. These changes will make it difficult -- perhaps even impossible -- for Renault and Nissan to work together like they used to.
In my view, persevering with Nissan may be more trouble than it's worth. You are surrounded by many of the architects of the original deal back in 1999. The French establishment is hugely proud of the Alliance, as they see it as a triumph of politics and industrial policy. They will tell you that it has boosted Renault's competitiveness and delivered huge synergies. But many of these benefits are exaggerated. Yes, a lot of Nissan expertise was transferred in the early days. But that knowledge is now embedded at Renault. Job done. And on synergies, please do not take the numbers you are given at face value. Harnessing global scale is difficult, and commonality between Renault and Nissan is still rather modest. If Renault has extracted so much from the Nissan connection, then why does regional player PSA have much higher margins?
FCA would be an easier partner and could deliver greater synergies. At the risk of stereotyping, working with Italian and American managers may be more straightforward than working with the Japanese. More substantively, you will find FCA is much closer on engineering philosophy, procurement and financial management. Geographically, FCA and RNO are close in Europe and could be integrated via genuinely common platforms, common parts and common suppliers -- all in the one region. Ditto Brazil. FCA's NAFTA operations could stand alone, but it may be possible to achieve commonality on smaller crossovers and similar vehicles, and distribute them in Europe and emerging markets with Renault's network.
Emotionally, it may not be easy to abandon 20 years of effort with Nissan. But in my view, it's time to call it a day. Don't be afraid: separating things operationally would be quite straightforward -- Daimler and Chrysler, plus Ford and JLR/Volvo, show how projects and platforms can run for one cycle, bound by contractual agreements, before diverging. So, explain the reality to the French government. Then approach the Japanese government and demand that it arranges a consortium of banks or state actors to buy the whole Nissan stake at market value (rather like Mitsubishi/Daimler in 2005). Take the 11 billion euros this would raise to fortify your balance sheet. Then call up your friend John Elkann and negotiate a full merger with FCA, on much more favorable terms.
Yours sincerely,
Max Warburton
