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One for all

All eyes, it seems, are on Carlos Ghosn, Renault's new boss and effectively still the CEO of Nissan. The charismatic man famously turned Nissan around to a degree that it is now a leading global player. Everyone is waiting in anticipation to see what spell his magic wand is about to put on Renault, writes Nargess Shahmanesh-Banks.

The charismatic Carlos Ghosn is now boss of Renault/Nissan

The Renault-Nissan Alliance has been one of the most successful ones in recent motoring. In a deal that was signed back in 1999, the French carmaker took a 36.8 per cent equity participation in Nissan, rising to its current 44 per cent, a stake now estimated to be a whopping €20 bn ($25 bn). With more than 5.7 million vehicles sold in 2004, the Renault-Nissan group is ranked among the world's top 4 carmakers.

A global partnership

Everyone is waiting in pure anticipation to see what Ghosn et al have in mind for Renault. The French carmaker boasted operating margins of 5 per cent last year, though perfectly credible for a carmaker that predominantly sells lower-priced cars, perhaps not as high as it could be. Nissan, it seems, is doing far better with Renault's 44 per cent share of the Japanese company providing almost 2/3 of Renault's profits.

Prof Garel Rhys, industry analyst and director for the Centre for Automotive Industry Research at Cardiff Business School in the UK believes that Ghosn's basic aim as new boss of Renault should be to put into place measures that will increase manufacturing collaboration between the two, not just in Europe, but also worldwide. "This will not be done over night," he notes. The carmakers will need time to make sure they can coordinate engine development projects, manage the sharing of various platforms, without loosing the distinctiveness of each brand.

"Expect Ghosn to soon set the 2020 challenge, then his team will rally," says automotive expert, Paul Harrigan. "The companies will find further synergies, but don't expect a complete merger."

The big boss has his eyes on Paris and at what PSA Peugeot Citroën has successfully accomplished in similar terms without in any way blurring the distinction between the two brands. "He can do that on a much bigger scale with Nissan and Renault," says Rhys.

This being his "bedrock", as the professor puts it, he also has to try to ensure that Renault increases its profitability. "Although its rate of return is a good one, it really isn't enough for future sustainability," he says. Renault is, after all, a relatively small carmaker compared to other Europeans like Volkswagen. One way of increasing profitability is a long terms aim of cutting cost through synergies, but also at removing cost especially at the French operations. Gohsn was pretty severe back in his Nissan-reforming days in Japan where he closed plants and cut cost when and where he could. "He will certainly be looking to every avenue of cutting cost," he says noting that the boss is likely to be super vigilant with his French team.

The new CEO has talked of beefing up Renault's presence in the luxury car market. But the company also needs to come up with a car that can compete in the upper medium sector where the likes of the VW Passat and Ford Mondeo rule. Rhys sees this as possibly the first serious development collaboration between Nissan and Renault, where the latter will use the Primera platform to create a competitor in this segment.

Where BMW and Mercedes-Benz have carefully exploited their links with motorsport, although Renault is heavily involved in F1, it seems to be far less apparent. The RenaultSport model range is far smaller, while there is also less emphasis played by Renault on a performance image. Rhys though doesn't think it is necessarily the right place to invest too much in. "You have to have some credence to start with then you reinforce it. BMW," he says. For instance started in motor sports and that is what the consumer expects of the cars, same with Mercedes-Benz. "Look at Ferrari, for instance. What has it really done for Fiat? It's not easy to suddenly say this is motorsport, let's transfer this into road cars." He does admit that this isn't entirely impossible as Ford proved with the Cortina which changed the carmaker's image considerably. It made the cars much more aspirational. "This is one possible avenue but it doesn't guarantee success," he adds.

Sailing with success

The 'Nissan Rival Plan' and 'Nissan 180' relieved the company of debt, increased sales and global market share. The most recent Nissan plans include a boost to global sales to as much as 4.2 million units, aiming at 350,000 additional sales globally -- primarily in China -- 250,000 in the US and 150,000 in Japan. Its operating profit margins are expected to stay at 11 per cent, as is a 20 per cent return on capital.

Additionally, the highly profitable Infiniti luxury brand will extend its sales to include the Middle East, South Korea, Europe, China and Japan. The last move is probably a wise one considering its archrival, Lexus, has already started selling its cars in Japan as of this month.

Though the day-to-day running of Ghosn's former company has been left in the hands of now COO Toshiyuki Shiga, the Brazilian charmer is still the main decision maker for both companies. "The cash cow is still under the thumb of Ghosn," says Kurt Sanger, analyst at Macquarie Securities. "He sets the strategy." Shiga is completely on the opposite site of the personality spectrum to the charismatic Ghosn. Whereas the former struggles to speak the standard of English expected these days from a global-scale boss, the latter is known for his seemingly un-rehearsed charming public speeches.

"He has a lot of control over Nissan and it will be interesting how they do this. Whether they can continue with all the confederation of companies they have needs to be seen," says Rhys. "They way it is at the moment, this is a very interesting way of doing it. There is always more than one way to do things."

Investing in old and expanding shores

With nearly 125,000 new vehicles sold in 2004, Renault and Nissan together account for 11.7 per cent of the market in Central Europe (10 per cent for Renault and 1.7 per cent for Nissan). But to succeed in the long term more territories need to be conquered.

Renault, for one, is making its presence felt in the Middle East, particularly in Iran, but Rhys sees the company aiming at a more global market including in particular South America where it has just established a plant in Brazil and even China where he thinks Renault needs to have some presence despite Nissan's success there. "Renault would like to be seen there," he notes.

Gohsn will also need to find his way back to the US market. This is still one of the biggest and most lucrative markets out there and to survive in the long term Renault will need to make its presence in the US. It is also one in which you can make substantial profits in; think Toyota and Nissan. "This could be done on the back of Nissan with some speciality niche models maybe the Espace or that sort of vehicle," says Rhys. "Perhaps a car that is more mainstream in Europe, but can become a niche player in the US."

Renault and Nissan opened their new European Distribution Centre in Györ, Hungary this month. Set up as a result of the growth of Renault group brands and expanding Alliance activities in Europe, it will provide spare parts for both carmakers' dealer networks in Central Europe. The centre will handle 21,000 Renault parts, 2,300 Dacia parts and 17,000 Nissan parts. It has been designed to process more than 2 million orders, making the centre one of the most efficient in Europe. Operations, supply and dealer relations will be handled by Renault, which has the biggest parts business in the region covered by the centre. Renault and Nissan have opted for a new IT system developed jointly. A total of €13 mn ($16 mn) was invested in the joint warehouse.

The new centre is run by a wholly-owned Renault SAS subsidiary called Hungarian Alliance Logistics. The centre is strategically located between Vienna, Austria, and from Bratislava, Slovakia, which enables both carmakers to supply the countries concerned as cost-effectively as possible. Renault parts are delivered to Austria, Hungary, the Czech Republic and Slovakia, and Nissan parts to Austria, Hungary, Slovakia and Slovenia. The warehouse will also be used to store Dacia parts for the Czech Republic, Hungary and Slovakia.

The Györ centre hopes to generate synergies in supplies and distribution as well as in operating costs. Outside Europe, the partners support each other by using their respective infrastructures in the countries where they are established.

Renault and Iran's main manufacturer, Pars Khodro, have signed an agreement to produce the Mégane in Iran. The French and the national carmaker, part of the Saipa Group, have signed an agreement for the assembly and sale of the Mégane saloon in Iran from mid-2006.
The car will be available in Iran in four versions, including two engines -- 1.6-litre
16V and 2-litre 16V -- and two equipment levels.

Installed capacity for this car at the Pars Khodro plant in Tehran will be 15,000 vehicles by
2008. The vehicles will be sold to Renault standards by dealers selected from the Pars Khodro network. Based in Teheran, Renault Pars is 51 per cent owned by Renault and 49 per cent by AIDCO, a conglomerate formed by the Industrial Development & Renovation Organization (IDRO) and the two leading Iranian automotive manufacturers, Iran Khodro and Saipa.

This project rounds out the production and sale of Logan by Iran Khodro and Saipa in Iran from 2006. It will help boost the French carmaker's presence in the country and enable Pars Khodro to offer a fuller line of vehicles.

Renault also announced in May that it will produce the three-door and five-door Clio III in its Bursa plant in Turkey. It is the second production site for this new model along with the Flins plant in France. The investment in the Bursa plant for this new model totals €216 mn ($265 mn).

Nissan plans to lift annual capacity in Indonesia to 40,000 units from 12,000 by 2008, spending two to €15-23 mn ($19-28 mn). The Japanese carmaker says its factory is designed on a modular format to add capacity without massive investment. Toyota and Honda both announced expansion plans in April, encouraged by recent strong growth in demand.

Nissan builds three models at its plant in West Java plant and intends to add a people-carrier and a compact car to the line-up in 2007. The latter will be an international developing markets car for in Asia, the Middle East and Central and South America. It will be built in a number of countries, including Indonesia.

"Leaders have traditionally been those with more than one brand," notes Rhys. "In other words you have more than one bite of the cherry in the marketplace." In the case of VAG, for instance, if you don't fancy a VW you can always settle for a Skoda, Seat, or perhaps an Audi. "This way you hopefully have a net gain against the opposition.

Mergers do work," he says adding that although companies like GM are facing difficulties now, it has been the most successful carmaker to date and DaimlerChrysler's merger was also a positive move. "They need to be digested and done properly," he says.

Another interesting point raised by Rhys is that Renault could do with having another brand, a more luxury one to be precise. "You need the kind of brand that is able to charge a bit of a price premium and they don't have that." Instead what Renault has done is to come up with distinctive products itself, like the legendary Aventime and the Vel Satis, which ended up being too outrageous for the market it aimed at. "This approach which is an alternative to having a brand is a risky one," says Rhys.

Rhys suggests that one idea would be to look at the possibility of taking on MG. The Rover badge might not be the right option, but MG has the sporting heritage and the desirability factor that with a little investment could become Renault's new brand. "It's just a thought," he says.