The Renault Nissan Deal

PARIS - Two days after Renault SA and Nissan Motor Co. Ltd. announced their historic affiliation in March, the French auto-makers' association, CCFA, reviewed press coverage.

In general, English-language publications expressed skepticism while acknowledging the opportunity. French publications showed enthusiasm while acknowledging the risk. The difference is in how you remember Napoleon: Losing at Waterloo or winning at Austerlitz. Here in Paris, all the monuments celebrate his victories.

Critics of Renault-Nissan mention cultural differences first, but cultural strengths make the union possible. The emperor Napoleon was audacious, like Renault President Louis Schweitzer. The emperor Hirohito was pragmatic, like Nissan President Yoshikazu Hanawa. Thus No. 9 Renault dares to take charge, and No. 6 Nissan dares to accept help. And a new global group with 4.8 million units of production is formed - and already growing.

Truck-making subsidiaries Renault Vehicules Industriales and Nissan Diesel Motor Co. immediately put teams in place to explore closer ties. Renault is buying the Romanian carmaker Dacia Automobile SA. And Nissan effectively controls Fuji Heavy Industries Co. Ltd., the maker of Subaru cars.

The deal, in which Renault paid $5.4 billion for 36.8% of Nissan Motor, "was a good choice," says Jean-Michel Prillieux, an industry consultant with Mavel SA in Paris. "If Renault hadn't taken it now, in a few years Renault would have been acquired and Nissan would have closed down. Renault seized anopportunity that may never be seen again."

The first fruits fell from the tree the day after the March 27 agreement. Nissan President Hanawa gathered the top executives of the automaker's keiretsu suppliers and announced that they would have to reduce costs again if they hoped to win business against the Western partsmakers.

About $1 billion of the $3.3 billion that Renault-Nissan expects to save between 2000 and 2002 will come from Nissan's suppliers. The new union with Renault gives Mr. Hanawa strength to make changes that were politically more difficult to make before. "We want the moment to arrive quickly when we can acquire part of Renault's capital," he told a French business daily.

Nissan aims at profitability by March 31, 2001. Officially, the deal will close this month, and three French executives will join Nissan's board in late June. But Nissan's new chief operating officer, Carlos Ghosn, already has left Renault to begin two months of intensive Nissan study. His deadline for proposing changes at Nissan is July 14, the French national holiday (Bastille Day, which celebrates the French Revolution).

"If you lift the cultural barriers, a car is a car," says French-born auto consultant Gregoire Van de Velde, whose Automotive Strategies consultancy has offices in Detroit and Paris. "I believe that the French might have the assets to overcome the barriers," he says. "The intellectual side of the French character is pleasant to the Japanese. It's a question of seducing rather than imposing."

To that end, as negotiations got more serious last fall, Mr. Ghosn and about 50 Renault researchers began taking daily classes in Japanese language, cuisine and culture. Five times between December and February, they flew to Bangkok to negotiate with Nissan.

Mr. Ghosn, known at Renault as the "cost killer" for saving $500 per car, was a tough negotiator. His last offer, made in February, was $5.3 billion for 35% of Nissan Motors and 22% of Nissan Diesel. Nissan Diesel was pivotal.

"We had been talking to Nissan Diesel on the commercial vehicle side," says DaimlerChrysler AG Co-chairman Juergen Schrempp in late March. "Within Nissan Diesel, we got word that they had problems at Nissan Motors and we should check them out. We did."

Two bidders are better than one, and Mr. Hanawa invited Mr. Schrempp's teams to look into the books after a period of exclusive negotiations with Renault expired Dec. 23. According to an insider's history of the deal published in the French newspaper La Liberation, Mr. Schrempp wanted to outbid Renault and take on both Nissan Motor and Nissan Diesel. But Co-chairman Robert Eaton, and later the DaimlerChrysler board, discouraged him.

On March 10, Mr. Schrempp flew to Tokyo to call off talks with Mr. Hanawa. On March 13, Mr. Hanawa flew to Paris and shook hands with Mr. Schweitzer. Days after the final deal was signed in Tokyo, RVI and Nissan Diesel formed teams of managers to look for synergies that would persuade Renault to invest more money there.

Nissan Diesel executives reportedly say that Renault soon will have a board member at Nissan Diesel. RVI has 12.1% of the heavy-truck market in Europe. Its Mack truck brand has 12.8% of the U.S. market, but it is virtually absent in Asia. Nissan Diesel has assembly plants in Thailand, Pakistan, Indonesia and China. Together, Nissan Diesel and RVI would be No.2 globally, behind DaimlerChrysler, with its Mercedes and Freightliner brands.

Nissan Diesel can aid RVI with medium truck technology, but Renault's expertise in heavy trucks (Class 8 in the U.S.) won't help Nissan much because Asian countries limit the size of trucks, says Gareth Hughes, a banker with Barclays' Capital in London who follows the truck industry.

Geographically, Nissan could help Renault distribute a shared medium truck platform in Asia, and Renault can help Nissan trucks in Europe. "Financing is more important for trucks than for cars, and RCI (Renault Credit International) is better than Nissan," Mr. Hughes says. Part of the Renault-Nissan deal, therefore, is that RenaultCredit is buying Nissan's European financial subsidiaries.

On the car side, Renault-Nissan has 11 teams looking for synergies in platforms, development, manufacturing and distribution around the globe. Nissan's 25 platforms and Renault's eight will become 10 common platforms shared by both.

The first will be the 2003 platform under the subcompact Nissan Micra and Renault Clio. Renault's range will expand to include pickups and sport/utilities; Nissan will use Renault's little Kangoo compact passenger van.

Renault plans to build cars in Nissan's Mexican factories and sell them in Mexico. In the U.S., Nissan might rebadge some niche Renault vehicles like the Avantime coupe-minivan. Renault's chief designer, Vice-President Patrick LeQuement, is charged with helping Nissan institutionalize its innovation and creativity.

"We're very good at interesting products," he says. "We have a history of being good at coming up with trendsetters."

Renault, meanwhile, agreed in March to buy Dacia, a Romanian carmaker with old technology and volume of about 100,000 cars a year. Renault plans to turn Dacia into its second brand. A team of engineers is at work designing a modern car that can be sold for $6,000 in emerging markets.

Although Dacia is unrelated to the Nissan deal, the cross-company teams may well find some potential synergies. Fuji Heavy may well end up in the Renault-Nissan constellation. When the Subaru brand foundered in the past, Nissan provided management. Concentration on all-wheel-drive sedans and station wagons has given the marque an identity.

In fact, the Renault-Nissan deal reportedly started when Renault began talking to Subaru about buying a powertrain for a four-wheel-drive project. Subaru deferred to shareholder Nissan, and Nissan showed interest in a wider association.

Napoleon would be proud.