RNO Renault SA

By Stephen Wilmot 

Can companies cut their way out of a crisis? And has this crisis become so bad that radical cultural change is possible? In the case of Nissan Motor Co. and its global car-making alliance with Renault SA and Mitsubishi Motors Corp., it is easier to be optimistic about the first question than the second.

As part of a much-anticipated transformation plan, Nissan said Thursday it would revive profits by shrinking its production capacity by 20%, particularly in areas like Europe and Southeast Asia that it no longer considers "core." On Friday, Renault will announce its own plan, with the need for factory closures awkwardly set against the backdrop of a $5 billion rescue loan package backed by the French government, its anchor shareholder.

The cuts will be made possible by a much deeper level of cooperation. According to a high-level strategy unveiled Wednesday, each alliance member will focus on its strengths according to a "leader-follower" principle, whether in terms of vehicle type, technology or region. So Nissan will take the lead on larger cars and the U.S., Chinese and Japanese markets; Renault on smaller cars in Europe and South America; and Mitsubishi on big plug-in hybrids and South East Asia.

Reducing costs is a tried and tested strategy for reviving car makers, though not a quick one. Better cash flows can then be plowed into new products, stimulating a sales revival and even better cash flows. Nissan went through something like this virtuous cycle in the early 2000s under former boss Carlos Ghosn, whom it now blames for its current problems. Renault's French peer Peugeot is a more recent example: Having made massive layoffs in 2012 following the euro crisis, it is now one of the most profitable mass-market car makers in the world.

What has no precedent is the kind of industrial collaboration with which Nissan and Renault hope to achieve their cuts. They want to share not just vehicle "platforms" or underpinnings -- as almost 40% of their cars already do -- but also much of its upper body too. They even intend to share factories where necessary to improve capacity utilization. Mitsubishi, which only joined the alliance in 2016, is along for part of the ride.

It feels like a postmerger integration plan without the merger. Alliance chairman Jean-Dominique Senard again ruled out a full-blown tie-up Wednesday. But keeping their assets and profits separate means the leadership teams will be left constantly balancing interests to make sure the benefits of integration are spread equally. The risk is that the plan's strictly rational approach to capital allocation degenerates, as it has before, into horse-trading or recriminations.

This risk is heightened by the nationalist tone of contemporary geopolitics. Late Tuesday, France's President Emmanuel Macron announced an EUR8 billion ($8.79 billion) package of post-Covid measures to support the country's auto industry, including Renault's loan guarantee and extra subsidies for electric vehicles. In exchange, he wants France to be a center for their production, and for Renault to invest in a European battery company.

Electric vehicle technology, which Nissan and Renault both pioneered and see as strategic, is a potential flashpoint for political tensions within the alliance. Each claimed some form of leadership on the electric powertrain on Wednesday. In this, as in so many other elements of the alliance, keeping everyone happy will be anything but easy.

Write to Stephen Wilmot at stephen.wilmot@wsj.com

(END) Dow Jones Newswires

May 28, 2020 09:14 ET (13:14 GMT)

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