January 13, 2021

Breakingviews: Renault overhaul requires Nissan governance grease

by Breakingviews.

Renault Chief Executive Luca de Meo is relying on French élan to boost the Gallic company’s dim prospects. On Thursday he will launch an awkwardly named “Renaulution” to boost earnings. However, any recovery is hampered by lopsided relations with Japanese partner Nissan Motor. Selling part of Renault’s 43% stake in the Japanese carmaker would help smooth an uneven power balance and rev up cost savings.

Relying on vintage fashion is a tried and tested strategy. As a protégé of former Fiat Chrysler Automobiles boss Sergio Marchionne, de Meo helped successfully relaunch the Italian marque’s epochal Fiat 500. He now hopes to do something similar to Renault’s iconic Super Cinq model from the 1980s, Reuters reported last week.

The loss-making company could certainly do with a makeover: its shares are down 35% over the past two years, while the STOXX Europe 600 Automobiles index is up a tenth over the same period. De Meo also faces a powerful new European rival in the fusion of Peugeot and FCA, inelegantly christened Stellantis. The group has pledged at least 5 billion euros in synergies from the merger over the medium term. By contrast, Renault and Nissan, which sold over 800,000 more vehicles than their Franco-Italian rivals in 2019, are aiming for combined savings of 4.4 billion euros.

A full-blown merger between the French and Japanese groups, which would produce greater benefits, is unlikely. But closer integration could give de Meo’s bottom line a boost. A necessary first step would be to smooth the alliance’s uneven power dynamic, which is underpinned by cross-shareholdings. When Renault’s stake in Nissan rose above 40% in 2001, a proviso in French law stripped the Japanese group of voting rights over its Renault holding, currently at 15%. If Renault sold some Nissan shares to dip under the threshold, it would help restore its partner’s influence, buy Japanese goodwill, and raise a cool 727 million euros at the current market price.

The French state, which still controls the largest chunk of Renault’s votes, would have to support a sale. But even after such a move it would remain the most influential shareholder. De Meo’s new vintage look may be a good start. But he needs some governance grease to really draw investors’ applause.

______________________________________________________________________________________

BREAKINGVIEWS

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

Article Topics

Get In Touch

Subscribe

We have updated our Privacy Statement. Before you continue, please read our new Privacy Statement and familiarize yourself with the terms.×