France more or less comes to a halt in August, particularly over the 15th of August, which is a public holiday. This year is true to form, with August 15th falling on a Thursday and most people intending to take a summer holiday adding a long weekend to their entitlement. Like every year, the rolling news networks are clutching at straws to keep themselves going, covering mainly, in the absence of major international developments, the weather, traffic jams on the Mediterranean bound motorways and the all-too-frequent forest fires.
It is also a time therefore for discreet discussions about business mergers and acquisitions as the media spotlight is dimmed and the rumour mill running on empty. One imagines that this year in particular, intense discussions are ongoing between Renault, Fiat Chrysler Automobiles and Nissan, a month or so after the withdrawal of a merger proposal to Renault by Fiat and almost a year since the arrest of the erstwhile boss of both Renault and Nissan, Carlos Ghosn, in Tokyo on charges of financial improprieties as CEO of Nissan, his ensuing dismissal by both Nissan and Renault and the serious deterioration of relations between the two companies.
That the global car market is suffering from overcapacity and has become fiercely competitive is not in doubt. One only has to listen to any French radio station or watch any TV network for more than ten minutes to hear at least two advertisements for some French or foreign car. Excess capacity has been exercising the minds of industry executives for at least 30 years. Sorting through some old papers the other day, I came across a glossy brochure prepared by the Renault communications department in October 1993 announcing details of the agreed merger between Renault and Volvo, which had been involved in an alliance for some years. “Why is the announced merger between Renault and Volvo necessary when, as has often been asserted, the alliance was working very well?” is the first question put to the boss of Renault at the time, Louis Schweitzer, on page 1 of the brochure. “Renault and Volvo are intending to merge because the alliance has been a success and that give us the guarantee that the merger will also be a success” is the answer. Had a merger between Renault and Nissan gone ahead, as Carlos Ghosn undoubtedly wanted but that Nissan was fiercely resisting, one could imagine almost identical words being written today. But they won’t be because the merger didn’t happen (or at least hasn’t happened yet!). Nor did the merger between Renault and Volvo. The underlying reason was the same in both cases: the presence, or as some would have it, the meddling of the French state.
Why exactly the French state finds it not just desirable but seemingly essential to be a major shareholder of a car company is for many observers outside France a puzzle and even an aberration. Interestingly, Emmanuel Macron, for all his purported credentials as an economic liberal has in this case adopted much the same attitude as his predecessors, espousing the long French tradition, initiated by Colbert under Louis XIV, of promoting and keeping a firm grip by the state on parts of French industry. As finance minister under François Hollande, Macron came up with millions of Euros of taxpayers’ money to buy enough additional Renault shares to force its AGM to adopt a resolution on double voting rights, thus ensuring effective state control of the company. It is now known that Carlos Ghosn was very much against this move and that Nissan was furious about it. It had long complained that Renault, with its 43% stake, whereas it only holds 15% of Renault, was the predominant shareholder in the alliance while Nissan contributed most of its profits! Ironically, this was the result of Carlos Ghosn’s 20-year stewardship of the alliance, starting in 1999, when Louis Schweitzer sent him to revive the almost bankrupt company in which he had just purchased that 43% stake. Similar to Renault and Volvo in 1993, Renault and Nissan were ripe for a merger after 20 years of a largely successful alliance. The surprise arrest of Ghosn in Tokyo last November seems to have been the last spanner that Nissan could throw in the works of a merger that would have formed a global company under the effective control of the French government. The Volvo scenario revisited 25 years later, but with much larger stakes.
None of these developments of course have done anything to reduce overcapacity in the global car market. Carlos Ghosn had thought that he was running a global car company with the clout to become a, if not the, major force in the global market. Regardless of whether the charges against him are proven or not, he has done a superb job of turning around both companies and, with the addition of Mitsubishi, was on the cusp of achieving an ambition in tune with his exceptional talent - and exceptionally large ego!
The main conclusion I draw from this sad story is that the French administrative elite, unlike its business elite, is still under the influence of Colbert almost three centuries later and has not yet come to terms with some of the realities of globalised markets. Renault will have to engage in a merger soon as it cannot survive alone, given the huge investments that carmakers in general will have to make in zero-emissions and self-driving vehicles. A merger with the other French champion, Peugeot, run by a former associate of Ghosn at Renault, Carlos Tavares, seems out of the question in view of the companies’ very different cultures and the EU competition issues it would raise. A merger with the smaller and struggling Fiat would bring Chrysler into the picture and with the addition of Nissan/Mitsubishi could form the leading car company in the world. The French government must soon decide if it can bear to loosen its grip on a national champion in order to replace it with a global champion with a French core. As negotiations proceed quietly before the end of the summer holidays, it does not have much time to make up its mind.