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.