There is continued fallout from Fiat Chrysler and Renault’s merger plan, Model 3s in China probably won’t be $35,000, Ford is good, and more in The Morning Shift for Tuesday, May 28, 2019.
1st Gear: Nissan’s in a Bad Place
Former Nissan-Renault boss Carlos Ghosn was arrested last year for alleged financial misconduct (which he denies) and possibly as part of some kind of coup. That was related in part to Ghosn’s plans to further integrate the Renault, Nissan, and Mitsubishi partnership, which many people inside Nissan long resented because Renault has vastly more power over Nissan by dint of owning a bigger chunk of the business compared to Nissan’s stake in Renault.
But now Fiat Chrysler has gone off and proposed merging with Renault, which leaves Nissan in a less-than-ideal spot, since, as Automotive News reports, if the merger goes through Nissan will have even less of a say in matters. The merger would be between FCA and Renault, and Nissan would remain as a partner in the “alliance”—not merged, as remains the case now.
Essentially, Renault could be a lot more powerful soon, leaving Nissan in the lurch.
Nissan has complained for years about its unbalanced cross shareholding with Renault. Nissan has a 15 percent stake in the French automaker but no board seats and no voting rights.
If the FCA-Renault merger is approved by Renault shareholders as proposed by FCA, the new entity would continue to own 43.3 percent of Nissan’s shares and voting rights, while the Japanese automaker’s stake in the merged companies would be diluted to just 7.5 percent. Nissan would be invited to nominate a director to the 11-member board of the new combined company, under the plan presented on Monday.
This means the person representing Renault at the next Renault Nissan Mitsubishi Alliance operating board meeting would be the proverbial elephant in the room, as that executive may soon also be part of a powerhouse with combined global sales of 8.7 million vehicles and more than 10 billion euros in operating profit in 2018.
Nissan should probably do the mature thing here and swallow its pride and find out a way to work with Renault and FCA, since, broadly speaking, car companies will have to spend billions in the next few decades developing electric cars and autonomous vehicles. That burden is more doable the bigger the company is, which is one thing driving the possible Renault-FCA merger to begin with.
Indeed, Bloomberg says that Nissan and Mitsu would be invited along, though Nissan still seems pretty miffed.
Nissan isn’t involved in talks between the two European car companies and doesn’t view an extensive deal between them as a positive development, people with knowledge of the matter said. Nissan isn’t interested in a scenario that pursues car sales for the sake of volume, the sources said, asking not to be identified because Nissan’s stance isn’t public.
“Given that Nissan has been so opposed to a merger, the question is whether forcing one will work at all,” said Koji Endo, an analyst at SBI Securities in Tokyo. “It won’t work if Nissan is forced into it.”
So to recap: Nissan executives in Japan, ever resentful of the power Renault has over the company and especially wary of a formal merger, may have found a way to get rid of Ghosn—and that almost certainly led to our current situation where FCA comes in and makes Renault even stronger.
Congratulations, Nissan. You played yourself.
2nd Gear: Speaking of, It Seems That Ghosn’s Arrest Had Wider Implications Than We Ever Thought
FCA has been exploring a merger of some kind for months, The Wall Street Journal reports, following both Ghosn’s arrest and the death of its longtime chief Sergio Marchionne. That included potential merger discussions with Peugeot:
Some Fiat Chrysler executives wondered what Mr. Ghosn’s fall meant for the Renault-Nissan-Mitsubishi alliance, and whether Fiat Chrysler would fare better in a match with Renault without its powerful chairman calling the shots.
[Fiat chairman John Elkann], a flawless French speaker who went to high school in Paris, visited [Renault chairman Jean-Dominique Senard] frequently in the French capital this spring, often returning to Turin in the evening to see his wife and three young children.
Messrs. Elkann and Senard “share a very European elegance: they speak well, they’re well-mannered,” said a person familiar with their talks. “They’re not the same age but they have the same codes.”
Fiat Chrysler was also having parallel discussions with PSA, whose chief executive is Carlos Tavares. As late as this month, Mr. Manley had held separate workshops with executives from Renault and PSA to discuss the synergies that could flow from a tie-up, said one person close to the talks.
These talks were mostly on the up and up, though there’s something funny about the Italian government feeling slighted in the process.
Knowing the political sensitivity of mergers involving big French companies, Mr. Senard broached the topic with French President Emmanuel Macron.
The French government, which owns 15% in Renault, trusted the diplomatically tactful Mr. Senard to explore merger ideas while defending France’s national industrial interests.
In contrast, Fiat Chrysler didn’t inform the fractious and leaky government in Rome. The Italian treasury owns no stake in Fiat Chrysler, so Mr. Elkann saw no need to consult it.
Renault and Fiat stocks rose following the news. If consummated, the merger would create the world’s third-biggest automaker, behind Toyota and Volkswagen.
3rd Gear: Tesla Model 3s in China Likely Won’t Be $35,000 Either
Will the $35,000 Tesla Model 3 ever exist? Possibly, though Bloomberg reports that it won’t be happening in China, for now.
The company is considering pricing the vehicle between 300,000 yuan ($43,400) and 350,000 yuan before subsidies, according to people familiar with the matter, who asked not to be identified discussing a private matter. The final number is still being finalized, one person said. A Tesla representative declined to comment on specifics of the May 31 announcement.
4th Gear: Nissan Might End a Widely Hated Sales Incentive Program for Its Dealers
Back to Nissan. Its American dealers have program known as “stair-step”, or one that offered dealers cash if they met increasing sales targets. But dealers viewed the sales targets as often unrealistic, while also driving down profitability and the resale value of Nissans, since they were moving so much product.
Per Automotive News:
Nissan could halt the program as early as this summer, though a decision might be delayed until year end, according to a dealer familiar with the plans.
The shift would be a sea change for the brand, which has earned scorn for what some dealers claim has been hard-driving sales pressure on its franchisees.
The internal discussion was revealed last week in a letter to Nissan’s dealers obtained by Automotive News, which said Nissan North America is studying an end to the program.
[…]
David Basha, for one, is tired of chasing what he described as unrealistic and unprofitable sales targets.
The Atlanta-area dealer said his April stair-step sales target was about 5 percent higher than the previous year, despite the soft industry.
“April’s net profit was the worst we’ve ever had since becoming a Nissan dealer 30-plus years ago,” said Basha, owner of Carriage Nissan in Gainesville, Ga. “Nissan’s agenda for capturing market share at all costs has ruined the resale value of the product, attracted the worst creditworthy customers to the brand, destroyed the morale of the dealer body and hurt dealer profitability, all for some very short-term achievements.”
5th Gear: Actually, Ford Deserves Credit for Properly Laying Off Thousands of Workers
Automotive News has spoken to and heard from Ford executives. Those executives say that they are laying off thousands of employees the right way, as opposed to, I dunno, the wrong way.
“This was a very challenging time for us because you want to minimize the anxiety in the work force, but at the same time, you want to get it right,” Kumar Galhotra, Ford’s president of North America, said in an interview last week. “In the past, our industry has done a lot of these top-down, x-number-for-y-departments kind of plans.
[…]
[CEO Jim Hackett] told employees in an email last week that one result of his “smart redesign” of Ford is more direct reports for managers but fewer layers of management — nine, down from 14.
Executive Chairman Bill Ford described the process as painful but necessary to get to “fighting shape.” Ford, speaking to reporters on the sidelines of the company’s City of Tomorrow event in Los Angeles, said there will always be frustration when disrupting employees’ lives but that minimizing it was one goal of the redesign.
“We took great care with it,” he said. “We spent a lot of time explaining to employees and getting all their input, each departmental input. The pushback is, ‘Why did you drag it out so long?’ The reason we did that is just so we could take the proper care.”
Reverse: The People’s Car Company
Neutral: Would You Buy a Renault?
I would buy the hell out of a Twingo. Everything else, eh.