Renault, Nissan to boost synergies in core divisions

With the issues in the Franco-Japanese marriage seemingly ironed out, for now, the Renault-Nissan Alliance has announced a plan that will see both carmakers strengthen synergies in four core divisions and launch new convergence projects to boost efficiency and revenue.

Convergence includes integrating divisions, creating common processes, exchanging talent and other significant sharing of resources. Convergence helped Renault and Nissan generate more than four billion euros in annualised synergies in 2015.

During a convention of top Alliance executives globally, Renault-Nissan announced that it is strengthening synergies in Engineering, Manufacturing Engineering and Supply Chain Management, Purchasing, and HR divisions. These functions converged in 2014 and already have Alliance executives managing the units.

The Alliance also plans to partly converge Quality and Costing to support the original four converged functions. The partnership will study other opportunities to increase synergies in Sales and Marketing, Connectivity and Connected Services, Product Planning, Aftersales and other support functions.

Through the end of March, Renault and Nissan executives will present these convergence projects to appropriate employee representation and corporate decision-making bodies. If approved at the end of an internal review process, implementation will begin on April 1. Leaders in these new functions and the scope of their converged activities will be announced at that time.

Renault and Nissan share an industrial footprint with numerous cross-manufacturing projects in France, South Korea, India and Russia. In addition, engineers at both companies – which have a combined annual R&D and capital expenditure fund of 10 billion euros – work together as one team to reduce duplication in the development of next-gen technologies. The aim is to generate 5.5 billion euros in synergies in 2018.

“The auto industry is rapidly evolving, requiring Renault and Nissan to leverage the Alliance as a pragmatic business tool. The road ahead is one of more convergence, working more closely together,” said Renault-Nissan Alliance CEO and chairman Carlos Ghosn.

On paper, the marriage isn’t the most balanced. Renault came to Nissan’s aid when the latter was on the verge of bankruptcy in 1999, and holds a big stake (43.4%) in the Japanese company as a result. Nissan in turn was given a 15% non-voting stake in Renault.

However, since those turbulent days, Nissan has grown to be more profitable than its French partner, with a larger market value and greater sales. The Yokohama-based carmaker contributed 1.56 billion euros to Renault’s bottom line last year.

Then came France. The country increased its stake in Renault to 19.74% last year, a move that was meant to boost the government’s power at one of France’s key manufacturers via a loyalty-shareholder program that will doubled the voting rights of investors who have held Renault stock for over two years. Two reps of the French state are already on Renault’s board. That would have effectively given France control over Nissan, which stake in Renault is non-voting.

This tricky situation led to a “Stability Covenant” agreement announced in December. While Nissan failed to secure voting rights in Renault, a contract between both carmakers promised non-interference in Nissan’s governance by Renault. A cap on the French government’s voting rights was also put in place. Crisis averted.

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