The fall of a titan - Carlos Ghosn

Shock or aw shucks?

As far as shock goes, it was not the arrest of Carlos Ghosn and his number 2 man, Greg Kelly, upon arrival at Haneda Airport. It was not even the allegations of underreporting Ghosn’s pay. Nor the abuse of company expense accounts, luxury homes on the back of multi-residence private-jet setting. No, it was the speed by which the normally discreet Japanese publicly announced Ghosn’s arrest and quick termination from Nissan’s Board of Directors. Definitely not the norm in this country of glacial incremental change and opaque organizations prone to cover up anything that would embarrass high-ranking Japanese officers/officials. The template would be a quiet exit, no press hoopla nor headline accusations of financial misconduct. What makes this l’affair Ghosn even more shocking and intriguing is that the point man for exposing this scandal, quickly and publicly was, Mr. Hiroto Saikawa, Mr. Ghosn’s anointed one to take his place in Nissan come 2nd quarter of next year.

A quarter of a century ago

Twenty-five years ago, the world’s auto industry was scrambling for growth through consolidation, acquisitions, and mergers. To survive, one needed to grow. Carlos Ghosn, 'le Cost Killer' as he was known, was just going through some earnest stable cleansing at Renault. There was a kitty and Renault was wasting no time, despite a costly retreat from American Motors, its huge wager for the prize North American market. EU anti-trust and anti-monopoly statutes were making Renault’s union with Volvo difficult as it is. Partnering with PSA Peugeot Citroen, just as dependent on the EU market as Renault, would have added nil to its net world market coverage. FIAT, the other EU-dependent volume maker was already in a tight embrace with GM’s bid to be Autoworld. The German prestige brands had their own ideas and VW had already swallowed the better 2nd and 3rd tier volume brands worth promoting. Healthy though Renault was, Ghosn was not going to rest on rent-seeking purely on the EU market.

Growth at all cost

Halfway across the world, the Japanese number one, Toyota could do no wrong. Volume-wise, Toyota was already the biggest worldwide. Its success was based on being anywhere and everywhere, selling the best possible bang for the buck with white goods reliability, and covering all market segments and niches. Behind Toyota was a strong Japanese candidate for world number 2, which followed the same expansionist dictum; Nissan. The Japanese held the world as its oyster. They will only do JV’s and badge engineering as a temporary first step, in markets defended by the older brands, before they come in, big and in full force. This dynamic aggression meant that HQ was betting big in pursuit of any perception that would equate to product superiority i.e. F1 racing, loose reins on R&D finance and fantasies. 

Overnight insolvency

Japan’s and Asia’s quest for dominance was felled by the 1997 Asian Crisis. This caught Nissan at the most unfortunate vortex of spiraling costs and ballooning debt. Its bankers, faltering under the strain of bad real estate deals and 'zombie' companies, can only give so much while its high growth partners in China - Yulon of Taiwan and Dong Feng of Guangzhou - reached their country limits on overseas loans to Nissan. What Nissan needed was its own 'le Cost Killer'.

Genuine growth

20 years later, Group Renault-Nissan may not be a marriage made in heaven but Renault got the instant market expansion it craved for while Nissan, duly chastised for indulgent funding and planning, was able to survive to fight another day. From what looks like a desperate start, especially for Nissan, the Renault-Nissan alliance or pseudo-merger has lasted and undeniably grew these past 20 years. 

A delicate Tango with the Japanese

Despite 'le Cost Killer’s' ruthlessness and impatience with waste, he and Renault navigated the sensitivities of dealing with the determined and exemplary engineers and officers of Nissan. The brash Western or Mediterranean-Latino ways of Ghosn are not really different from the styles of aggressive and abrasive MBA grad captains of industries that were pushing stellar rates of growth on lumbering multinationals - regardless of cultural background. Case in point: they tolerated the confusing existence of two Nissan distributors in the Philippines for almost as long as the Renault-Nissan alliance. Still, the take-no-prisoners approach was entirely foreign to the consensual and self-effacing Japanese – axing Japanese workers, sacrificed to the altar of survival, left a residue of bitterness to employees wedded to cradle-to-grave employment. 

The next obvious step

Twenty years later, a full-blown merger can only be a rational expectation - any Business consultant MBA would say that. But this merger has had its low-level contentions ever since. The Government of France owns 15% of Renault’s voting stock and it has already said no to any further deepening of the merger. Nissan, despite owning 15% of the non-voting stock and having only a token voice in Boulogne-Billancourt, will not have any of it either. The power of Renault’s 43% ownership of voting stock was neutered for the sake of grave political considerations. Still, the recent acquisition of Mitsubishi proved that this strained relationship still works for the benefit of all. For that alone, Ghosn has proven that he is the glue that has kept the two partners together.

Unfair practices

Of the two partners, Nissan should have the most to gripe about. After the painful ICU resuscitation of the first 3 years, Nissan was back to being the Japanese company that it was, albeit no longer no. 2 to Toyota. And ever since 2004, Nissan contributed a larger share to revenues, year in and year out. Not only that - almost all volume parts modules and platforms of the entire group - Renault, Dacia of Romania [Renault’s entry-level brand], Samsung Renault of Korea, and Autovaz of Russia - were from Nissan, while Renault pursued the romance of fancy future automotive concepts, the stuff that Andre Citroen and the French are known for. 

Carlos Ghosn: then an epilogue now a sequel image

An all-Nissan lineup

Even the way to a profitable future was Nissan’s - the Leaf EV and the entire EV range. Nissan’s products kept Renault in the race for the steady and reliable A-B-C car segments and LCV segment. The volatile HGV [heavy goods vehicle] truck market was hived off to RVI [Renault Vehicules Industriel] where Nissan has no reach nor intent. All of Renault’s SUVs are Nissan. Renault had little to show for the luxury branch, after Patrick le Quement’s artsy fartsy Avantime, Vel Statis, and the lamented R25 of the 80s. Though not of the same stature and coverage as Lexus, Nissan’s Infiniti can still hold its own. It wouldn’t be churlish to say that while Nissan provided the bread and butter but also the foie gras and champagne; Renault, the feudal overlord, was just happy consuming them and giving little in return, save for that capital injection that saved Nissan in 1999. Nissan for all intents and purposes, seemed to be happy with such a lop-sided existence - for so long as the Japanese side is run to Japanese standards and not French-Brazilian-Lebanese ones.

Carlos Ghosn: then an epilogue now a sequel image


Whose empire?

So what has Renault got to show for these 20 years? They haven’t returned to North America. They’ve kept a token presence in the Latin American countries that they were once in. They are no longer as dominant in the Francophone ex-French colonies of Africa. They still keep their Eastern European presence thanks to Dacia and Autovaz. But they are nowhere to be found in the growth markets of the Near East, Middle East, India, China, and ASEAN, Markets where Nissan has been long and continues to be strong. Wherever there is a Renault presence, Nissan is there. But wherever there is a Nissan presence, you can be sure that there will be no Renault presence and may never be one, Samsung Renault notwithstanding. For all intents and purposes, the Renault-Nissan alliance looks like a comprehensive global Nissan empire, and Renault’s, like Swiss cheese patchy in product and full of holes in coverage.

Upend the apple cart

So what upset this delicate entente cordiale, that slowly but surely made Renault Nissan the world’s largest car maker last year? The accusation of a lavish lifestyle at the cost of a corrupt and abusive view of corporate governance and transparency may just be a smoke screen, the tip of the iceberg, or worse, a petty tantrum exploited to rid Nissan of a personal grudge. Frequently exposed Japanese corporate conspiracies and cover-ups don’t make a paragon of transparency for some Japanese firms either. After all, Ghosn’s compensation was completely Renault’s purview, and to Renault, what seemed like an excessive lifestyle to the Japanese, was par for the course considering the results: Renault was the jolly and corpulent Santa Claus, while Nissan was Santa’s tireless worker elves. Renault can continue to produce in high-cost France to the nodding satisfaction of the French Government, for as long as Nissan provides the parts, the engineering, and the profits. The “lavish lifestyle” of Ghosn may even be entirely legal and compliant with French standards of taxation and compensation and the normally benign Tokyo Finance or Stock Exchange crime prosecutors may term Ghosn’s misreporting as a mere clerical oversight. Past Presidents of France were pilloried in the Press for “bling” but it never sent them the bill or jail. A slap on the wrist, no criminal charges, and the deletion of Tokyo from any of Ghosn's immediate travel plans may be in store.

The charge sheet 

From the seclusion of Tokyo’s Detention Center, Ghosn has come out fighting, hiring well-known international lawyers. The main and root issue leveled against Ghosn was he underreported his income and hence clouded Nissan’s financial statements, making a lie of its assets and liabilities. Sensitive to Japanese stereotypes against well-paid execs, Ghosn, from the beginning of his Nissan chairmanship, deferred the bulk of his income and stock options to be availed off on his retirement – scheduled 2nd Qtr 2019. As to such being stated in the annual report, Tokyo’s finance and ethics prosecutors say it depends on company policy and Nissan’s are silent on booking or unbooking of future income. So, where’s the violation? Moreover, foreign execs are required to report their income if they stay more than 30% of the year in Tokyo. Ghosn’s time doesn’t accumulate to 30% even.

Lavish lifestyle

Expensive homes, if Ghosn resides near such, are Nissan-owned assets, so no misappropriation there. Jet setting? Imperative, since it was the remoteness of Nissan's leadership that made it miss the signs of impending doom. What remains to be clarified is the scope of work and duties of Ghosn’s sister, who is employed as a consultant.

Carlos Ghosn: then an epilogue now a sequel image

What next?

With Ghosn, out of the picture, it further begs the question why after 20 years, didn’t the Renault-Nissan pseudo-merger grow into or move on to the next stage of a merger? Was this a case of it ain’t broke, why fix it? Or why didn’t it break up sooner rather than a not-so-hoped forever? Did it really have to move on?

Carlos Ghosn: then an epilogue now a sequel image

A world without Ghosn

The usually discreet Japanese are hardly into spectacular gestures. But when they do, it is for a bigger gain. After 20 years, Ghosn may have been looking to cement the cushy and relaxed feudal overlord rent-seeking status quo apres 1999 existence of Renault from whom he retires in a year. But this may have been the straw that broke the camel’s back for the Japanese. Nissan, now stronger and bigger [though not yet as dominant as it was in the days before 1997] can go it alone without the need to support an expensive European parent [like a known work of art]. It just needed an excuse to remove Ghosn which would trigger either the divorce with Renault or the ascent of Nissan management over the entire alliance. Mitsubishi was a duty to country and countrymen and will look like a fruitful one. That’s one typical Japanese company that has had the same overlord at the helm from the first cover-up about Fuso truck brakes killing a bystander in 1988. But Renault? They’ve been paid and paid handsomely. Nissan can now take charge of its destiny and they do not need to kowtow or bear with the sensibilities of the cultural non-assimilating non-Japanese. 

Future partners 

Where will that leave Renault? Renault will still need 'le Cost Killer' although for a different purpose since he is still, as of this writing, CEO at Boulogne-Billancourt. With Renault back to its dilemma of picayune market share, high French production costs, and middling growth, it will still need a global partner. GM and Ford, may not want to acknowledge it, but both sorely need it, especially now that the US market has niched into an all SUV one. FCA, another possible partner is dealing with succession after the loss of Sergio but what they really need is another Sergio. The Germans are too busy dealing with their own goal, 'Dieselgate'. 

Do it again?

How about the Japanese? More than 20 years ago, Patrick le Quement, Ghosn’s design chief was all praises for the styling and engineering dogma of another Japanese brand; Honda. After all the acrimony that comes with divorce, the French-Japanese alliance did produce the world’s largest car maker last year, a 20-year cushy existence for the financier-rent seeker and a spectacular turnaround and comeback for one of the world’s top ten car makers.