Renault-Nissan alliance: Despite record savings of €4.3b, growth set to slow down

Too early to assess impact of Brexit on Nissan’s operations, says senior vice president

PARIS/ TOKYO: Renault’s car-making alliance with Nissan achieved record synergies of 4.3 billion euros ($4.8 billion) last year from closer integration, but savings growth is set to slow, a senior executive said.

“It is too early to assess the impact of Britain’s vote to leave the European Union on Nissan’s operations in the country,” said Renault-Nissan Senior Vice President Arnaud Deboeuf.

“For sure it will have an impact, but it is very difficult to say today what that impact would be.”

Since the creation of the Franco-Japanese alliance in 1999, when Renault took a controlling stake in Nissan, it has combined some vehicle architectures, manufacturing assets and corporate functions, but at a pace that has frustrated some investors.

Prodded by analysts early last year to set a more ambitious goal for synergies in 2016 than the 4.3 billion euros announced, Renault-Nissan boss Carlos Ghosn, who heads both companies, said, “Obviously 4.3 billion euros is a conservative number; I think a reasonable target would be 5 billion euros.”

But following a protracted governance dispute last year with the French government, Renault’s biggest shareholder, tentative internal plans to announce major new areas of operational convergence early in 2016 did not materialise.

Renault-Nissan said in March it would combine quality and costing teams to support integration already under way in engineering, manufacturing, supply chain management, purchasing and human resources, while preparing initiatives in after-sales.

Deboeuf, who leads alliance convergence, did not repeat the 5 billion-euro objective for 2016, warning instead that savings may decline with manufacturing cycles before resuming their growth to a promised 5.5 billion euros in 2018.

“There might be some years when we are down because the way you calculate is linked to the product plan,” he said.

The 2018 target amounts to average savings growth of 8.6% over three years, compared with gains of 13% last year and 31% in 2014.

Last year’s figure of 4.3 billion euros effectively met the initial “conservative” goal for 2016 a year early.

Deboeuf said projected savings did not include Nissan’s acquisition of Mitsubishi Motors, which is yet to close, or the repercussions of Brexit for operations such as Nissan’s plant in Sunderland, northeast England.

Depending on the terms negotiated, Britain’s departure from the EU could result in new trade tariffs that would penalise the plant’s vehicle exports to the EU and beyond.

“Concerning Brexit, we are a little worried because of the uncertainty caused by the waiting and the consequences of the new status of the United Kingdom and the European Union,” Chief Executive Ghosn said in a statement.

Published in The Express Tribune, July 6^th, 2016.

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