Carlos Ghosn’s appearance this week in Tokyo District Court, his first since he was arrested in mid-November and tossed into jail with no opportunity for bail, was the hottest ticket in town. Some 1,100 people, an army of reporters among them, had lined up to enter a lottery for the courtroom’s 14 gallery seats. The lucky few who made it were treated to the sight of a tired, gaunt multimillionaire in a dark suit, humiliated by accessories such as green plastic prison slippers, handcuffs and a rope around his waist.
Mr. Ghosn, 64, who was chairman of both Nissan Motor and Mitsubishi Motors before his arrest, and nominally remains chief executive of France’s Renault, protested his innocence. Speaking in English – he’s a Brazilian-born French citizen of Lebanese descent – he said “I have been wrongly accused and unfairly detained based on meritless and unsubstantiated accusations.”
He was sent back into custody; his first trial may not start for six months. Financial sleazery sums up the allegations against him. He is accused of understating his salary, aggravated breach of trust and foisting unrealized losses from a derivatives deal on Nissan during the 2008 financial crisis. None of the charges has been proved and Mr. Ghosn insists that all his compensation was properly disclosed.
Mr. Ghosn is no doubt convinced the allegations against him are politically motivated, although he did not say so in court. The timing of his arrest is certainly curious. It came shortly after Renault made informal plans to take full control of Nissan. Since Nissan is much bigger, more global and more profitable than Renault, you could understand why certain Nissan executives were not exactly thrilled with the idea.
The ownership and voting structure is no doubt lopsided. Renault owns 43 per cent of Nissan, but Nissan only owns 15 per cent of Renault – and that’s a non-voting stake. Nissan also owns 34 per cent of Mitsubishi, the third, and smallest member of the three-way alliance that pumps out one in nine autos on the planet, a total of 10.6 million a year at last count, making it slightly bigger than Volkswagen. If Mr. Ghosn’s takeover gambit had succeeded, Nissan would have come under complete control of Renault – a case of the Renault tail wagging the Nissan dog.
Nissan CEO Hiroto Saikawa this week said he expects a “fundamental” change in the board structure at Nissan following Mr. Ghosn’s ouster. He may want an ownership overhaul, too, one that would reflect Nissan’s operational dominance of the alliance. But before he tries to blow up the ownership and governance structure, Mr. Saikawa and his Japanese allies should remember two crucial factors. The first is that Mr. Ghosn saved Nissan after it and Renault became strategic partners in 1999. The second is that the three-way alliance has been a huge success and is needed more than ever as the global auto industry faces its greatest and potentially most devastating upheaval in the past century. With enormous investments needed to fund electric and self-driving vehicles, and to meet tightened emissions regulations everywhere, the era of easy profits since the 2008 financial crisis is coming to an end.
If that weren’t daunting enough for the automakers, the industry faces a sales slowdown. Already, the Chinese auto market, the world’s biggest, has gone into reverse, with sales down by a hefty 6 per cent in 2018, the first drop in 20 years. This week, Ford of Europe and Britain’s Jaguar Land Rover announced overhauls that will result in thousands of job losses. Auto-industry profits are falling and could turn negative if the sales slowdown gains momentum. And while car companies are plowing fortunes into battery technology, there’s total uncertainty as to whether the investment will pay off, given the high prices of battery-powered cars, their relatively short ranges and the lack of charging stations. So far, the market share of electric cars is tiny.
In other words, now is not the time to fix something that is not broken. The Nissan-Renault-Mitsubishi alliance may need some tweaking, but there is no way each of the the three car companies could survive on its own. They would just have to turn around and find new partners.
Mr. Ghosn’s genius, other than saving Nissan from destruction, was not just cutting costs – he was known as “le cost killer” in France – but combining core functions to create synergies. Over the years, engineering (such as platform-sharing and common engines and gearboxes), manufacturing, supply-chain management, purchasing and human resources have converged, creating billions of dollars in annual synergies, broadly defined as cost savings, cost avoidance and boosted sales. As well, Nissan and Renault became the leaders in electric vehicles – take that, Tesla. The Nissan Leaf, not the Tesla Model S, is the world’s bestselling plug-in electric car and the Renault Zoe is Europe’s top-selling plug-in.
Mr. Ghosn does not have a lot of allies at the moment and he is surely to be ousted from Renault, too. Even the French government, which owns 15 per cent of Renault, isn’t rushing to his rescue, perhaps because Mr. Ghosn and French President Emmanuel Macron had a fight in 2015, when the latter was economy minister. Mr. Ghosn and Nissan were not happy when the government boosted its stake in Renault that year, giving the Japanese the impression that French bureaucrats on the other side of the planet were effectively in control of the alliance.
The Ghosn era seems to be over, even if the courtroom trials he faces do not prove him guilty. But the car-making alliance he created was a wonder to behold and should be able to sustain an industry downturn better than most other rivals. Nissan’s executives tamper with that structure at their risk.