TOKYO -- As the Nissan-Renault alliance approaches its 20th anniversary, the future of the cross-shareholding arrangement is getting a closer examination from investors.
Despite the success of the partnership, there is increasing concern among shareholders over how the alliance, which was signed in 1999, can maintain growth in the long term.
Playing the leading role in the drama is Carlos Ghosn, chairman of the two companies, while Nissan Motor CEO Hiroto Saikawa and Osamu Masuko, CEO of Mitsubishi Motors, which joined the alliance in 2016, have also voiced their views.
As head of the entire group, Ghosn recently said that he is tasked with creating an "irreversible" structure acceptable to all parties, and is therefore considering a review of the current capital alliance.
Ghosn said in an interview with Nikkei last month that he intends to "find a solution" by 2022, by taking into consideration the opinions of all stakeholders, including the governments in Japan and France.
"The French government and the financial community are skeptical about its irreversibility," Ghosn said. "I need to make sure that everybody is feeling comfortable that this alliance will continue to perform well on the day I'm not here," he said.
"I would not discard any option today, but I would not privilege any," he replied when asked about how that might be achieved, and whether it would include a full merger. "I don't think we are fixed on one solution."
In addition to stressing the importance of keeping all stakeholders happy, Ghosn insisted that the three companies must retain their own individual identities.
"Nissan is still Nissan, Renault is still Renault, Mitsubishi Motors is still Mitsubishi Motors -- three companies working with each other without fear of being a second-rate citizen or completely overwhelmed by another party. That's the key to the success of the alliance."
Renault holds a 43.4% stake in Nissan, which has a 15% stake in the French company. Nissan also has a 34% stake in Mitsubishi.
Ghosn also underscored the need for a transition to a new partnership structure during his next term as Renault CEO, which starts in June and extends until 2022.
Renault currently owns the largest stake in Nissan and in March reportedly came under pressure from the French government, a major Renault shareholder, to integrate its management with that of the Japanese automaker.
Executives at the three companies were quiet for weeks after reports, but some have broken their silence following Ghosn's recent comments.
At an earnings briefing on May 14, Saikawa said the future structure of the alliance "could take many different shapes," but dismissed media reports of Nissan and Renault discussing a "full merger" as being "absolutely untrue."
Masuko weighed in on the matter last month. "There are many opinions on how to maintain the three-way alliance and an answer has yet to be found." Success will depend on the three companies growing sustainably while remaining independent in terms of branding, marketing and management, he said.
Having been brought into the alliance to save the automaker following a series of scandals, including fuel economy falsification, Mitsubishi is especially anxious about the future of the partnership.
Shortly after the Nikkei interview in Tokyo last month, Ghosn appeared on stage at The Wall Street Journal's D.Live conference in Hong Kong, where he made his personal views clearer.
"I've been opposed to a merger for a very long time, because I have seen how much damage mergers have done in the industry," he said at the gathering. "But at the same time, I have to take into consideration the concerns of all the stakeholders."
Ghosn's comments appeared aimed at drawing out opinions from the various parties with financial stakes in the alliance, including the Japanese and French governments. One source familiar with the evolving situation described him as "quite an actor."
The next act of the drama is expected to play out at Renault's general shareholders meeting in mid-June, when the French government could lay out its intentions.
Much attention will focus on whether Paris will go along with Ghosn's ideas or demand greater commitments, such as detailed plans for a Renault-Nissan merger. The pressure from the French government is regarded by many as an elaborate calculation.
Renault has seen its stock price rise about 50% over the past five years. The company has lowered component and other costs by taking advantage of Nissan's procurement network and improved earnings by producing Nissan cars at underused plants. By contrast, Nissan's stock price is nearly unchanged over the same period.
That has allowed Renault to narrow the gap with Nissan in terms of market capitalization, with the two companies valued at 26.9 billion euros ($31.6 billion) and 4.82 trillion yen ($43.6 billion), respectively, as of May 18. By comparison, at the end of May 2013, Renault's market cap stood at 17.6 billion euros, while Nissan's was at 5.04 trillion yen.
With the stock price of the French carmaker near a record high, now would be the time for the French government to take action.
While Renault has raised its market value by making the most of its partner's strengths, Nissan has managed to emerge from a financial crisis. A scandal involving unqualified workers performing safety inspections at Nissan factories last year cost the company 90 billion yen in recalls and equipment replacements.
As a result, shipments were suspended in October and November, and its operating profit for the fiscal year ending March 2018, announced earlier this month, declined 22.6% from a year earlier to 574.8 billion yen. Net profit, however, increased 12.6% to a record 746.9 billion yen.
Nissan was able to absorb some of the impact by cutting costs through standardizing parts and materials with Renault. Changes in U.S. corporate tax policy last year also helped the bottom line.
At first glance, Renault appears to be forging ahead on its own. However, its performance is largely supported by equity-method investment gains resulting from the French company's stake in Nissan.
According to figures compiled by Nikkei based on securities reports, Renault posted a net profit equivalent to $5.9 billion on a consolidated basis in the year ended Dec. 31. Of that amount, about half came from Nissan.
The Japanese company has contributed 50% or more of Renault's annual net profit in each of the past five years, with the figure reaching 100% in 2013 when Europe was in the throes of its financial crisis.
Renault also receives considerable dividend income from its partner. Nissan made a dividend payment of approximately $821 million to the French company in the fiscal year ended March 2017.
In the words of one analyst, Nissan "is now an indispensable entity" for Renault.
Given its larger stake in the cross-shareholding agreement, many could assume that Renault is the lead partner in the alliance. As the main breadwinner, however, Nissan and its management see things differently.
Nissan logged the equivalent of about $109 billion in sales for the year ended March 2018, while Renault posted sales of $69 billion for the 2017 calendar year.
In terms of sales volume, Nissan sold 5.81 million units in 2017, while Renault sold 3.76 million. The Japanese automaker is also ahead of its partner in its development of electric vehicles and other technologies.
The negotiations on changes to the cross-shareholding arrangement are expected to be long and drawn out. Ghosn, however, appears to already have a clear idea of what needs to be done.
"Collision means status quo," he told Nikkei in last month's interview. "The status quo is very comfortable for many people acting today, but it is going to be very uncomfortable for the people who are going to be in charge tomorrow because there are many unanswered questions."
His tone may have been soft, but the charismatic business leader knows that pleasing everyone will not be easy.