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Japan-Update

Ghosn reappointment leaves Nissan and Mitsubishi wary of Paris

Renault's Japanese allies fear push toward deeper integration

Carlos Ghosn, CEO of automaker Renault and head of its alliance with Japan's Nissan Motor and Mitsubishi Motors, is up against a vocal shareholder: the French state.   © Reuters

TOKYO/PARIS -- France appears to have extracted concessions from automaker Renault over the reappointment of renowned CEO Carlos Ghosn that could carry worrying implications for Japanese allies Nissan Motor and Mitsubishi Motors.

The French government, a major shareholder in the automaker, was seen as unwilling to accept his reappointment. But Renault's board voted Thursday to keep Ghosn as chief executive for another four-year term.

Over the next four years, Renault targets a roughly 40% rise in revenue from 2016 levels to 70 billion euros ($86.8 billion). The three alliance members also aim to have 12 types of electric vehicles on sale by 2022.

Ghosn, who also chairs the two Japanese automakers as well as the three companies' alliance, aims to quell doubts surrounding the sustainability of this alliance, he told reporters Friday in Paris. To overcome this challenge, he needs the support of all three companies, along with the Japanese and French governments, Ghosn added.

His wording suggested to some that a change in the alliance's management structure could be forthcoming. Ghosn told Agence France-Presse that "all options are on the table" and "there are no taboos" about the alliance's future, indicating a possibility that Renault could increase its stakes in the Japanese partners.

Ghosn and the French government have been at odds previously.

In February 2017, during the country's presidential campaign, Ghosn declared that Nissan would "not accept any move on capital structure as long as the French state remains a shareholder" in Renault. He went so far as to urge the government to withdraw its investment in the French automaker.

The opposition between Ghosn and Paris flared in 2015, when the state sought a merger of Renault and Nissan using its influence over Renault, citing a recent law granting long-term stakeholders double voting rights. Nissan sensed that it would face great risks in such a scenario, including exposure to issues involving jobs in France. The Japanese automaker and Ghosn fiercely resisted this push.

France apparently wanted to swap out Renault's leadership for younger faces at an upcoming shareholders meeting in June. In order to secure another term at the helm, Ghosn appears to have made concessions to Paris over the management policy for the tripartite alliance.

Ghosn is reported to have accepted a 30% pay cut to stay on. His compensation, about 7 million euros as of 2016, had drawn criticism in French society. Ghosn's reappointment also came with the promotion of Chief Competitive Officer Thierry Bollore to chief operating officer. Ghosn said at the news conference that Bollore would be involved with management at all levels, lowering the CEO's own contribution.

In 2014, Nissan and Renault integrated operations in four critical areas, including research and purchasing. The automakers deepened what began as a capital partnership in 1999 to the point of almost acting as one company. Ghosn, heading both, helped build a flexible partnership wherein neither used its capital influence to dominate the other, instead acting independently and sharing management resources.

Many of the alliance's milestones -- including slashing costs by developing shared vehicle platforms, as well as reaching 10 million units in worldwide sales -- were made possible largely by Ghosn's leadership. The next four years should also bring sea changes, such as in the areas of car-sharing and automated driving. As competition shifts from manufacturing to how companies use their customer bases, the alliance must adopt new strategies.

But the relationship among these peers is not guaranteed to stay the same. Nissan President and CEO Hiroto Saikawa rejects the idea of a merger with the French automaker, saying he sees no merits in such a move. But Ghosn has repeatedly expressed problems with the current arrangement. Last month, Ghosn told the lower house of France's parliament that the alliance chose the structure in which he chairs all three automakers because it was the only way to strengthen their integration.

Many close to the matter think the French government has gained influence over Ghosn through his reappointment. The alliance now faces dual challenges of sketching out its future governance structure and keeping up with the shifting competitive environment.

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