TOKYO -- Just days after they cemented their landmark automotive alliance on March 27, 1999, the heads of Renault and Nissan inadvertently revealed a fundamental disagreement that lay at the heart of their new partnership.
Speaking moments after a news conference in New York, Louis Schweitzer, Renault's chairman and chief executive officer, raised the possibility that the two companies would merge sometime in the future.
At the same time, Yoshikazu Hanawa, Nissan Motor president and CEO, was making the opposite point just a few feet away. "It's a different alliance. It's not a merger. It's not a takeover," Hanawa said, according to a Wall Street Journal account. "It will be like this for a long time, for forever."
For the rest of his tenure, Schweitzer was a guardian of alliance. But now, nearly 20 years later, the old argument about the basic nature of the relationship is raging again. In recent months, the Renault camp pushed for deeper, "irreversible" integration between the two companies. The position at Nissan is the same as it was in 1999: dead set against a merger.
Other things have changed, however. Nissan is no longer a struggling car company in desperate need of a turnaround artist to slash costs and pull it back from the brink. Renault, the dominant partner in the early years, has seen its position in the global auto market drop below Nissan's. And Carlos Ghosn, the man who held this uneasy alliance together for almost two decades, is now facing prosecution by Japanese authorities for allegedly underreporting his pay.
When agents from the Tokyo District Public Prosecutors Office boarded Ghosn's Gulfstream jet -- tail number N155AN -- at Tokyo's Haneda Airport on the afternoon of Nov. 19, he was preparing a plan that he hoped would finally settle the Nissan-Renault question. Doing so would cap a stellar career whose highlight remained the rescue of the Japanese carmaker.
Ghosn had a packed schedule in Japan, including a meeting with Tokyo Gov. Yuriko Koike on the future of mobility.
Instead, he found himself sitting inside a roughly 5-sq.-meter cell inside the Tokyo Detention House. A few days later, Nissan's board ousted him as chairman, and alliance partner Mitsubishi Motors soon followed suit.
As Ghosn prepares to fight the charges against him, the alliance of Renault, Nissan and Mitsubishi faces the challenge of restoring investor confidence while keeping up with the technological changes sweeping the industry, such as autonomous driving. Nissan itself faces serious questions about its corporate governance following allegations about Ghosn's use of company funds and the handling of his pay disclosures.
The power struggle between Nissan and Renault has burst into the open, with Nissan hoping to use the Ghosn scandal as an opportunity to increase its influence within the partnership to reflect its higher sales and corporate value. Renault, which holds 43% of Nissan shares, hopes to reinforce its control of its Japanese partner, either through a merger or deeper integration of management.
The future of the alliance has become "unpredictable," said Takaki Nakanishi, president of the Nakanishi Research Institute.
"It is not clear how all the players, including the French government, will act."
The turmoil has also set off a political row between France and Japan. The French government owns 15.01% of Renault, which has a 43.4% stake in Nissan. Nissan, in turn, owns a smaller stake -- 15% -- of Renault. That uneven arrangement is the legacy of Renault's rescue of Nissan.
"The debate on [the future of] the alliance is highly political, as the French government talks about its own investment here," said one analyst at an international consultancy. "We have entered into a new stage of fighting for the national interest between France and Japan, especially in terms of employment."
The events that led to Ghosn's arrest were set in motion six months earlier, when a senior Nissan executive began to scrutinize Ghosn's confidential financial information. He was shocked to discover possible evidence of misconduct. "This must not be allowed to continue," he recalls telling himself as he combed through the documents.
A top-secret investigation team was formed inside the company, including this insider. The inquiry was kept secret from many company executives, including Ghosn. Sources told Nikkei that investigators discovered that Ghosn bought luxury homes in Copacabana and Beirut with company cash. Expensive family vacation bills were also passed on to the company, the sources said, exposing how the 64-year-old leader had blurred the lines between his private and public affairs.
Roughly around the time the internal investigation began, Ghosn announced a review of Nissan's capital ties with Renault. The French government had told Ghosn they wanted the alliance with Nissan to be irreversible.
Ghosn knew Nissan's board would oppose a full merger. Nissan President and CEO Hiroto Saikawa, who had taken over day-to-day management from Ghosn last year, had already made his objections known publicly.
People close to Ghosn say one of his ideas had been to set up a holding company that would have stakes in both automakers, allowing them to remain separate entities.
Even this sparked suspicion. Ghosn may have surrendered some of the power he held over Nissan by giving up the chief executive role to Saikawa. But the big decisions still rested in his hands.
Alarm bells rang when Ghosn later implied to other executives that, after shifting to the new structure, he intended to install himself atop the new entity.
In September, the board agreed to review the capital relationship between Renault and Nissan. But the details of what this would involve were left for later.
One Nissan executive believes Ghosn was "going to officially decide on the new structure by next spring," possibly coinciding with a lavish ceremony in Paris to celebrate the 20th anniversary of the alliance in March. Had Ghosn fulfilled his ambition, strengthening his hold on the two companies, the scandal might never have come to light.
Even as Ghosn was laying the groundwork, Nissan was bringing in outside authorities. The company had handed the information gathered in its internal investigation to prosecutors. Renault and the French government were kept in the dark -- a sore point for Paris.
"We have no information about the charges that have been made against Carlos Ghosn by Nissan, or the charges that are passed on by Nissan to the Japanese justice system," complained Bruno Le Maire, France's economy and finance minister.
"Founder of the alliance"
Schweitzer, the former Renault chairman, dispatched Ghosn in 1999 to save Nissan, which was suffering from "three excesses" -- too much capacity, too much manpower and too much debt.
Ghosn, a Brazilian-born French citizen, had earned the name "Le Cost Killer" for his job-cutting and efficiency drive at Renault. Once inside Nissan, he challenged traditional Japanese business practices such as lifetime employment, the seniority system and keiretsu -- the close-knit web of companies held together by equity ties, investments and other business relationships. He shook up Nissan's staid corporate culture, listened to young employees and handed out promotions based on merit, regardless of gender or nationality.
As a result of his bold cost-cutting measures, big shakeouts successively occurred in auto parts, steel, chemicals and other industries. The industrial upheaval was called the "Ghosn Shock." He is still credited with breathing life into Japanese corporate culture and pointing the way forward for Japan Inc.
Few would deny that Ghosn achieved far more than cost reductions. His habit of working from early morning until late at night earned him another moniker, "Seven-Eleven."
Along the way, he set an example for executives at other Japanese companies. He was living proof that it was possible to break free from outdated management traditions.
Yet he may have veered onto the road to ruin in 2005, when he became CEO of Renault as well.
"The capital relationship between Nissan and Renault, based on cross-shareholdings, was not designed with the assumption that the two companies would be led by one person," said a former senior executive who was involved in forming the alliance.
Still, after Schweitzer retired from the board in 2009, Ghosn pushed harder to build an automaker that could rival the world's biggest. Through investments in China and the acquisition of Mitsubishi in 2016, the Nissan-Renault alliance catapulted into the exclusive club of carmakers turning out over 10 million vehicles a year, alongside Toyota Motor and the Volkswagen group. Around this time, Ghosn started calling himself the "founder of the alliance."
But as his grip on the companies tightened, Ghosn began to lose some of his most able lieutenants. Executives he once relied on jumped ship, robbing the group not only of talent but also of people who might have checked his impulses.
Andy Palmer, the former Nissan executive vice president who was one of the defectors, made some telling remarks during a visit to Japan in early November. Palmer, now the CEO of British luxury sports carmaker Aston Martin, said that he left in 2014 because he realized he would never reach the top as long as Ghosn was around.
Palmer told Nikkei he had no intention of clinging to power in his new job. "Many CEOs fail to [groom] successors," he said.
Around the time Palmer left Nissan, the alliance lost another key executive. Carlos Tavares, who had been serving as Renault's chief operating officer and was widely regarded as Ghosn's heir apparent, moved to the automaker's French archrival, PSA Group.
In the interview with Nikkei, Palmer questioned Nissan's future, given that Ghosn had lost two vital lieutenants. "He let go of both arms," Palmer said.
Yet another key executive, Nissan Chief Financial Officer Joseph Peter, left the company in May. A senior Nissan executive says the CFO had made several critical comments about the chairman's management, sparking speculation of conflict with Ghosn.
With Saikawa handling the daily details, Ghosn's visits to Japan became less frequent. Nissan employees say that even when he was in Japan, Ghosn was less present in the office, and more distant from operations.
As Ghosn's second in command, Saikawa helped push through the reforms. He is known for leading negotiations with tough counterparts, including keiretsu-affiliated suppliers and large steelmakers, and, after joining the executive ranks, representatives from the French government and Mitsubishi Motors.
Since becoming CEO, Saikawa has had to deal with a slowdown in Nissan's North American operations and the backlash from a scandal in which vehicle inspections were falsified.
"Do not take this as a coup d'etat"Nissan President and CEO Hiroto Saikawa
Whatever bond existed between Saikawa and Ghosn before seemed to have disappeared by the night his former boss was arrested. During an extraordinary press conference, Saikawa did not bow in apology as he described "significant acts of misconduct" by Ghosn.
Some on the Renault side of the alliance have suggested that Saikawa was leading a "re-Japanization campaign" at Nissan, and that the Ghosn scandal was being used as a tool to retake power.
"Do not take this as a coup d'etat," Saikawa said at the news conference after Ghosn's arrest.
A distorted relationship
The future of the alliance has already prompted a testy public exchange between Japanese and French officials. In a television appearance after the Ghosn scandal broke, French Economy and Finance Minister Bruno Le Maire expressed support for the alliance and said there was no reason to alter its structure.
"We agreed with my Japanese counterpart that the rules of governance do not change," Le Maire said of his meeting with Hiroshige Seko, Japan's minister of economy, trade and industry, on Nov. 22.
Seko shot back at his French counterpart later. "It is not true at all that we make promises with other countries about governance," Seko said at a news conference.
Such differences will color the discussions over the future of the groundbreaking automotive alliance. Nakanishi noted that under Ghosn's leadership, Nissan and Renault were in an "equivalent alliance" that had a distorted capital relationship. With Ghosn out, this needs to be fixed.
"The two companies could each hold a stake of around 20% in the other. That would be one of the options," Nakanishi said.
A breakup of the alliance would leave each member in a weaker position to compete in a rapidly evolving sector, he said. "Mutual trust is the key to advance their relationship," he said.
Yet disagreements over the nature of the relationship have been a running theme since the very beginning. On that March day in 1999, when Schweitzer and Hanawa differed on the topic of whether the companies would ever merge, the then-chief of Nissan offered a joke.
"Well you know in a relationship, a man and a lady can have different opinions about what the relationship means," he said.
Nikkei senior staff writer Kunio Saijo, Nikkei commentator Atsushi Nakayama and Nikkei staff writers Akihide Anzai and Masayasu Ito contributed to this report.