60 Business The EconomistNovember 2nd 2019
I
n 2013 two Carloses sat atop the Renault-Nissan alliance. One
was Carlos Ghosn, the Brazilian-born architect of the Franco-
Japanese carmaking colossus. His protégé was Carlos Tavares, the
Portuguese chief operating officer of Renault, who made sure that
good cars rolled off the production line. But Mr Tavares, an engi-
neer and racing driver, was not content trailing the fast-living Mr
Ghosn. As he revealed in an interview that year, his ambition was
to lead a big car company, such as General Motors. Mr Ghosn was
horrified. Shortly afterwards, Mr Tavares quit Renault. A few
months later he was boss of psa Group, maker of Peugeot and Ci-
troën, Renault’s domestic rival. It was the start of a series of
manoeuvres that have now made him the talk of the car industry,
much like Mr Ghosn before and after his arrest in Japan last year on
charges of financial misconduct (which Mr Ghosn denies).
On October 30th the boards of psa and Fiat Chrysler Automo-
biles (fca), an Italian-American company, said the two firms
planned to merge. Mr Tavares would become chief executive of the
combined group and John Elkann, fca’s chairman (who sits on the
board of The Economist’s parent company), would chair its board. It
would create the world’s fourth-biggest carmaker by vehicle sales,
with a market value of around $50bn. On-off discussions between
the two firms were ruptured in early summer when fca attempted
to merge with Renault, a deal that was thwarted by Renault’s big-
gest shareholder, the French government. The merged group
would probably find most of the €3.7bn ($4.1bn) of annual cost-
savings they hope to achieve in Europe, a stagnant market where
stringent environmental regulations are about to make carmakers’
lives tougher still. Competition issues in parts of Europe, feisty
unions and messy politics could yet scupper any deal. Further-
more, it is not clear whether Peugeot is Fiat’s preferred partner.
But the planned mega-merger puts the spotlight squarely on Mr
Tavares. As Max Warburton of Bernstein, a broker, puts it: “Those
of us who subscribe to the Great Man Theory will be fascinated to
see what Tavares could achieve at fca, were he given the chance.”
The “Great Man Theory” Mr Warburton is referring to states that
big car-industry mergers are a murderous task that only a true
leader can hope to pull off. Fiat’s revered late boss, Sergio Mar-
chionne, managed this feat with Chrysler. Mr Ghosn succeeded in-holding the Renault-Nissan alliance together for many years.
A corollary to the Great Man Theory is what could be called the
“Big Firm Hypothesis”. Typically attributed to Marchionne, it pos-
its that huge challenges facing the industry, such as electric vehi-
cles and self-driving cars, necessitate global consolidation. To an
extent Mr Tavares embodies both doctrines, having swiftly turned
around first Peugeot, after it was battered by the financial crisis of
2008-09, then Opel and Vauxhall, which he bought from gmin
2017.But what truly sets him apart is his ability to turn carmakers
into, as he has put it, “psychopaths of performance”. That tireless
devotion to profits, even if it comes at the expense of personal
greatness or corporate bigness, is a lesson most of the industry
could learn.
The fraught Renault-Nissan tie-up is a case in point. In the
wake of Mr Ghosn’s fall from grace last November it has been an ex-
ample of how not to run a car empire. Well before his arrest, the ar-
rangement had serious flaws. Rather than being a global network
built around strong brands and factory-wide economies of scale, it
was more of a global car park. It filled different parts of the world
with as many of each firm’s cars as possible (and those of Mitsub-
ishi, the alliance’s other Japanese partner), whatever their price
and quality. It was riven with jealousies. Nissan had long chafed at
a shareholding structure that gave it less sway than Renault.
Worse, the Japanese firm resented the control that the French gov-
ernment, which owns barely 15% of Renault, exercised over the
partnership. It also feared French ambitions to take it over.
Since Mr Ghosn’s arrest things have gone from bad to worse. Re-
nault’s abortive merger with fca showed what an irksome med-
dler the French state has become. It has obstinately refused to
make any concessions to the wary Japanese, for instance by selling
down Renault’s stake in Nissan to rebalance the shareholding or by
reducing its own stake in Renault. In the meantime the feud has
distracted all three alliance members from the business of selling
cars. Nissan’s sales have shrunk. Profits are plunging. Renault’s
volumes are dropping, too. Its balance-sheet is coming under
strain, especially since it will get less cash from its 43% stake in
Nissan, which recently slashed its dividend.
In the eyes of the French government, the best answer is to dou-
ble down on the alliance. Renault’s chairman, Jean-Dominique Se-
nard, has vowed to do just that, hoping that a recent change of
leadership at the top of both Renault and Nissan will help. Inves-
tors would prefer a clearer break with the past. Some want Renault
to sell some of its Nissan shares and use the money to strengthen
its balance-sheet, as a prelude to a more equitable alliance. Others
want a full merger of the two. The boldest had hoped for a grand
bargain, in which a stronger Renault once again courts fca, with
Nissan in tow.Back to nuts and bolts
The talks between Peugeot and fca have, for the time being at least,
sent the grand-bargain idea careening off the road. It has left Re-
nault and Nissan looking stranded. That makes it imperative for
them to do what Mr Tavares has done with Peugeot, Opel and Vaux-
hall: put profitability front and centre. As Mr Tavares has said,
“there’s going to be chaos between now and 2030. Not all manufac-
turers will survive the Darwinism, not all will master the electric-
vehicle track.” Some regard consolidation as the best way to navi-
gate the disruption. Others see the need for a great leader, who can
build and maintain alliances. One thing is certain—none will suc-
ceed without a Tavaresque focus on the bottom line. 7Schumpeter The spirit of Carlos
What a great European car boss can teach a troubled industry