82
FORTUNE.COM// JA N.1 .19
healthy enterprise. Typically, the stronger
company, in this case Renault, might have
simply acquired Nissan, eliminated redun-
dancies, and merged the two companies into
a larger one that could benefit from global
efficiencies of scale. But Renault was cau-
tious, having earlier burned its fingers in a
disastrous transatlantic acquisition of a big
stake in American Motors and an abandoned
attempt to merge with Volvo.
Nissan, with 140,000 employees and a pillar
of the Japanese economy, was leery of takeover
as well. It had already passed on a proposal
from DaimlerChrysler. In lieu of acquisi-
tion, Renault’s Paris brain trust suggested an
exchange of equity in which each automaker
would own a minority of the other, allowing
both to keep their independent identities,
albeit under the strong influence of Renault,
itself owned in part by the French government.
Ghosn, tasked with making the relationship
work, decided that Nissan’s Japanese business
practices—lifetime employment, promotion
by seniority, loyalty to longtime suppliers—
were obsolete and had to be scrapped. Thanks
to his own multiethnic background, he also
realized that Japanese and French business
cultures were too dissimilar to meld forcibly.
(Born in Brazil, educated in Lebanon and
later in Paris, Ghosn speaks five languages.)
At the 1999 Tokyo Motor Show he presented
a three-year Nissan revival plan: reduce debt,
close five plants, eliminate 21,000 jobs, and in-
troduce new vehicle models around the world,
taking advantage of shared platforms that
could vastly reduce development and produc-
tion costs. Ghosn promised to quit his position
as Nissan COO if the company failed to return
to profitability the following year.
“The top management first and the man-
agement will be accountable for delivering the
committed performance—all of it,” he said. “I
know and I measure how much effort, how
much sacrifice, and how much pain we will
have to endure for the success of the Nissan
revival plan. But believe me, we don’t have a
choice, and it will be worth it.”
The task of figuring out what was redun-
dant, whose architecture to use, and where
vehicles should be built was complex and often
accompanied by tense debate. Under Ghosn’s
style of management, projects designed to
reduce costs had to be agreed upon by both
manufacturers. The goal was consensus: If a
project doesn’t work for both sides, it doesn’t
work at all.
“When managers would reach an impasseWHY BUSINESS MERGERS FAIL is a topic of endless study. And the
$5 billion rescue of Nissan by French automaker Renault in 1999
looked like one more folly in the making, what skeptics at the
time analogized as “tying two rocks together to make them float.”
In this case, the skeptics were mistaken. The Renault Nissan
Alliance has proven itself to be a vibrant, stable, competitive,
and profitable global mobility business—neck and neck with
Volkswagen Group to be the largest automaker on the planet by
number of cars sold. But now the future of Renault Nissan (with
Russian automaker AvtoVAZ and Mitsubishi Motors added to
the alliance) is suddenly in doubt, owing to the incarceration
in Japan of the alliance’s architect and theoretician, chairman,
and chief executive: Carlos Ghosn. Since his arrest on Nov. 19,
the 64-year-old occupies a small cell in Tokyo where he is fed
rice three times a day, indicted on charges of underreporting his
income from Nissan to Japanese authorities.
Whether the charges have merit is not yet known, though
Japanese prosecutors have a conviction rate that exceeds 99%—
one of the highest in the G20. But the fallout has already been
felt in the alliance and across the wider automotive industry.
Within a week of Ghosn’s arrest, the boards of Nissan and Mit-
subishi voted to strip him of his chairmanship. As this issue went
to press, he remained CEO and chairman of Renault.
The worst outcome for the alliance would be a prolonged
period of uncertainty without resolution. For GM, Toyota,
Volkswagen, and other top automakers, every day of uncertainty
for Renault Nissan potentially translates into more competitive
advantage.
“Vehicle projects are multiyear affairs, sometimes costing bil-
lions of dollars,” says Karl Brauer, executive publisher of Kelley
Blue Book. “Not knowing who is running the company or what
the company will look like freezes everything,” Brauer says. “A
week lost isn’t good; months lost are awful and will come back
to haunt them.”
Ghosn was a relatively unknown Renault executive vice
president who had earned the nickname “Le Cost Killer” when
he was handed the mission of leading several dozen French ex-
ecutives to find a way to fuse two automakers—nearly bankrupt
Nissan and chronically underperforming Renault—into one