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To separate Renault-Nissan would be bloody -Cars Automobiles

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When you drop a king, you need a plan of what to do afterwards.

This is the challenge facing Nissan boss Hiroto Saikawa after the notable Palace coup, where chairman Carlos Ghosn was laid off after nearly two decades after rallying the global auto industry.

The man, who is generally regarded as indispensable to the collective functioning of the Nissan alliance with Renault and Mitsubishi Motors, was arrested on suspicion of violating the financial laws of Japan. In the meantime, Renault's leading independent directors have clearly not supported Saikawa's move. In view of this, the return to the status quo does not seem to be an option. However, it is not clear that there is a viable way.

The key issue is that Nissan's superior revenues and volumes should be the driving force of the alliance – but the build-up of cross shareholdings linking companies means that Renault and, ultimately, the French government will not let go of the decision.

An option that would no doubt be supported by President Emmanuel Macron, whose approval has fallen to only 25 percent, would be a merger of the group consolidating the French leadership. This would secure the position of the world's largest automaker as a national champion and ensure the safety of Renault's French employees, who earn about half of their cash flow per capita, like Nissan's Japanese employees.

Still, that seems to be definitely off the table for the moment. Ghosn had made a kind of merger with his legacy project by reaching retirement age, but even that seemed to have triggered hacker attacks in Japan. If his cautious steps toward a deeper alliance led to his own decapitation, it is difficult to see how a more aggressive policy, with the support of the Elysée Palace, would be better.

Another possibility would be for Nissan to take control of the alliance instead. As a first step from Saikawa in this direction, taking Ghosn out would look like a first step (albeit brutal). The value of Renault has fallen so far that Nissan and Mitsubishi were already able to buy their shareholders (with the exception of the French state) alone with the help of their net cash holdings before the collapse of the share by 8.4 percent on Monday.

The problem with this option is a thicket of legal hurdles. The French government's 15 percent share is twice as high as the European shareholders, who have been owners for more than two years, receive this benefit. Theoretically, through a generous takeover bid, Nissan could have the opportunity to go beyond Macron's head and address directly to equal European institutional shareholders, but it is hard to believe that the Elysee would find no other way to prevent that outcome.

Dissolve the alliance?

That leaves another option: a resolution of the group.

It is probably easiest to see a route to this result. If Nissan bought another 10 percent of Renault on the market, its stake would rise to 25 percent – a level at which the French company would lose its voting rights to Nissan under Japanese law. In this case, Nissan may convene an Extraordinary General Meeting to remove the directors of Renault from the Board of Directors. Then it could start to solve the network of common shopping and platform platforms that hold the Alliance together.

However, this seems a strange way to act. Firstly, the costly challenges of electric cars and autonomous vehicles – not to mention the general weakness of the automotive market in 2018 – mean that carmakers today should try to spread their investments and R & D expenditures as much as possible. instead of separating from willing partners.

On the other hand, while Ghosn himself is often seen as the linchpin of the group, the connections are in fact much deeper. Alliance cars are now converted to a common modular architecture that makes them virtually identical under their badges.

Both Renault and Nissan vehicles are produced on Allianz production lines in India, Russia, Brazil and China. Three out of four powertrains are shared by the companies. The synergies of the group will total around 5.5 billion euros this year.

And it's not just about Renault and Nissan. Mitsubishi Motors is committed to the Alliance through Nissan's 34 percent ownership, as is AvtoVAZ, maker of the Russian Lada brand, thanks to a stake from Renault. Nissan has a joint venture with Dongfeng Motor Group to manufacture its cars and some Renault models in China. There is also a smaller capital alliance with Daimler, which includes the joint development of electric vehicles, engines and powertrains. A break would be anything but clean.

Ghosn's fall may have fatally damaged the relationship between Renault and Nissan, but it's hard for those involved to see a better option than trying to sort things out somehow. Despite all the evil blood, the two sides are deeply connected over the years. If they end up being too aggressively separated, stopping the bleeding can be difficult.

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