Why 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 oat.”
In this case, the skeptics were mistaken. The Renault Nissan Alliance has proven itself to be a vibrant, stable, competitive, and pro table 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 Mitsubishi 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 a airs, sometimes costing billions 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 executives to find a way to fuse two automakers—nearly bankrupt Nissan and chronically underperforming Renault—into one healthy enterprise. Typically, the stronger company, in this case Renault, might have simply acquired Nissan, eliminated redundancies, and merged the two companies into a larger one that could benefit from global efficiencies of scale. But Renault was cautious, 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 acquisition, 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 introduce new vehicle models around the world, taking advantage of shared platforms that could vastly reduce development and production 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 management 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 redundant, 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 impasse and turn to Ghosn for a decision, he pushed the decision back to them,” says Rachel Konrad, who served as the alliance’s director of marketing communications until 2016. “People have this inaccurate belief that he’s this powerful executive issuing directives and firing off orders. He’s not like that at all. He almost always forces managers and directors to consider the bigger picture and to accept responsibility.”
Their backs to the wall, Ghosn and his globe-trotting management team delivered, and by 2003 Nissan was one of the most profitable carmakers in the world. He was named Renault CEO in 2005 and Nissan CEO in 2008, the first executive to lead two Fortune Global 500 companies simultaneously. A superhero in Japan, his accomplishments were celebrated by the media, including a starring role in a Japanese comic book. By accomplishing what many had deemed impossible, Ghosn established himself in the auto industry as a miracle man.
Ford Motor Co. twice attempted to hire him, first as chief operating officer in 2003. Ghosn rejected the offer, insisting that he required complete authority: “Just tell Bill (Ford Jr.) that I’m his man—provided I’m CEO and chairman,” Ghosn told Ford’s human resources chief, according to author Bryce Hoffman in his 2012 book American Icon.
Billionaire investor Kirk Kerkorian was so impressed with Ghosn’s execution of the Nissan turnaround and management of the alliance that in 2006 he persuaded Ghosn over dinner in Nashville to pursue an alliance with General Motors, the nose-diving auto giant in which Kerkorian owned a 9.9% stake. Kerkorian’s hidden agenda appeared to be the insertion of Ghosn and his cost-saving ideas into GM’s executive suite. Talks with GM management fizzled after three months.
One of Ghosn’s few command directives, issued to silence squabbling and resolve indecision among executives, concerned the Leaf battery-powered vehicle. (Some in the company believed that their relatively short range, high cost, and charging concerns would deter potential customers from EVs.) He ordered the go-ahead for the $5 billion project in 2007 and introduced a prototype in 2010. But EV sales have fallen short of his projections.
As Ghosn proved himself again and again to be the linchpin of the alliance, he also failed to persuade investors, the media, and competitors that he had a plan—as all mortal CEOs must—for a future without him. One after another of potential successors left the alliance for various reasons. Nissan, in the meantime, evolved into the stronger of the two partners in financial terms, which inevitably led to grumbling in Japan that power, authority, and prestige remained disproportionately on the side of Renault and France.
As controlling shareholder of Nissan, Renault has the power to appoint the Japanese automaker’s CEO. Ghosn may have hoped that giving up the top executive post and appointing Hiroto Saikawa to the job in April 2017 would defuse complaints from some at Nissan that the Japanese brand lacked a voice in the alliance. But it did little to dispel the perception in Yokohama that important decisions were being made by Ghosn and Ghosn appointees, with a bias toward France.
“The recurring rumor was that Ghosn had a secret plan to merge the two companies as a way of stamping out the tension,” said one former Nissan executive, who asked not to be named for contractual reasons. “You would have to conclude that the only option to maintaining the advantages of working together would be to reframe the business relationship and the power relationship between the two entities.”
A second former Nissan executive, who also declined to be named, opined that dissolving the alliance, while complicated and susceptible to legal wrangling, might achieve the best outcome for shareholders.
“Building a global entity based on three automakers [including Mitsubishi] is a difficult thing to do because the size of the entire enterprise has become too unwieldy,” he said. “The world changes around you, all the chaos of trade, CO2 rules, and politics means you have to be flexible—it’s not so easy at the alliance’s current size.
“Much better are partnerships between automakers based on specific projects—a transmission or a vehicle architecture—rather than a relationship based on mutual ownership of shares,” he continues. “Once you have a marriage, it’s very hard to get divorced.”
How, precisely, the tension between the alliance partners and the state actions of their home countries played a role in the downfall of Carlos Ghosn remains to be spelled out. What’s sure is that he remains a singular CEO who during his tenure accomplished what many had believed to be impossible.
A version of this article appears in the January 2019 issue of Fortune with the headline “The Ghosn Show.”