Crash Resistant

In 1999 when Renault acquired a key 44.4% interest in the then struggling Nissan, it had learnt from past attempts at overseas links, the most bruising of which was the 1982 takeover of American Motor Corporation. Since the French had invented the expression, it was a relief that this time Renault got the corporate ‘amour propre’ right. Japanese self-regard was well handled in the deal, Nissan took a non-voting 15% stake in Renault and the relationship has remained most avowedly an alliance, not a merger, with separate balance sheets and financials.

However, at technical and operational levels, the two businesses work very closely together, not least in procurement, says CFO Thierry Moulonguet. ‘Close to 95% of what Nissan and Renault buy globally is now handled through the Renault Nissan Purchasing Organisation (RNPO). Indeed I would say that, except for some small local supplies, everything goes through RNPO.’

The combination of the different pools of suppliers has had, says Moulonguet, three beneficial impacts.

‘Firstly, we have been able to leverage much better the scale effect of Renault plus Nissan and now we have a high proportion of suppliers that service Renault as well as Nissan. Within this proportion, there are growing numbers of common parts, components, systems, modules and services for both companies from the same suppliers.’

The second effect has been to drive the sharing of best practice while moving towards greater standardisation, by cutting out diversity and complexity among components.

‘We are also developing full and deep partnerships with our global suppliers, who are very much involved in the development of our vehicles with our engineering department,’ says Moulonguet. Moulonguet describes RNPO as a win-win partnership that better enables the two businesses to forecast where they can make gains, the returns from which he says are also shared with their suppliers.

Had Renault been a standalone organisation, he believes it would have been much slower in reaching this sophisticated model of procurement. The third global procurement advantage, says Moulonguet, comes from the investment that the two companies have made in other automotive manufacturers. As it bought into Nissan, Renault was also acquiring for $515 million a 70% stake in South Korean manufacturer Samsung Motors, now raised to 81%.

Co-drivers

‘In the last eight years Renault and Nissan have invested a lot in emerging economies; Nissan in China with its DongFeng Motor partnership, Renault in India with a partnership with Mahindra, Renault and Nissan in Russia with new plans, and Renault with a 25% stake in Avtovaz, the biggest Russian automotive company.’ In each new manufacturing location, says Moulonguet, ‘we have collected a whole new pool of suppliers in lowcost countries, which are now all fully integrated into the global purchasing policy of Renault Nissan through RNPO. The common organisation has played a key role in enabling us to move fast with the integration.’

Because India and China represented the two biggest emerging markets for sales, production and procurement, had Nissan and Renault divided them – Nissan taking China and Renault India? ‘No. It always depends on the opportunity, but usually there is one company that opens the door and starts the work for the alliance and in China it was Nissan with the venture with DongFeng. In India it was Renault with the joint venture with Mahindra. But now with the development of the ultra low-cost vehicle with Bajaj, it will be an alliance project – Renault and Nissan together. And Nissan has also made another step in India through a joint venture with Ashok for a light commercial vehicle. ‘So we are always very pragmatic. I think once you see one member of the alliance is somewhere, then the other partner can leverage the experience and very much rely on the expertise of its partner to study further developments, to see if there is a rationale and if it makes economic sense to do it.’

Moulonguet agrees that very often a global supplier will develop a local plant to support a new Renault Nissan plant, but he insists: ‘We do of course seek to promote the development of local suppliers as much as possible and this is how we have connected with so many new suppliers. You can see the process at work successfully in Latin America, Russia, in the Maghreb, central Europe, China and India’.

Regardless of the location, the approach to procurement and the demands of suppliers are, he says, uniform.

Once the relationships are established, the RNPO takes care of the ordering, but it is, says Moulonguet, purely that. ‘It is a purchasing organisation and nothing else. In terms of financing, you have Renault on one side and Nissan on the other. Of course we coordinate but we are two separate companies. Funding has nothing to do with RNPO.’

By consolidating orders from each company, RNPO expects to win and deepen discount for greater volumes. Moulonguet insists that the delivery of and payment for the components is a simple business. ‘It is a seamless organisation,’ he says.

But have Renault and Nissan sought to gain from coordinating their funding as well as their procurement needs?

‘This is a different story. Renault and Nissan have a steering committee that I chair where we are co-coordinating our views on financial markets and the optimisation of our funding policy. So, we co-ordinate everything. Usually, one company is funding in one market, the other in another but sometimes we are in the same market. For example, Renault has been able for several years now to issue Samurai bonds in Japan because of the alliance. This is a big plus for us.

‘However, although we co-ordinate everything, we have no single funding policy because we are two different companies. I understand that it can be a little difficult to understand but this is the principle of the alliance; it means that in terms of long-term strategy, product planning, looking for synergy in opportunities, in every aspect of the business we work together but in the execution there are still two companies.’

Renault and Nissan have therefore never jointly executed debt exercises, yet the existence of Renault Finance in Lausanne shows how very close the two companies are. Set up by Renault long before the alliance, post-2000 it grew in importance.

‘Renault Finance is an interesting development that very soon after the alliance became its trading room,’ explains Moulonguet. ‘It is where most of our FX transactions are executed and where we are centralising different financial activities for both Renault and Nissan. The idea is to share expertise in order to optimise the financial activities of both companies. When it comes to the medium-term financial strategy of both organisations, on a day-to-day basis there is full transparency and sharing of views. But execution remains a matter for each individual company.’

Crash test

Moulonguet was speaking as the European banking system demonstrated that it too had caught the confidence collapse contagion from the US. Renault Nissan had already halved its 10% 2008 sales target before what Renault CEO Carlos Ghosn described as the ‘perfect storm’ hove into view.

‘It is incredible,’ admits Moulonguet. ‘It is hard to say what will be the fallout from what we see today. I think what is important is the long-term view and what we have been doing in order to position the company and the alliance. We are always thinking when strategy is on the table, that it is an alliance strategy and we need to position the alliance for the aftermath of the financial crisis. So what we are identifying and where we are positioning ourselves as early as possible is the low-cost segment with the Logan and the work on the ultra low-cost with Bajaj.’

Moulonguet adds that low energy consumption and new energy technology vehicles, such as the Nissan Pivo 2, are extremely important and that it is in emerging countries where the alliance has been and will continue to be most active.

‘In terms of global presence, if you compare where Renault and Nissan were in 1999 and where they are today, it is just another world and we expect to reap good benefits from this major change for the two companies.’

Renault's talent programme

Renault funds a multi-cultural management programme at Paris’ HEC School of Management. This is definitely not, says Moulonguet, a piece of corporate window dressing.

‘We are really walking the walk and talking the talk on multicultural management. I was CFO of Nissan before and my team was not just Japanese – we had people from France and America. In Renault today I have people from Nissan.

Renault may have a French history and a French origin but today it has become a global company’.

Moulonguet recalls that, when he was at the Ministry of Finance a decade ago, Renault was still ‘too small, too European and too isolated. But in the last year matters have changed dramatically.’

‘Before Nissan we had a long discussion with Volvo. We were very close to completing the merger. In the last round of discussions there were some issues which led Volvo to backtrack. We have learnt from this. I would say that, when you approach a transnational deal, you must be a very good listener. You need to open up to a real exchange between the two partners and not to give the impression that one is going to take over the other.

‘With Nissan, we had that in mind and we started from a much better basis, in a much more balanced way.’ Fernando Alonso, here at the July 2008 German Grand Prix, won the World Championship in 2005 and 2006, helping Renault twice clinch the Constructors' Championship.