Will Renault be nationalized again?
The discussion in France is ongoing. The French car manufacturer Renault is in bad shape for the moment, and one of its biggest shareholders, the French State, is considering the options to save this national monument, including a (re)nationalization.
At the moment, Renault is suffering so much from the corona crisis and its economic consequences that its survival is at stake. The French state thinks of an exceptional intervention scheme that goes much further than the already promised guarantee for a 5 billion euros loan.
Seventy-five years ago, a decision of the national resistance council CNR dissolved the SA Usines Renault and transformed it into a state-owned Régie. The reason: the unique shareholder Louis Renault was accused of collaboration with Germany during World War II.
It would last until 1996 before Renault became a ‘normal’ company again, and nevertheless, the French state kept a 15% stake in the company, making it one of the major shareholders. In 1999, the Alliance with the Japanese car manufacturer Nissan was created, and somewhat later, the so-called Ghosn-era started.
Red lights ignored
A good while before the corona crisis, the lights had already become red, one after one, for the French car manufacturer. The last years under the presidency of Carlos Ghosn were marked by a certain ‘laissez-aller’ at top management level, which led to several errors that could become fatal in the future.
Almost all car manufacturers face (very) difficult times. But for Renault, it’s even worse. For example, the 43% stake the company has in Nissan is registered in the bookkeeping being 21 billion euros worth. In reality, it’s now rather 5,5 billion.
The revalorization of Renault on the market could lead to a figure inferior to the loan it is receiving with the state guarantee. And when the usual institutional investors are not interested anymore, the only credible lifebuoy becomes the French state.
Last year, Renault already indicated that it planned to stop several of its models after the ongoing model expires, talking of the Twingo, Koleos, and Talisman. Still, rumors also insinuated other (more popular) models.
With the Ghosn affair in Japan, and the Japanese Alliance members not in good shape either, one could have imagined that the Alliance ties would be strengthened immediately. But this seems more difficult than expected: Nissan is now aiming at its home turf, China and the US, Renault’s most important market is Europe, and it has practically gone from China. It’s good to have a precise distribution of territories, but a common strategy is lacking until now.
Important decisions had/have to be made very promptly. Still, until the first of July, the newly designed CEO, Luca de Meo, has his hands tied because of the non-concurrence clause enforced by his former employer (and big competitor) Volkswagen.
Now that Renault has been forced to turn to the French state for its savior, the latter sees a clear opportunity to impose certain things. For example, the relocation of production to France, so that employment in the French Renault factories can be guaranteed.
Unfortunately, this appears not to be that simple. The cars assembled in South-America are only sold there. It has no sense to produce them elsewhere. The Dacia models, produced in Romania and Marokko, would lose their competitiveness once returned to France.
Renault’s bestseller, the Clio, is now made in Turkey. The production cost is 10% inferior over there, bringing it back to France would mean that the model has to be sold without benefit, or that it would outprice itself against the competition.
Even the French state has not a lot of options. It will have to back painful (cost-cutting and reorganizing) decisions and foresee (a lot of) money to recapitalize the company. There’s a certain logic in it that it will want something in return. Owning a (more significant) part of Renault, or simply the whole company is clearly on the table again.