October 15, 2012 / 7:09 PM / in 8 years

Exclusive: Renault-Nissan to lift savings, revamp alliance

PARIS (Reuters) - Renault (RENA.PA) and Nissan (7201.T) will pool more operations and seek a more stable structure for their carmaking alliance, sources said, to compete with Volkswagen on scale and prepare for Chief Executive Carlos Ghosn’s eventual succession.

A man takes pictures as he visits the Renault showcase where new Clio cars are displayed on media day at the Paris Mondial de l'Automobile, September 28, 2012. REUTERS/Christian Hartmann

The French and Japanese automakers have doubled their joint savings goal to 4 billion euros ($5.2 billion) in 2016 and plan to review the cross shareholdings underpinning their 13-year-old alliance, company sources said.

Renault shares rose as much as 9.8 percent on the news.

“Ghosn said we need to seek further synergies to get to double where we are today,” said an executive who attended internal presentations to alliance managers on September 25-26.

Carmakers across the globe are racing to slash costs and build economies of scale by pooling everything from technology investments to purchasing and logistics with their own brands, alliance partners and even rivals.

Renault took a stake in Nissan in 1999, dispatched Ghosn to rescue the Japanese automaker from near-bankruptcy and raised the holding three years later - but stopped short of a full merger.

Where DaimlerChrysler and other rival pairings have failed, Renault-Nissan survived by preserving both companies’ autonomy - but at the price of missed opportunities to slash costs.

Ghosn’s softly-softly approach has allowed others such as Hyundai (005380.KS) and Volkswagen (VOWG_p.DE) to step into the breach and seize more impressive economies of scale.

According to PwC data, VW last year built 3.8 million cars of 27 different models including the Golf from a single underlying vehicle architecture, or platform.

That dwarfs the alliance’s 2.6 million vehicles - Renault Clio subcompacts, Nissan Juke crossovers and 14 other models - built on its biggest-selling B-platform.

In response to tougher global competition, Ghosn has raised pressure for closer Renault-Nissan integration by naming executives to oversee joint vehicle programs and production.

The savings push will see more activities transferred to an existing joint venture, Renault-Nissan BV, which already centralizes purchasing, logistics and IT services for much of the alliance.

In preliminary discussions that were not disclosed at the September meeting, senior executives are also weighing changes to Renault and Nissan’s reciprocal holdings, according to people with knowledge of the matter.

Renault currently holds a 43.4 percent stake in its larger Japanese affiliate, which in turn owns 15 percent of Renault.

Neither carmaker would comment on savings goals or the “shifting pendulum of speculation about the alliance’s corporate structure”, a Renault-Nissan spokeswoman said.

“We seek more and more synergies every year,” she added.

While the structural review is at a preliminary stage, it is likely to propose that the two automakers be controlled through a common holding, rather than an outright merger, sources said.

Renault’s board met for the first time this month at the Amsterdam headquarters of the Renault-Nissan BV holding, currently under the two automakers’ 50-50 ownership.

Changes are also expected to address Renault shareholders concerns that the current situation undervalues their investment, the sources said.

Renault’s 10.14 billion-euro market capitalization is more than 30 percent lower than the combined worth of its own holdings in Nissan and Volvo AB (VOLVb.ST).

Executives at both automakers acknowledged privately that revamping the alliance is becoming more urgent as Ghosn’s retirement draws closer. Few if any potential successors are considered capable of holding the partnership together under its current loose structure.

Backing from the French government, which owns 15 percent of Renault, would be critical to any attempt to modify the shareholdings, they said.

“Renault knows that if they want the alliance to stay stuck together post-Ghosn, they need to do more than hire a new CEO,” said a European fund manager overseeing several billion euros in assets including a small Renault stake.

Ghosn turns 62 in 2016, the end of Renault’s current medium-term plan, while Nissan’s current plan concludes the following year. His current contracts are up for renewal at Nissan next year and Renault in 2014.

Renault shares closed 4.3 percent higher in Paris after giving up some of their earlier gains. Nissan stock closed 1.4 percent higher in Tokyo earlier in the day.

($1 = 0.7712 euros)

Additional reporting by Blaise Robinson; Editing by James Regan and Hans-Juergen Peters

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