It is harder to manage a merger than to create one.
When the editors of Automotive News International considered candidates for our Executive of the Year award, this maxim led us inevitably to Renault SA. Over the past year, Renault's executive team has made remarkable progress in its campaign to revive its troubled partner, Nissan Motor Co. Ltd.
One might plausibly honor the leader of that turnaround team, Carlos Ghosn. Renault's turnaround artist certainly deserves plaudits for guiding Nissan's recovery, but we are mindful of a second maxim: A great executive makes it possible for his subordinates to shine. On that basis, we are pleased to honor Ghosn's boss, Renault Chairman Louis Schweitzer.
It would be easy to crown Schweitzer purely on the basis of Nissan's revival. But he has done more than that. Over the past eight years, Renault's 58-year-old chairman shook up a company that had grown dependent on a protected home market. He formed a coherent plan to globalize Renault, then carried it out. And he nurtured the management team that carried out Renault's transformation. To understand that transformation, one must study Schweitzer's roots.
Louis Schweitzer is the epitome of the French haut fonctionnaire, or senior civil servant. As a grandnephew of Nobel Peace Prize winner Albert Schweitzer - and the son of a founder of the International Monetary Fund - Louis Schweitzer had an impeccable pedigree.
After he graduated from the prestigious Ecole Nationale d'Administration, Schweitzer joined the French budget office in 1970. After a distinguished career in government, Schweitzer joined Renault in 1986. At the time, Renault was in crisis. Cursed with a stodgy product lineup and a combative union, the state-owned automaker had lost 6 billion francs, or $785 million, that year. After he was named CFO in 1988, Schweitzer directed Renault's financial recovery. In 1989, the company earned nearly $1.2 billion.
Renault's transformation had only begun. Company Chairman Raymond Levy was determined to make Renault a more global, profit-oriented company. First, he decided to pursue a merger with Volvo. Next, Renault issued stock for sale to the public. And finally, he shut down Renault's historical assembly plant in Boulogne-Billancourt, called the 'workers fortress.'
Levy's message was clear: Renault no longer could take shelter in a protected French market. The company would have to compete with its international rivals. By 1990, Levy also had positioned Schweitzer as his successor. 'He was the best,' said Levy, who did not offer compliments easily.
A year after Schweitzer was named chairman in 1992, the proposed merger with Volvo collapsed. The alliance fell victim to political interference, and it prodded Schweitzer into action. Renault's privatization became his top priority. Schweitzer did it in two stages. In 1994, the company was listed on the Paris stock exchange, and the French state reduced its equity to 53 percent. The government later reduced its share to 44 percent; Renault no longer was state-owned.
Renault's transformation was tested in 1997, when the company announced plans to shut down its Vilvorde assembly plant in Belgium. The company had lost $680 million the previous year, and Europe's auto industry was burdened with overcapacity of 20 percent or more.
But Renault's decision to eliminate 3,500 jobs was controversial. For three months, Schweitzer resisted heavy pressure from politicians and union officials to reverse the decision. Instead, he instructed Carlos Ghosn, the newly hired Brazilian executive, to cut costs by $2.6 billion. Company insiders view Vilvorde as a watershed event. It demonstrated Renault's independence from the French government. And it was proof that Schweitzer, known as a gentleman, could make tough, unpleasant decisions.
The cost-cutting campaign positioned Renault to exploit a remarkably versatile new vehicle: a compact minivan called the Megane Scenic. The Scenic quickly became a top seller. Rival automakers rushed to copy it, and a new product segment was born. The Scenic's success stimulated the company. 'We became confident again,' said Georges Douin, Renault's executive vice president of product, strategic planning and international operations. 'But Renault still had a problem: Only 15 percent of our sales were outside western Europe.'
The company already had established a presence in Brazil, where it was building a $1 billion assembly plant. But Renault still was heavily dependent on its home market. In a downturn, that could prove fatal. So Schweitzer formulated a plan to boost annual sales to 4 million units by 2010. At the time, Renault's annual sales totaled 1,830,000. Schweitzer knew that only a major acquisition would allow the company to grow that large.
'Schweitzer's ideas matured during the first quarter of 1998,' said Douin, who played a key part in the negotiations with Nissan. Schweitzer realized that the sharp decline of markets in Southeast Asia and Korea - along with Japan's stagnant economy - had crippled Asian automakers. This created a buying opportunity for Western automakers.
Renault's ambitious sales target forced the company to consider Asia, Douin said. 'Asia was the most difficult (market) for Renault to go in alone,' Douin argued. 'If we could make an alliance or take over another carmaker, it would speed up the whole process.'
Following the deal with Nissan in 1999, Renault continued to expand. The company bought the Romanian automaker Dacia in 1999, and South Korea's Samsung Motors in 2000. To handle Renault's expansion, Schweitzer put three senior staffers in charge of foreign operations. Francois Hinfray, Renault's chief of worldwide sales, handles Eastern Europe. Pierre-Alain de Smedt, who replaced Carlos Ghosn as Renault's chief of manufacturing and purchasing, oversees operations in South America. Douin is responsible for Asia.
Schweitzer's choice of top executives alsdemonstrates his ability to seek the best available executive talent - even if those executives are outsiders. Before joining Renault, Ghosn ran Michelin's North American operation. Previously, de Smedt had run Volkswagen's South American operations. 'We must avoid inbreeding,' Schweitzer said. 'Renault's change demands people who can speed up the process; therefore, we need outsiders.'
Renault's pool of executive talent enabled Schweitzer to dispatch 20 top managers - including Ghosn, chief engineer Patrick Pelata and financial expert Thierry Moulonguet - to Tokyo to direct Nissan's turnaround. Rival automakers admired Renault's depth of executive talent. 'We would not have been able to send 20 top managers to Japan,' confessed a PSA/Peugeot-Citroen SA senior executive at that time.
Although Nissan has returned to profitability, several big challenges remain. Sales still are declining in Japan, and the automaker must successfully launch a fleet of new models. Although Nissan's debt has shrunk, it remains substantial. And while the company is benefiting from North America's economic boom, a downturn would hurt Nissan's strongest foreign market.
Still, Nissan and Renault continue to make progress. The companies already have begun consolidating their parts purchasing operations. And they have announced plans to share manufacturing operations in Mexico and Brazil. Likewise, Renault will consolidate Nissan's European dealer network with its own. But the two companies still must decide which platforms and powertrains they will share.
That task may be complicated by Schweitzer's determination to maintain separate corporate cultures for Renault and Nissan. 'If you have a common culture, you get the same cars,' he says.
So far, Schweitzer has been able to preserve Nissan's corporate culture, in part because its senior managers remained loyal after the merger. Those executives helped Ghosn shut assembly plants and lay off workers - difficult measures they could not achieve on their own. The reward? A stock price that has nearly doubled. Renault spent $5 billion to purchase a 37 percent stake in Nissan. Now that stake is worth $9.8 billion.
While Nissan's financial recovery already is under way, the biggest benefits of its alliance with Renault are yet to come.
The two companies are planning a generation of vehicles that will share the same platforms. The next-generation Renault Clio will share platforms with the Nissan Micra. And the new Nissan Almera will use mechanicals from the Renault Megane. Over the next decade, the two companies plan to trim their lineup to 10 vehicle platforms and eight powertrains. But Nissan and Renault will not share identical models. The partners initially considered rebadging the same models but rejected the idea because it would have blurred their brand identities.
Renault wants to find new uses for Nissan technology. One beneficiary would be the Renault Koleos, a concept sport-utility that debuted this year at the Geneva auto show. A Koleos equipped with Nissan's four-wheel-drive might be feasible. 'I would like to see that vehicle in the Renault lineup,' sa said Renault's de Smedt. Nissan's continuously variable transmission also might find a place in future Renaults.
The two companies are sharing fuel cell research, too. Renault and Nissan have invested $848 million into fuel cell vehicles, which could be available by 2005. De Smedt does not expect substantial sales of such cars until 2010.
While Renault's alliance with Nissan is getting results, Renault had a minor slump in Western Europe this year. Through the end of October, car sales declined 4 percent. Renault now holds a 10.6 percent market share, down slightly from 10.8 percent over the same period last year.
One reason for Renault's sales decline was the lack of new products. Starting in 2001, the automaker will introduce a stream of new models. Renault will unveil the Laguna II sedan, a rival to the Ford Mondeo and Volkswagen Passat. Laguna also will provide the platform for the new Vel Satis and Espace. Renault invested $1.3 billion to design Laguna II and retool its Sandouville assembly plant.
While Nissan has monopolized much of Renault's attention, the French automaker will have to nurture the other pieces of its empire. In South Korea, Renault must take strong steps to save its Samsung subsidiary. First, the company must prop up Samsung's shaky dealer network. Next, it must expand Samsung's product lineup, which consists of one model. And it must do all this in a market that remains burdened with chronic excess production capacity.
Meanwhile, Renault's Dacia subsidiary awaits a complete makeover. Last year, Schweitzer purchased the decrepit Romanian automaker for a pittance. His plan: to convert Dacia into a producer of well-built, low-priced cars for the east European market. Volkswagen already has demonstrated the possibilities of this strategy with its Skoda and Seat subsidiaries.
With all of these projects demanding attention, Schweitzer will have little time to sit back and enjoy his rewards. But it's safe to say rival executives will be watching him closely. As DaimlerChrysler Chairman Juergen Schrempp sorts out a new management team for Chrysler, perhaps he might learn from Schweitzer's example.
You can e-mail writer Stephane Farhi at [email protected]