Ghosn scandal could trigger a series of crises for Nissan, Renault, Mitsubishi

Carlos Ghosn, chairman of the alliance between Renault SA, Nissan Motor Co. and Mitsubishi Motors Corp., pauses during a Bloomberg Television interview at the Paris Motor Show in Paris, France, on Tuesday, Oct. 2, 2018. 

Marlene Awaad | Bloomberg | Getty Images
Carlos Ghosn, chairman of the alliance between Renault SA, Nissan Motor Co. and Mitsubishi Motors Corp., pauses during a Bloomberg Television interview at the Paris Motor Show in Paris, France, on Tuesday, Oct. 2, 2018.

There aren’t many automotive executives who can claim to have saved a company, let alone three. But now, Carlos Ghosn might also prove to be the man responsible for shattering the global alliance that transformed Renault, Nissan and Mitsubishi into an industry powerhouse.

A day after prosecutors arrested Ghosn and another senior Nissan executive, accusing them of serious financial irregularities, the fallout was escalating. Some auto analysts questioned whether the alliance between the three carmakers could survive the affair, leading nervous investors to pare back their holdings. U.S. traded shares of Renault have slid by about 11 percent since news of Ghosn’s arrest in Tokyo broke Monday while Nissan’s shares in the U.S. fell by about 6 percent.

Self-destruction

“You’re witnessing the single greatest act of self-destruction in modern automotive history,” said Eric Schiffer, chairman of Los Angeles-based Reputation Management Consultants. “Not only has [Ghosn] destroyed his life, but he puts those companies in uncharted and dangerous waters.”

His swift fall from grace places the carefully constructed alliance he built between the three automakers at risk and will have far-reaching repercussions across the industry, auto executives and analysts say.

Perhaps only Tesla CEO Elon Musk and former Fiat Chrysler CEO Sergio Marchionne, who died last July, came close to matching the high-profile persona of the 64-year-old Ghosn. Born in Brazil of Lebanese parents, he began his career in France with the tire-making giant Michelin.

In 1996, Ghosn was recruited by Paris-based Renault and tasked with pulling together a turnaround plan for the struggling automaker. His strategy worked so well that Renault was back in the black in barely a year.

Ghosn got the chance to prove he wasn’t a one-shot wonder when Renault assigned him to lead its efforts to revive debt-laden Japanese automaker Nissan in 1996. With only three of its product lines making money, many observers expected that country’s second-largest manufacturer to go broke. There was widespread skepticism when Renault announced plans to purchase a 38.6 percent stake – which has since grown to 43.4 percent.

Skeptics

At the time, former General Motors Vice Chairman Bob Lutz said Renault would be better off “taking $5 billion, putting it on a barge and sinking it in the middle of the ocean.” But within three years, Ghosn’s Nissan Revival Plan had taken hold. The automaker halved its debt and was delivering profit margins of around 4.5 percent.

“I said it would never work” Lutz said on CNBC’s “Squawk on the Street” on Monday “and to my amazement it has worked fabulously well for both companies.”

Originally working as Nissan’s chief operating officer, Ghosn was soon its CEO and, a few years later, added the title of chief executive of Renault, as well as head of their Renault-Nissan Alliance.

Ghosn had long left open the possibility of adding a third leg to the stool and, in 2016, he made his move, directing Nissan to purchase a controlling stake in Mitsubishi, the small Japanese automaker teetering on the brink of bankruptcy after a series of financial and regulatory scandals.

While still too soon to tell whether Mitsubishi is completely out of the woods, it added enough volume to the alliance total that, in 2017, it nudged past both Volkswagen and Toyota to claim the crown as largest automotive group in the world by unit sales.

Forcibly removed

But that celebration could be short-lived. Ghosn, who has repeatedly sidestepped questions about his potential retirement, is now being forcibly removed from all his posts in the wake of this week’s breaking scandal.

On Monday, Yokohama-based Nissan issued an initially terse release stating that, “Based on a whistleblower report, Nissan Motor Co., Ltd. (Nissan) has been conducting an internal investigation over the past several months regarding misconduct involving the company’s Representative Director and Chairman Carlos Ghosn and Representative Director Greg Kelly.”

[“source=cnbc”]