Global Economics

Renault's Ghosn Hands Over Operations


The chief of Renault and Nissan is stepping aside in favor of veteran deputy Patrick P?lata as the company faces challenging times

Even Carlos Ghosn can't do it all. On Oct. 10, Renault (RENA.PA) announced that Ghosn, who since 2005 has been chief executive of both Renault and Japan's Nissan Motor (NSANY), will hand off operational responsibility at the French automaker to a veteran deputy, Patrick P?lata.

The move parallels an existing arrangement at Nissan, where a chief operating officer handles day-to-day business while Ghosn concentrates on strategy. "This doesn't mean he will disengage from Renault," a company spokeswoman says.

Analysts who follow the company say the move should not be interpreted as a rebuke of Ghosn's management, despite Renault's abysmal stock-market performance this year. Its shares have plummeted more than 70% since January, far worse than the 47% decline in European auto stocks overall. "This change has no relation at all to what is going on in the markets," says Ga?tan Toulemonde, a Paris-based analyst with Deutsche Bank (DB).

Yet the timing of the announcement??n a day when the company's shares skidded more than 12%??nderscored the grim situation facing Renault. Sure, it's been an awful year for the auto industry as a whole. Sales have been hit by the double whammy of high fuel prices and a global credit crunch, and the numbers are likely to get even worse next year. Just this week, General Motors (GM) has been trying to quell marketplace rumors that it is near bankruptcy (BusinessWeek, 10/09/08).

Renault's problems aren't as bad as GM's. But they're plenty worrisome. The company has been losing ground to rivals such as Volkswagen (VOWG.DE), Peugeot-Citro??n (PEUP.PA), and Fiat (FIA.MI) in Western Europe, its traditional core market. At the end of August its market share in the region stood at 7.7%, a full 2% lower than when Ghosn became CEO.

While the popularity of Renault's low-cost Logan has helped offset the decline, auto sales in Eastern Europe, a key Logan market, are starting to slow as well. At the opening of the Paris Motor Show last week, Ghosn and other execs declined to reiterate an earlier target of a 4.5% operating margin this year.

The news from Nissan has been gloomy, too (BusinessWeek, 05/14/08). The Japanese automaker's American Depository Receipts were trading at $8.52 on Oct. 10, 64% off their 52-week high. That compares with Toyota (TM), which is about 49% off its high. Nissan sales in the U.S. also are off this year, but only by 3.4%?? better performance than Toyota or Hyundai, though not as good as Honda (HMC). Extremely aggressive discounting by Nissan, including $10,000 incentives on its trucks and SUVs in July and August, mask what would otherwise have been a more negative performance.

Despite the growing pressure on automakers worldwide from the credit market and Wall Street meltdowns, Ghosn is still on the prowl to secure a North American alliance partner for Nissan and Renault. And the decimated stock prices and financials of GM, Ford (F), and Chrysler may well present a buying opportunity at very cheap prices for Ghosn in the coming months. Such moves could include acquiring equity in one of the U.S. automakers.

With so many urgent problems confronting Renault, it makes sense for Ghosn to focus on the big picture and let others run things day-to-day, analysts say. Besides keeping an eye on Renault and Nissan's core businesses, the hyperkinetic Ghosn has taken on a bevy of projects over the past year, including plans for new electric cars and a $3,000 car for the Indian market (BusinessWeek, 05/01/08).

P??lata was an obvious candidate for the COO's slot. He knows both Renault and Nissan inside out, having joined the French automaker in 1984, later moving to Nissan to work with Ghosn in 1999. Earlier this year, P??lata was a key player in negotiating a deal with Russian carmaker Avtovaz to build a car for the Russian market (BusinessWeek, 02/29/08) based on the Logan platform.

P??lata was named head of Renault's European management committee only last month and had begun taking a more visible role in briefing investors, leading some analysts to speculate that he could be in line for a promotion. "He's a good choice," says Deutsche Bank's Toulemonde.

Matlack is BusinessWeek's Paris bureau chief. With reporting by David Kiley in Detroit

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