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MEMO

To: Carlos Ghosn, Chief Operating Officer, Renault-NissanFrom: Joseph Klein, Senior Consultant, Klein Consulting

Re: Bolstering Renault-NissanDate: April 30, 2012

Executive Summary:

Renault-Nissan is no longer able to rely on their previous strengths. Nine years

after the 1999 alliance we are once again being met with a transforming automotive

industry. In order to ensure our place as a future industry leader we must take immediate

action. Major trends seem to be concentrating on safety, environmental impact and

technological integrations. Renault-Nissan must incorporate another company in order to

be successful. But instead of seeking resources within our industry we must search for

another channel. As technology, safety, and environmental concerns become major

influences in the automotive industry it is essential that Renault-Nissan look for a partner

that will allow efficiencies to be achieved in this changing industry.

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Competitive Landscape:

Renault-Nissan is in the midst of a globalized transformation of the automotive

industry. As consumer preferences change and strategic synergies between companies

become more common it is becoming increasingly difficult to forecast major trends.

Renault has lost its former profitability. They are struggling to stop their decline while

Nissan is searching for an avenue for continued sustainable growth. These companies

have formed an alliance that allows them to function independently while leveraging

common synergies. This alliance has provided a much-needed opportunity for these

companies to become major competitors in the global automotive industry. As the

industry is transforming, Renault-Nissan must be careful to alter their strategy so it

focuses on innovation and advancement.

Renault-Nissan is not the only company seeking to leverage synergies. Largely,

Toyotas recent merger with Citron should be a main focus, especially for Renault as

they rely on the European segment for 72% of their revenues. As seen in Exhibit 1,

Toyota has been increasing their R&D significantly and has reached nearly $12 billion

this year up 7.6% from 2007 (TMC Annual Report 2008). Toyotas history has given

them a reputation of being a technological leader. Their partnership with Citron will

align them as a major competitor in Europe as they already have a strong foothold in

France. Citrons French manufacturing and distribution facilities along with Toyotas

technological competencies will make them a powerful force in Renaults core market.

Conversely, Nissan has been doing increasingly well. However, this growth is

projected to stall in the near future. The competition in their industry is shifting their

strategies. Governments and consumers are driving manufacturers to design and build

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safer more efficient vehicles. Safety and environmental benefits are major selling points

in which Nissan-Renault should definitely invest. In the United States and many other

countries, subsidies have been created which allow consumers to receive significant

discounts on electric/hybrid vehicles. It seems to be clear that the automotive industry is

being forced to find alternative means to fossil fuels and governments are easing this

transition (Hanley).

Technological partnerships among automobile manufacturers are becoming more

prevalent. Major car manufacturers are finding that innovative technological integrations

are becoming key drivers in their value chain. Namely, Ford and Microsofts 2007

partnership has revolutionized the relationship between automobile manufacturers and

their consumers. Their development of the Ford Sync system has undoubtedly redefined

their position in the industry. Now consumers are interested in peripheral integration and

hands free communication. This trend will continue to increase, pushing users to put

further consideration into a manufacturers technological signature (SYNC). Technology

integration is crossing many borders; no longer are car owners merely focusing on

performance but they instead desire a user-friendly digital environment that encompasses

their entire vehicle.

The Internet has made consumers more informed about their spending habits.

Now that consumers have the ability to effortlessly compare prices online it has become

difficult for dealers to achieve larger margins on sales. The availability of this

information may be part of the reason for the recent decline in Nissans Operating margin

(Exhibit 2). The salespersons ability to oversell their vehicles previously compromised a

great part of their income. Information has become so easily available that it is changing

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the basic avenue revenues of the automotive industry. New means of differentiation must

be enforced in order to remain competitive.

The automotive industry is in the midst of a globalized transformation. The

standard strategies and design features that previously characterized the success of these

companies are being challenged. Global shifts are creating opportunities for major

leadership changes amongst previously untouchable giants. Cross-national alliances

much like Nissan-Renaults are becoming more commonplace. The way in which these

alliances are leveraged will determine their success. Large segments are pushing demand

for alternative fuels and hybrid technologies as well as other technological integrations.

Previous value chains will be tested as this competitive environment evolves (Exhibit 3).

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Nissans Performance:

Nissan has been showing signs of recovery. Between 2006 and 2007 sales

increased 22.5%,coupled with a long-term SG&A CAGR of -4.87%, Nissan has begun

to feel assured that they are in the position to make another move to ensure their

competitiveness (Ramaswamy). After a long struggle with profitability they finally found

themselves in a promising position at least in comparison to previous periods. Their

diverse portfolio consisted of many cars that were showing considerable profits. Nissans

growth is keeping the Renault-Nissan alliance alive, but it is built on a weak foundation.

In order to maintain this growth Nissan must find a new way to differentiate their

vehicles.

A key driver in Nissans recent success is their ability to focus their product

offering. By slightly narrowing the amount of vehicles offered and by focusing the

resources on the promising models, 47.4% of Nissans vehicles were profitable in 2001.

This is up a considerable amount from 9.3% in the mid 1990s (Ramaswamy). They

have the resources to produce a wide range of vehicles and the means to do so efficiently.

Nissan must leverage their manufacturing capabilities in order to be successful.

Nissan has been showing promising signs of growth but they must differentiate

their strategy in order to ensure their longevity. Short-term gains have shown the

instability of the market. In order to maintain this promising outlook they must realize

their strengths and focus their resources accordingly. This implies that they must focus

on their product offering and their manufacturing capabilities.

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Renaults Performance:

In 2004 Renaults 44.4% stake in Nissan resulted in 50% of their profits. It

seemed as if Renault had helped Nissan but the influence was not reciprocated. Before

the alliance Renault had shown great promise in the European marketplace. But, the

changing global atmosphere prompted Renault to seek a means to spread their

international reach. They chose Nissan to fulfill this need. Renaults recent instability is

the result of the misallocation of resources within the alliance.

Unlike Nissan, Renaults current strength is derived from their small vehicles,

design prowess, and their European stronghold. These strengths aligned them to be

successful in their home market. But as competition in Europe increases it is becoming

increasingly difficult to maintain their market share. No longer will their previously

powerful strengths hold their weight in this transforming industry. Renault must improve

upon its ability to leverage new synergies with Nissan in order to, at very least, maintain

their market share.

Renault has lost sight of their original goal to expand internationally. They were

too focused upon Nissans resilience that they failed to advance at all themselves. This

eventually slowed and began to reverse their growth. Renaults future performance is

dependent on their ability to leverage new synergies with Nissan as well as continuing to

promote and further develop their elite design prowess. Their reliance upon Nissan will

cause them to lose sight of their immediate personal goals. Growing into a successful

international automotive manufacturer will require an alternative strategy with a focus

upon unique innovative design.

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Recommendation:

Option 1 is not recommended because there is too much risk involved in the

merger. Renault-Nissan currently functions as two separate entities with their own

management and direction. Combining the two companies and focusing their efforts will

allow for the further consolidation of resources, create a diversified workforce, and lower

the transportation/distribution costs. Although these synergies may lower the companys

SG&A costs and allow for seemingly necessary downsizing, the negatives outweigh the

benefits. Option 1 will require significant restructuring of the corporate structure and will

likely lead to the Japanese-French culture clash that they had feared. Although a

diversified workforce will make them competitive globally, their current means of

management within the alliance are much less risky.

Foremost, Renault-Nissan must seek a strategic partnership with a technological

innovator (Option 2). This will require them to reconsider their future strengths. Instead

of failing to support R&D as they have in the past, Renault-Nissan will be able to allocate

their partners resources. Technological integrations in vehicles are incredibly difficult to

predict. The speed at which technologies are being introduced is being shortened.

Without a technology leader as a partner we will face falling behind the curve. Without

this partnership we will risk spending increasing amounts on R&D with little yield in

return. Likely Renault-Nissan will become dependent upon their competitors

technological advancements without a partnership. In order to differentiate our brand in

the upcoming years we must introduce cutting-edge technologies into our vehicles. A

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partnership with a technology company will ensure that we retain a distinct advantage in

this increasingly influential field.

Option 3 should be sought shortly after technological distinctions are made.

Option 2 will boost Nissans resilience by leveraging synergies that will align them as an

increasingly high-tech option. The resources provided through Option 2 will align

Renault perfectly for their entry into the North American automotive market. In this

instance, Renaults weak brand in this market will be an advantage. Their perception as

an exotic car company along with their recent technological advancements will allow

Renault to reboot their brand in this market. Leveraging many manufacturing assets of

Nissan, the synergies developed in Option 2, will allow Renaults emergence to be

successful.

Renault-Nissan must refocus their strategies. Nissans greatest hope will be in

bolstering North American presence of Renault. Via technological advancements

through a strategic partnership, this transition will be eased. Nissan may be forced to

decrease their global presence but this will be supplemented by Renaults international

expansion. Nissans slight global decrease will also be supplemented by their ability to

charge higher premiums for their innovative add-ons. As Renault-Nissan seeks a means

to ensure their spot in the future automotive industry, it is essential that they more

effectively leverage synergies between themselves as well as find a new partner to ensure

their spot as a leading innovator in the technological integration of new automobiles.

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References:

1. "Ford SYNC." FORD.com. Ford Motor Company. Web. 21 Apr. 2012.

.

2. Hanley, Michael, and Jeff Henning. "Mega Trends in the Light Vehicle Industry."

Global Automotive Industry. Ernst and Young. Web. 25 Apr. 2012.

.

3. Mergent Online Database.

4. "OICA 2008 Statistics." OICA.com. The International Organization of Motor Vehicle

Manufacturers. Web. 28 Apr. 2012. .

5. Ramaswamy, Kannan. "Renault-Nissan: The Challenge of Sustaining Strategic

Change." Thunberbird - School of Global Management. Web.

6. TMC Annual Report 2008. Toyota Motor Company, 2008. PDF.

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Exhibit 1:

`

TMC Annual Report 2008

Exhibit 2:

Data from Mergent Online/Graphed by Thomas Craig

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Exhibit 3:

PEST Analysis