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Last Updated : Nov 21, 2018 03:53 PM IST | Source: Moneycontrol.com

Podcast | Editor's Pick of the Day- Carlos Ghosn: The rise and fall of auto industry's leading figure

Ghosn, a veteran of more than three decades, has scripted the revival of the three dangerously placed companies that now form the Alliance.

Moneycontrol Contributor @moneycontrolcom

Moneycontrol Contributor

R Mahadevan

The shares of carmakers Renault, Nissan and Mitsubishi are down up to more than 10 percent over the last two days – the consequence of the arrest of the chairman, Carlos Ghosn, in Japan on Monday, November 19. This has been a huge setback for the three companies which are part of the Renault-Nissan-Mitsubishi alliance, which earlier this year became the largest light vehicle manufacturer in the world.

Carlos Ghosn was arrested after allegations of accounting irregularities and financial misconduct. On the basis of a whistle-blower’s testimony, Ghosn was charged with understating his compensation, including fake statements in his annual filings, and using company resources for personal enrichment, including doing up his three homes in Rio de Janeiro, Paris, Beirut and Amsterdam. This is a charge that, if proven, could see not just a heavy fine but also up to 10 years’ imprisonment.

As an immediate result, he was removed as chairman of Nissan. In France, where the government has a 15 percent stake in Renault, a slightly ambiguous decision has been taken – that its chief operating officer, Thierry Bollore, would act as interim deputy chief executive; Ghosn will for now remain chairman and chief executive, but not active as he is “temporarily incapacitated”, according to a BBC report.

The share markets on November 19 responded immediately by pulling down the stocks of the companies. Renault plunged more than 8 euros from 64.63 euros in the three hours after the exchanges opened, before ending over 59 euros at close on November 20. Nissan meanwhile dropped more than 60 yen from 1006 to 941, and has climbed back up to 958.

This is a big blow for the Alliance, which has depended heavily on Ghosn’s management style and practices to turn around their loss-making entities back into the pink of health. Osamu Masuko, the chief executive of Mitsubishi Motors, has already indicated that the alliance may not survive the loss of Ghosn.

Ghosn, a veteran of more than three decades, has scripted the revival of the three dangerously placed companies that now form the Alliance. He was a self-made man who started life in the remote areas of Brazil. When he was a boy of six, his mother took him back to Beirut, from where his grandfather had migrated when he himself was a boy. After doing his engineering, Ghosn joined tyre major, Michelin.

It was a long 18-year-old association with Michelin, and he rose quickly through the ranks with his hard work and problem-solving ability. He was just 30 years old and seven years into his career, when he was made chief operating officer of Michelin’s struggling South American business. This homecoming was under the direct supervision of company boss, Francois Michelin. In a matter of two years, Ghosn had turned the division around in the face of Brazil’s hyperinflation, integrating diverse cultures towards a common goal, something he would continue to do in his later monumental exercise with Nissan.

Post his South American success, his growth in Michelin continued, as he was promoted to president and COO, and later to CEO of Michelin North America.

Having perhaps reached where he wanted to and done what he could at Michelin, he moved to Renault in 1996, at a time when the car manufacturer was in dire straits. In his role as executive vice president overseeing a wide range of activities from purchase to R&D and manufacture, he set about completely revamping operations. As a result, the company became profitable again in the matter of a little over a year, establishing his reputation in the automotive industry. This was the beginning of his fairytale journey.

1998-99 was a period of active consolidation in the auto industry, with mergers and acquisitions happening all over. It was at this time that the Renault-Nissan alliance was formed, on 27 March 1999. The plan was one of cross-holding by the two companies, which would create a mutual interest and commitment in the companies. At that time, though, Nissan was in trouble, with massive debts and running losses.

Ghosn was appointed COO of Nissan later in the year, when the company was on the verge of bankruptcy, with debts of more than $20 billion. Ghosn started with his “Nissan Revival Plan”, with aggressive targets of profitability in 2000, and halving of the debt in three years. Ghosn proceeded with his usual gusto to cut thousands of jobs, shut down plants, auctioning assets, and rationalizing supplies. He also brought in massive changes in the cultural ethos of the company, changing HR, improving efficiency, and bringing in a global culture.

It worked, and Ghosn, who had promised to resign if he did not meet his timelines, met and even exceeded his targets. Nissan bloomed. Ghosn proceeded to set further targets in sales and profits, and aimed to wipe out Nissan’s debt, and again met them with ease. Soon, the French hero was also a cult figure in Japan, featuring in comic books and menu items.

In 2005, Ghosn became CEO of both Renault and Nissan. By 2009, he was Chairman and CEO of both companies. After Mitsubishi joined the alliance, he was also made chairman of the company in 2016.

In 2007, Ghosn ventured aggressively into the electric car market, committing 4 billion euros to the project. A decade later, in 2017, the affordable Nissan Leaf was by far the best-selling electric car in the world. He has also moved confidently in the direction of self-driving cars.

It is in this scenario, when Ghosn had already made the Alliance the leading car manufacturing entity in the world and was shepherding it from strength to strength, that the charges of financial irregularity and underreporting his income, followed by his arrest have shaken things up like never before.

The obvious question would be, now what? The stock market, after the initial jitters, seem to have stabilized for now. But the future of the alliance, and indeed, that of the individual companies, seems to have entered a phase of uncertainty. For, even though others may step successfully into his shoes, his vision, as WSJ reporter William Boston, said, could very well be replaced by industrial logic, and would that change in approach deliver the results in an automotive industry that has changed so dramatically in the two decades under Ghosn.
First Published on Nov 21, 2018 03:53 pm
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