Renault Case Study Summary

Background:

During 1998 the auto industry was in a difficult situation where the demand for the past three years have been flat and the industry was consolidating in the developed market. Renault was the 2nd largest auto manufacturer in the France. Although a 100 year old company it ran into financial difficulties in early 1980’s where it has to take series of steps like closing of the plants and layoffs to cut down its cost and make profit. (Weiss, 2010)

Similarly, Nissan Motors a 90 year old 2nd largest Japanese auto maker was in the losses in the 5 consecutive years. With rising burden of debt (D/E ratio of 5, $33 Billion in current liabilities by 1999) and operations in 22 countries the situation was increasingly becoming difficult for

Hanawa) responded quickly.

Additional Preparation:

Initially the idea was to set up a manufacturing unit in Mexico but, it did not take long for them to realize the sea of opportunities that they had. They soon realized that they had many things in common and that they stand in apposition to gain from each other like they both were very small in the market amongst the big players with a long term business growth vision but at the moment both were trying to survive in the market. (Weiss, 2010)

As per the members of Renault they had so much in complimentary relationship both wanted to strengthen their position in each other’s stronghold, Nissan wanted to move away from dull cars and Renault focused on product innovation.

As for Nissan the options were limited as there were no foreign companies to look for and to raise the extra capital would have been costly. From the very beginning the idea of Renault was to look for an alliance as they thought that Japanese people as stakeholders will oppose the merger or acquisition.

Initially the negotiations started with 4 member team of Renault and 3 member team of Nissan which grew in number later after addition of investment bankers and joint study groups.

The negotiations went on for nine months in 5 phases (June 1998 to Mar 1999).

Phase I: Both the CEO’S met each other and started the talks. (Weiss, 2010)

Phase II: Between August and September a preliminary studies done by both companies indicated that there was a great potential for both of them. Renault suggested that both companies should hold each other’s share to which Nissan replied that they have no funds for this. This was left for the future negotiation and a MOU was signed in Paris for conducting an exhaustive study of the synergies between them for the next 3 1/2 month exclusively. (Weiss, 2010)

Phase III: During this time 21 specialist teams met each other and visited almost every facility of the other and exchanged thorough information regarding their cost structure and other information. The main issue at this stage was that of the development of business strategy as the top management was reviewing the progress monthly, the financial issues were left for the last rounds as the top team continued to meet at different locations. Companies also studied other alliances like Ford-Mazda. (Weiss,