Honda website
Honda website

MARCH 22, 1999

Renault falls into bed with Nissan

RENAULT is going to struggle to get back into Formula 1 if its plans to take a 35% shareholding in troubled Japanese carmaker Nissan go ahead. Renault is rumored to be investing around $5.5bn in the deal, which will include the purchase of a shareholding in Nissan Diesel Motor, the Japanese company's truck-making subsidiary.

The deal represents a huge risk for Renault. Nissan Motor has $17bn of debts and its affiliates have almost as much again. This was enough to scare DaimlerChrysler away from a deal. At the moment, however, Renault is largely dependent on the European car market. The merger would turn it into a global player in the automotive industry and open the way for expansion in both Asia and the United States of America. If agreed, the deal will create the world's fourth-largest automobile company behind General Motors, Ford and Toyota, but ahead of Volkswagen and DaimlerChrysler.

The fact that Renault has adopted such a risky strategy suggests that the management knows that if it runs into trouble Renault will be helped out by the French government - which owns 44% of its shares. In recent years French politicians, keen to retain some global influence, have been willing to spend vast amounts of public money to bail out struggling French companies, despite opposition to such activities from the European Commission.

Nissan President Yoshikazu Hanawa and Renault Chairman Louis Schweitzer say that they would like to finalize the deal by the end of the month. The French stock market has reacted warily, the company's share price dropping 11% over two days. The powerful Renault unions in France say that they have reservations about the deal because of Nissan's debt.

Whatever the case, Renault is going to need a lot of cash in the course of the next few years and that means that a high-level involvement in Grand Prix racing - which would cost at least $500m over a five-year period - is unlikely to be an option.