Renault takes the plunge

RENAULT's chances of returning to Formula 1 in the near future reduced dramatically over the weekend when the French car company announced that it is spending $5.1bn to buy a 36.8% shareholding in the Japanese car company Nissan. In addition Renault will spend $320m to buy Nissan's financial subsidiaries in Europe and will invest more to buy into Automakers, Nissan's South African operation.

The deal means that Renault becomes Nissan's largest shareholder and, in effect, controls the Japanese company. Nissan hasnt made a profit in six of the last seven years and, despite selling off considerable real estate, has still managed to create a debt burden of nearly $18bn. Renault's investment will reduce this to around $12bn and the French company hopes that a restructuring plan will return Nissan to profit by 2001. The two companies say that the merger will save them $3.3bn in costs in the course of the next two years.

As part of the deal Renault's Carlos Ghosn will become chief operations officer of Nissan and two other French executives will take key roles in Nissan's product planning and finance divisions.

Renault is using its cash reserves of around $2.1bn to pay for the deal but will have to borrow the rest of the money. The company's management admit that the move is risky but argue that the company is too small to survive as the car industry consolidates and would be swallowed up if it did nothing. If the alliance fails the outcome will be the same.

The deal means that Nissan-Renault joins General Motors, Ford, Toyota, Volkswagen and DaimlerChrysler as major global players, and leaves Fiat, Peugeot, Honda, BMW and Mitsubishi exposed to possible takeover.

It is interesting to note that four of the five exposed companies have F1 programs, but only two of the big six (Ford and DaimlerChrysler) are currently actively involved in Grand Prix racing, although Toyota has announced plans to enter the sport and there are hints that GM and Volkswagen may follow.

The Nissan-Renault alliance is unlikely to have any money to spare for F1 for at least the next five years.

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