Just about everyone IN the auto industry knows that Toyota Motor Corp. (TM ) is on pace to pull ahead of General Motors Corp. (GM ) as the world's largest carmaker this year or next. But less noticed has been a race just down the ranking tables, where another storied U.S. giant is facing similar pressure: Ford Motor Co. (F ) is on the verge of being edged out by Renault (RNSDY )-Nissan (NSANY ) for the No. 3 spot globally. As Ford shrinks to projected sales of 6.3 million vehicles for 2007, the French-Japanese alliance is likely to grow to 6.4 million, according to data from Morgan Stanley (MS ) and UBS (UBS ).
Ford's catastrophic $12.7 billion loss in 2006, and impending production cuts this year, have shifted it into reverse, letting Renault-Nissan catch up fast. (Ford owns 33% of Mazda, which sold 1.3 million cars last year, but doesn't include those sales in its total.) Carlos Ghosn, chief executive at both Renault and Nissan, has pushed the two companies to collaborate on engineering and research and development. It's a formula that seems to be working. As Detroit has struggled, Ghosn has quietly boosted design and quality, cut costs, and attacked high-growth Asian markets.
It hasn't always been easy for Ghosn, who saved Nissan from near-bankruptcy in 1999. Last year was filled with setbacks and troublesome distractions, such as failed talks on expanding the Renault-Nissan alliance to include GM. Ghosn ordered improvements in new models, causing costly delays. But getting it right was essential, especially in the wake of earlier quality problems. All told, 2006 sales for the Renault-Nissan alliance fell 3.6% worldwide.
Now the repair work seems largely done, and both companies are poised to rebound. Nissan's U.S. third-quarter sales rose 1%, reversing a first-half slide. For the next fiscal year, Nissan's global sales will rise 7%, Standard & Poor's forecasts. That's largely thanks to the launch of nine new models, including revamped versions of high-volume cars such as the Altima, Sentra, and Infiniti G35 sedan. Renault's global sales are also expected to jump 7% this year, Morgan Stanley estimates, as the Twingo subcompact, a revamped Laguna sedan, and a minivan version of the low-cost Logan all hit the market. That should help Ghosn start delivering on his promise of 6% margins at Renault in 2009.
ONE PLATFORM, MANY MODELS
The Logan is key to Ghosn's push in emerging markets. Competitors had dismissed the $7,500 compact, built in Romania, as an underpowered, low-margin ugly duckling. Yet it went on to be a hit following its 2004 launch. Last year sales jumped to 247,000, and Ghosn aims to sell 1 million Logans worldwide by 2010, many of them in India and China. Renault also aims to produce a low-cost pickup based on the Logan for South Africa, the Middle East, and Southeast Asia. As the new models roll off the assembly line, many expect Ghosn's restructuring to start kicking in. Says David Weinstein, a professor at the French business school INSEAD: "The real dimensions of the Renault-Nissan iceberg are not yet visible."
Renault-Nissan's strategy of designing many models from one platform gives the alliance an edge. In 2008, Renault will introduce a new generation of its Megane compact family based on Nissan's Rogue and Qashai crossover SUVs. With the Megane family accounting for about half of Renault's sales and 75% of its profit, the shared platform will especially help the bottom line.
The complementary reach of Renault and Nissan lets Ghosn carry out a surprisingly powerful global strategy. Nissan is strong in Japan, China, and the U.S., while Renault is a market leader in Europe and spearheading the push into India. "As a result, they can play bigger than they are," says Morgan Stanley analyst Adam Jonas. "Their ultimate competitor is Toyota."
By Gail Edmondson, with Ian Rowley in Tokyo