Geneva, March 3, 1999.

International Motor Show As a traditional get-together for the leading

automobile manufacturers, the Geneva International Motor Show provides an opportunity to unveil new
prototypes and gauge market trends. This year, however, conversations in the main hall of the exhibition
focused as much on the strategic movements of international companies as on products. For since the
start of the year, major manceuvres had been under way to form an alliance with Nissan, Japan's second-
biggest manufacturer, and they had to be finalised before March 30, which marks the end of the tax year
in Japan

Two candidates were in the ring. In one corner, the French group Renault, the world's ninth-largest
manufacturer with 4.3% of the market, which had been negotiating with Nissan for more than 10
months; in
the other, German-American giant DaimierChrysler, the fifth-largest manufacturer with 8.4% of the world
market, which began taking an interest in December 1998.

For Renault, it was a difficult bout. For a start, DaimlerChrysler's financial clout made it the
favourite. Second, Renault's previous attempt to form such an alliance, with Swedish manufacturer Volvo
six years earlier, had ended in a resounding defeat after years of negotiations. Daimler and Chrysler, on the
other hand, had just rocked the automobile sector by pulling offll spectacular merger less than a year
earlier. And an alliance with an Asian partner seemed a vital part of DaimlerChrysler's international strategy
to complete the consolidation of a company with a strong presence in all three of the world's major
economic centres.

Tension mounted with the arrival in Geneva of Jiirgen Schremp, Co-Chairman of Daimler
Chrysler, and Louis Schweitzer, Chairman and C.E.O. of the Renault Group. Everyone was certain that the
future of Nissan would be decided in the days to come. Most economic observers were expecting to see a
new giant formed: DaimlerChrysler-Nissan.

But Renault's bosses were convinced that the struggle was not yet over. Looking beyond
superficial reasoning, they felt that the potential synergies between Renault and Nissan were greater
,than those between DaimierChrysler and Nissan because they did not simply concern commercial and
technological issues. Despite the size difference between the two rivals, Renault did have some noteworthy
advantages. Was it a question of personal conviction or objective reasons? While only a few days were left
to convince the Nissan executives, the force of Renault's arguments and the ability to communicate them
had already been established by the relationship built up by the company's teams of negotiators over
several months.

Renault's Strategic Alternative In the spring of 1997, Georges Douin, Executive Vice President in
charge of corporate strategy, had submitted an international development plan to Renault's Management
Committee, at the request of Louis Schweitzer. Major changes were taking place on the world automobile
stage. A round of large-scale mergers had begun, with VolkswagenAG taking the initiative in Europe, but
now the Asian slow-down called the Japanese car companies' potential into question, particularly regarding
finance. New opportunities for international cooperation began to take shape. The shift towards the
globalisation of the industry looked irreversible.

Against this background, the plan referred to the strengths and weaknesses of the Renault group,
as well as its prospects for expansion. The company could choose between remaining a significant but
restricted player in the European market, with a share of around 5% of the world market, or become a
major player helping to define the rules of the game, which would mean winning 10% of market share
worldwide and extending its product range. The second choice would mean a strategy of alliances with
partners in the other main economic regions.

The collapse of a recently attempted merger with the Swedish group Volvo in 1993 had left its
mark on the company. The operation, which had been the subject of extremely careful negotiations between
February 1990 and December 1993, had been based on shared synergies between the two companies. It
formed part of European industrial policy, and was encouraged by the authorities because Renault was
owned by the French state. The industry minister had played a part in the negotiations and brought the
country's political influence into the balance. Both partners were Europeans, with relatively close national
cultures. After a long period of rapprochement, it was expected that Renault and Volvo would merge. The
matter appeared to have been finalised when, in December 1993, Volvo shareholders voted against the
agreement.

"Our partner did not appreciate the strong involvement of the French state. For our part, there was
also
a lack of diplomacy and an over-eagerness to take control." (Mr Dassas, VP, Financial Operations)

So the merger never took place. Renault found itself thrown back five years in the race to gain
international stature. As time went by, the need to come up with an alliance policy became more pressing. The
plan put forward by Georges Douin stressed the need for the firm to position itself chiefly in the Asian market.
One scenario intro~ duced some potential partners, including Subarn; Mitsubishi, Suzuki and Nissan. Apart from
Nissan, they were all smaller than Renault and therefore ap~ peared to be within its reach, especially as the
company had been privatised in 1996 and the French· state now had only a 46% stake. Attitudes in France. had
changed significantly and the separation of political and economic influenpes was the order of the'" day. Renault
could therefore count on its sharehold-· ers to give the management a totally free hand to· implement its chosen
strategy.

Louis Schweitzer weighed up the dangers and difficulties of the strategic choice that had to be made.
Staying European meant condemning the company to obey the market rules imposed by the biggest firms, with
perhaps a loss of independence in the long term due to inadequate resources. But failing once more to form an
inter- . national alliance would be disastrous for Renault's credibility, not to mention the wasted effort and
strategic and fulancial losses involved. Time was running out because opportunities for alliances were bound to
become increasingly infrequent and· hard to negotiate. The chairman made a decision: Renault's expansion
would be international and would include an alliance in Asia. The plan was approved. But how should Renault
set about finding the right partner?

Patient Prospecting Renault had been keeping a close watch on the Asian market since the mid-
1980s. Although it had not yet worked out an. alliance policy, the group was monitoring opportunities and
familiarising itself both with the Asian motor industry and with Asian negotiating methods. One man
embodies that policy: Georges· Douin, first as technical director, then as the person in charge of
orchestrating Renault Group projects from 1992 to 1997. He is currently EVP, Product & Strategic Planning
and International Operations.

"We mllst be constantly on the alert ( ... ). It's true that the Renault-Nissan negotiations were brought to a
conclusion in nine months-they took place between June 1998 and April 1999-but in fact they were based on a
great deal of work behind the scenes by Renault, which was a pioneer in the field, as well as on a solid
foundation of relations with the Japanese," (Georges Douin, EVP)

Between 1985 and 1995, therefore, contacts were occasional but continual. In 1987 Renault plmmed a
research programme on diesel engines with Honda which never came to fruition, New relations were
established in 1995 on other joint research projects, Around the same time talks were held with the Korean
companies Daewoo and Samsung, Like the Japanese, the Korean companies were looking for ways to
penetrate the European market, which was protected by quotas restricting imports of Asian vehicles, by forming
alliances with local manufacturers, One particularly clear opportunity presented itself in 1993, One of the issues
on the table during the ongoing talks between Volvo and Renault was what would happen to Volvo's partner
Mitsubishi. The Renault teams, led by Georges Douin, went to Japan to evaluate potential synergies with the
Japanese company, in what was a fresh opportnnity to understand how the country's
businesses worked and to make contacts with their executives.

"In the proposed alliance with Volvo, part of the Volvo 'package,' was Mitsubishi ( ... ) I went to see them several
times. They quickly took the decision to buy some Renault engines-that made our relations easier too-we sold
diesel engines to Mitsubishi, we sold them gearboxes ( ... ). So I was 'very Mitsubishi'" (Georges Douin, EVP)

However, relations with Mitsubishi were interrupted by the failure of the Renault-Volvo merger.
Further contacts were made in 1996, with the Korean company Daewoo. All the possible synergies were
discussed as well, but the talks ended abruptly after four months.
 So Asia and Japan were not totally unknown territory to Renault when its international development
plan was introduced. It was already familiar with the industry, and personal ties had been forged with its leaders.
But restricted projects and continual failures showed that Asia was still a difficult market for European
manufacturers to enter. Had Renault's strategic monitoring allowed it to build up sufficient experience for it to
grasp the opportunity of an alliance when the time was right?

An Unexpected Hunt After the international strategic plan was approved, a Renault delegation began
to canvass Japanese companies in April 1998 .

"I had been on an assignment to meet Japanese banks, and even Japanese motor industry analysts, to see how
things were going for the countrY's manufacturers. I had seen four or five big international banks and met with
automobile specialists ( ... ). It was an exploratory mission, to see how many problems the Japanese motor
industry had ... and which Japanese manufacturers were most likely to be interested in alliances." (Mr Dassas,
VP, Financial Operations)

Some Japanese manufacturers could be eliminated as potential partners very quickly. General
Motors had a large stake in Suzuki, and Subaru offered few opporhmities for synergies because of its
technological originality. After the assigmnent, two companies stood out as the most likely candidates for an
alliance: Mitsubishi and Nissan. Georges Douin went to Japan to look further into the opportunities for working
with the two manufacturers. Mitsubishi looked like the favourite because of its size and its previous
cooperation with Renault during the Volvo episode. Nissan seemed too big to be a potential partner.
Nonetheless, the Renault delegation members were struck by the attentiveness of the Japanese representatives
and the interest they showed for cooperating with the French.

"It was Renault that took the initiative of contacting them, which produced the very positive reaction that in a
way surprised us at first ( ... ). The surprise was to see that Nissan was perfectly willing to start talks with us." (!
vIr De Andria, VP, Strategic Planning)

So the names of the two potential partners were put to Mr Schweitzer. At arOlmd the same time, a
major piece of news broke in the automobile industry: the merger between Daimler-Benz and Chrysler.

"Obviously, we were surprised by the DaimlerChrysler merger in April-May 1998. Mr Schweitzer learned it
from the press" (Georges Douin, EVP). "Daimler-Chrysler was a major shake-up. And it was against that
background that the alliance was fonned" (Mr De Andria, Vp, Strategic Planning).

"Daimler-Chrysler was a shock in the automobile world, especially in France. We were aware that things
were moving very quickly and that there were no taboos any more." (Mr Husson, VP, General Counsel)

The deal meant that globalisation suddenly speeded up, and therefore the need to make or grasp the best
opportunities very quickly. In June 1998 DaimlerCbrysler started negotiating with Nissan with a view to taking
over the group's truck division, Nissan Diesel. Meanwhile, Louis Schweitzer wrote to the chairmen of Mitsubishi
and Nissan outlining the terms of a possible partnership between Renault and each company.

"In June I wrote a letter saying '[believe we should be thinking strategically. Can we do that together?' Obviously,
before writing that 1 had decided to take action should the opportunity present itself. 1 was ready to reach
agreement on a system along the lines of the one we ended up with, in other words acquisition of a stake in
the other company, and possibly a reciprocal one, which would not lead to a complete merger." (Louis
Schweitzer, Chairman)

While Mitsubishi took a long time to get back to Renault, Nissan reacted quickly.

"Bankers came to see us saying: 'We know someone who can talk to someone who can talk to someone
who can talk. to Nissan, so we might be able to establish a relationship between you and Nissan in a few
months. But of course if you write to them, that's the best way to make sure of failure because it's
unthinkable, it simply isn't done.' Well, 1 wrote to Hanawa in June and he answered in July." (Louis
Schweitzer, Chainnan)

Straight away, a French delegation was sent to Japan to draw up a shopping list. At the end of July,
Louis Schweitzer met Nissan's chairman, Yoshikazu Hanawa, in Tokyo. A relationship of trust was quickly
established between the two men.

"Mr Schweitzer and Mr Hanawa learned to trust each other very quickly. 1 think that this trust between the
chairmen has lasted all the way through, with no stumbling blocks, deviations or betrayals" (Georges Douin,
EVP).

"There was a sort of mutual respect and complementarity between Hanawa and Schweitzer. Those are
very important factors. The first handshake decides everything." (Mr Husson, VP, General Counsel). "I think
they [the Japanese] greatly appreciated Mr Schweitzer's style. An article published in the Japanese press
commented: 'But it's incredible! We've found a boss in the automobile sector who isn't a brute!'" (Mr Dassas, Finance
Director)

In July and August the two companies pinpointed about 20 potential opportunities for joint synergies:
geographical distribution of their markets, complementarity of their product ranges and the possibility of sharing
common platforms. Matters moved quickly enough for the chairmen to sign a memorandum on September !O
concerning the financial evaluation and joint costing of those synergies with a view to a possible strategic
alliance. At the same time, Louis Schweitzer decided to make no further approaches to the Mitsubishi group.

"1 described that once in an interview by saying that we went hunting for rabbits and we found a deer."
(Mr De Andria, VP, Strategic Planning)

The planned alliance concerned only Nissan Motors, Nissan's automobile division, and an exclusive
negotiation clause until the end of December 1998 was included in the memorandum. Amid the greatest secrecy,
the two companies started a campaign to pinpoint cost cooperation opportunities. At Renault, the campaign was
given the code name Operation Pacific.

But could the French company ensure rapid success with its new partner after failing with a better
known and culturally closer potential partner like Volvo?

Operation Pacific Twenty Franco-Japanese teams were given the task of evaluating the main issues that
would shape an alliance between Renault and Nissan. The process, which lasted until November 1998, took the
form of a series of joint studies. The team leaders were chosen from the company that had the most
experience of the subject being studied. In all, about 100 people from each company were involved. The
joint studies played a fundamental role in creating a climate of confidence at the grass roots between the
two manufacturers. Two main types of issue emerged rapidly.

The first was the question of synergies. In this respect, Renault gradually discovered that the
situation was exceptionally promising, surpassing its expectations. First of all the companies' product
ranges were extremely complementary. Renault was ahead of the field in mid-range cars and light
commercial vehicles, while Nissan Motors specialised in mid-range vehicles and the four-wheel-drive
vehicles and pickups typical of the American light commercial vehicles market, in which Renault was
not represented. The outlook was equally good on a geographical level. Renault was firmly established in
Western Europe and South America, while Nissan had the strongest foothold in North and Central America,
Asia, Japan and Africa. In terms of expertise, Renault had achieved excellent cost control, formalised a
global strategy for platforms and purchasing, and was known for designing vehi cles of ilmovative style and
appearance. Nissan stood out more through its quality control, R&D progranunes and technology.

Between September and December the two companies evaluated synergies, assessed their
financial value and the technical feasibility of working together more closely. The French and Japanese
teams exchanged information about their know-how, expertise and projects. Their work showed that the
potential synergies should yield, on paper, savings of 51.5 million euros in 2000, I billion euros in 200 I and
1.5 billion euros in 2002 through the rationalisation of platforms and a joint purchasing and distribution
policy.

"It was extraordinary in terms of synergies. We really believed in it, or at least those taking part in the
negotiations did . .. . Quite frankly, we were so complementary in terms of geography, products, personality
 So we had great confidence. The maps of where we were established were completely different ( ... ).
C ... ).
Their products are of extraordinarily high quality. Two of the best factories in the world belong to Nissan,
one in England and one in the United States ( ... ). Our engineers were full of admiration for Nissan's
manufacturing processes." (Mr Dassas, VP, Financial Operations)

Nonetheless, although the industrial outlook was promising, the same could not be said of
organisational matters. In 1998 Nissan Motors was a company with major financial problems. A succession
of years showing losses had left the company with total debts of 23 billion euros and a list of atmual
repayments that was becoming increasIngly difficult to respect. The reason was a complex combination
of internal management problems: Nissan headed a Keiretsu which had been built up gradually over the
years. The company had never established a rational purchasing policy or system of relations with
suppliers. Manufacturing costs were high and its product range was too diverse. Quality came at a high
price. Moreover, Nissan's global market share had slumped from 6.4% in 1990 to 4.9% in 1998.

Engineering c111hlre took precedence over managerial culture, while the quest for
performance and quality won out over costing. Promotion was based entirely on length of service.
Apparently, Mr Hanawa was acutely aware that the company was heading towards bankruptcy. He set a
symbolic date, March 30, 1999, as a deadline. It was the end of the Japanese financial year, when short-
term credit lines were to be renegotiated.

"That seemed to me both highly artificial and extremely useful. Artificial because it was tied in with the
end of the fiscal year, and the end of the fiscal year only exists on the day accounts are published. So it
seemed to me a completely artificial deadline ( ... ). But it was useful because, in any negotiations, failure to
set a deadline has many disadvantages because the talks may drag on and on ( ... ). Nissan's rating was a
subject that Mr Hanawa brought up frequently." (Louis Schweitzer, CharrIDan)

"They were afraid that their Japanese rating would fall too. Now that would have been a disaster because
they could not have coped with the resulting increase in their expenses." (1vlr Dassas, Vp, Financial
Operations)

Such a decline would have meant official recognition of the company's ailing finances. So Nissan found
itself in the paradoxical situation of being justly proud of its products and technological capacity while
sustaining financial losses that could lead to its collapse or to it falling into the hands of a competitor. The
need to "save face," a basic requirement in the balance of Japanese company relations, was one of the
keys to understanding the negotiations.

Nissan had to join forces with a partner which would bail it out financially in the short term, on condition
that this went along with sufficient restructuring to reorganise the production system, purchasing policy
and its Keiretsu generally so that the company would remain competitive on a world scale.

"The Japanese executives had understood that, looking more closely, Renault's expertise included a
nuJUbel' of complementary factors that would be easier to impleinent than those with Daimler. In other
words, the restructuring processes that we introduced, Renault's expertise in cost reduction, purchasing,
production sites, engineering, services . .. And probably Renault's expertise in marketing and product
innovation too . ... Those factors counterbalanced the fact that the DaimlerCluysler group may have
looked
stronger financially on the surface but . .. Renault could really help Nissan to find the way out of its
difficulties. ... When the Japanese said that it was better to learn to catch fish than to be given them, I
think that was what they meant. Without a doubt, Daimler was in a position to be able to give them fish,
but there was no guarantee that they would teach them to catch their own. Renault was more likely to
teach them the art of fishing." (Mr Levy, EVP)

Japanese-style corporate governance tends to water down the responsibility of individual anagers
into a system of collective responsibility. It is difficult in such circumstances to define strategies
through which the managers would have to call themselves into question.

"There were no decision-makers outside Nissan. Identifying the person who made a decision was
exh'emely difficult. Because we've all read the litera hIre that says a Japanese company is managed
collectively, that the Board of Directors has 37 members ( ... ). But, when you come down to it, why would
an independ. ent company bigger than Renault enter an agreement under which it became equal to
Renault, at most? In a way, it meant acknowledging a need that is not natural for any kind of
management." (Louis Schweitzer, Chairman)

Did Renault have sufficient credibility to face not just the industrial challenge but also the
financial and managerial challenge at Nissan?

The Big Picture: Pass ol',Fail While the French negotiators were surprised by the quality of the
relationship that was being built with their opposite numbers at Nissan and by the speed with which talks
on manufacturing issues were progressing, the French were also perfectly aware of their handicaps.
They pinpointed three main ones: Renault's lack of a.strong image in Japan, its low capital compared to
Nissan and its history as a public-sector company with large financial deficits.

As a mainly European company, Renault was little known on the Japanese market. This meant that
the acquisition of Japan's second-biggest company by an unknown French firm would not give Nissan's
partners the impression of a prestigious alliance, which might have made up for the humiliation of being
bought by a foreigner. Moreover, Renault's financial position would not enable it to wipe out the Japanese
manufacturer's debts. Its participation could only be partial and would have to be accompanied by firm
guarantees about Nissan's ability to rebalance its books. The danger was that Nissan's deficit might also
drag Renault into the red after the spectacular economic recovery of the previous ten years. Breaking
with its past as a public company, Renault had modernised production, rationalised its purchasing
network and become one of the world's most efficient manufachlrers. Its ultra-modern research centre
just outside Paris was a potent symbol of its capacity for ilmovation. Going further, one man was a symbol
of that economic rationalisation policy: Carlos Ghosn, who was EVP at the time of the negotiations. His
reputation as a "cost killer" highlighted both the radical financial modernisation of Renault and the attention the
company paid to staying on a sOllnd footing. In those circum stances, an alliance with a partner whose
Keiretsustyle organisation and cost management was the opposite of Renault's did not look promising.

Very early on, in October 1998, Mr Schweitzer had a clear view of the feasibility of the alliance between Renault
and Nissan. He felt it had to be based on two principles over which there could be no compromise: equal status
and participation in management.

"We had to move closer strategically, but it could not be a simple acquisition or a merger, because a
FrancoJapanese merger is no easy matter." ( ... )

"I suggested to him [Mr Hanawa] that three people from Renault should become members of the Nissan
Board of Directors: the COO, the VP Product Planning and the Deputy Chief Financial Officer. ( ... ) I told
Ghosn: "[ won', do this deal if you don', go to Japan!" Before proposing the COO position,'I had to have
someone C ... ). In my opinion, I didn't have anyone else who could do the job." (Louis Schweitzer, Chairman)

Mr Schweitzer waited for the right moment to talk about his idea to Mr Hanawa. At the end of October, the two
men discussed a draft for what might become Renault's letter of intent at the end of the negotiating period.

"Well, they don't really understand what a COO is be cause there's no such thing in Japan. There's no word
in Japanese to describe a COO. But there were no talks about that. I only asked for those three, I didn't ask for
any other jobs except those three and he [Mr HanawaJ didn't try to argue about any of them." (Louis
Schweitzer, Chairman)

However, the entire Nissan management still had to be convinced that only an alliance offering a global
solution to its problems was feasible and that this could only be concluded on the basis of the principles put
forward by Renault. So far the joint studies had done a considerable amount of work in the field to establish trust
between the teams. But the strategic negotiations had only involved a few people at Nissan: Mr Hanawa and the
threecorporate planning executives, Mr Shiga, MI'Suzuki and Mr Sugino.

"Mr Hanawa talked to me, but I don't know how he managed to achieve a consensus at·Nissan ( ... ).
Throughout my negotiations with Nissan, I never knew who was 'for' 'and who was 'against,' and I never
knew ~ho made the decisions." (Louis Schweitzer, Chairman)

It was agreed that the French would submit the outlines of a proposed capital alliance to the Nissan Management
Committee. This was Operation Big Picture. In Tokyo, on November II, 1998, Louis Schweitzer, Georges Douin
and Carlos Ghosn spent three hours explaining their strategic outlook, Nissan's need for an alliance and the
conditions for it to succeed, and describing at length the stages of Renault's recovery in earlier years. They felt
that it was a decisive moment because they were revealing the situation quite openly, and it was not
favourable to the Japanese.

"It shook them up quite a bit, obviously, because we were showing them that they had rather too many
factories, rather too many employees and rather too many business activities in rather too many difficult
areas ( .. . ). They were shocked that anyone outside the company should be speaking to them so. frankly. At
the time we were afraid that our approach might cause a breakdown in the talks because they seemed so
affected" (Mr De Andria, VP, Strategic Planning).

"By that point, I was perspiring heavily! I really felt that we had plunged headlong into an attitude of
arrogance" (Louis Schweitzer, Chairman). "We knew we were playing with fire. We had the growing
impression of being on slippery ground, not to say enemy territory ( ... ). We weren't at all sure we could
pull it off-that was certain." (Mr Douin, ViceChairman)

As agreed earlier, no discussion followed the case put forward by the French, and the two sides took their leave
in silence. The Japanese had until the end of December before the exclusive negotiat ing period ran out to
reach a conclusion about the strategic viewpoint defended by Renault.

Tokyo, December 23, 1998 Renault's official letter of intent defining the general conditions of the alliance was
due to be discussed when a sudden new development occurred. Behind the scenes, Mr Hanawa warned his
French counterpart that Renault's proposal had to cover all Nissan's business activities-not just Nissan
Nlotors but also Nissan Diesel. Until then only the automobile division had been mentioned and Renault
knew nothing about the trucks division. And for the final round of negotiations aimed at reaching
agreement on an alliance in March 1999, Renault's exclusivity clause was not renewed.

A new player had come on the scene: DaimlerChrysler. Had the Japanese understood only too well the
lesson they had been given by the French? Competition for an Alliance DaimlerChrysler had been
negotiating the acquisition of Nissan Diesel since June. The loss-making Japanese trucks subsidiary was in
a critical condition which is why, after months of evaluation, the German-American group suggested
taking over the entire Nissan group, acquiring a majority stake in the company.

The financial soundness and prestige of DaimJerChrysler could solve Nissan's problems and ensure that its
absorption by an international company controlIed by the German Daimler-Benz was accepted by the
Japanese.

The French did not change their stand in any respect. They maintained their proposal for an equal alliance
that would guarantee Nissan's independence and give Renault a 36% stake in the group. They stressed their
proposed involvement in restructuring Nissan's management, and their experience in that area, and
agreed without hesitation that Nissan Diesel would be included in the deal.

"Keeping 40% of Nissan Diesel raised a number of problems for us so what we did was this: we told them
[Nissan Motors]: 'We're going to buy from YOli part of your share of Nissan Diesel so that we own 22.5% each.'This
had the advantage ofbeillg a simple financial holding for Renault ( ... ), and secondly it also prevented us
from having to consolidate a larger stake in am' accounts. It was a shrewd piece of accounting." (Mr Levy,
EVP)

The due diligence period began in January 1999. It was difficult because the French did not know what was
being negotiated with DaimlerChrysler, so their hopes fluctuated. The Renault teams continued to apply the
negotiating rules laid down by top management since the start of negotiations: treating the people at Nissan
as equals, avoiding all forms qf arrogance, remaining· attentive while maintaining the two principles put
forward by Mr Schweitzer as conditions for a win-win situation for both sides of the alliance.

"And .that was where our retrospective assessment of all our previous experiences was very useful to us
( ... ). Above all we tried-even if we didn't manage it 100%-to avoid putting ourselves forward as the
company making an acquisition, the side that comes out on top. We always wanted to have due regard for
form, to have due consideration for the Japanese ( ... ). We kept in view the lessons that could be learned
from our previous experiences." (Mr De Andria, VP, Strategic Planning).

Urged on by the rivalry with DaimlerChrysler, Renault found itself in the role of outsider which encouraged
the French to underline their strengths and show their willingness to adapt further to Japanese sensitivities.
They felt that they were putting forward the more appropriate answer to Nissan's situation co~~pared to
the German-American steamroller twice their size. Even so, while the teclmical teams continued to
make progress in evaluating fuhlre cooperation, the strategic teams had the impression. that they were
working mainly for form's sake. Nissan had to choose between a merger and a partnership, and its choice
would depend on what clauses to preserve its identity were being negotiated at DaimlerChrysler
headquarters in Stuttgart.

No details leaked out ofthe discussions between the Japanese and the Germans, but international motor
industry experts gave DaimlerChrysler a decisive advantage. Only the Germans had the financial capacity
to absorb Nissan's deficits and take charge of an industrial restructuring that seemed bound to be long,
difficult and expensive against the notoriously opaque background of Japanese finances and labour
relations.

In Geneva, everyone was waiting for the statement that would start a new chapter in the story of the
globalisation of the motor industry. It was early March, and the French had absolutely no idea what the outcome
would be.

"The situation was very tense .... We felt that they were tempted by the German proposal C ... ). The impression
we had had during the negotiations, when apparently they were no longer interested by what we were saying,
when we thought their minds were elsewhere ... now we said: 'That was it. It was the Germans.' It was mainly
with regard to the Germans that our hopes waxed and waned" (Mf Dassas, VP, Financial Operations).

"There was a week when we just lost all faith C ... ). It was at the start of March, I believe C ... ). We gave up hope.
It was all over. The negotiations were awful. Nothing happened, nothing at all ... it was dish'essing." (l\Ilr Husson,
VP, General Counsel)

The Olltcome Geneva, March 10, 1999. Jiirgen Shremp, CEO of DaimlerChrysler called a press conference.

"This is the result of a three-month period where both parties assess the strengths and financial options of a
global cooperation. We had to accept that the opportunities a close relationship with Nissan offer are not
achievable as quickly and smoothly as initially expected." (Jiirgen Schremp, Co-Chairman of Daimler Chtysler)

The news came as a surprise to most observers. DaimlerChrysler had proved unable to grasp the
opportunity to form an alliance with Nissan and had left the door open for Renault. Now there was nothing to
stand in the way of Renault signing the alliance on the terms put forward by Louis Schweitzer, who insisted
that none of the company's original proposals be changed.

"The decision we made during the final negotiations was not to change our position. It was an important choice on
our part to say: 'It s not because Daimler is no longer around that we are changing our proposal.' In other words,
it wasn't because there was no-one else to up the stakes that we were planning to change the conditions of the
deal, because ~e knew that they would have to make a deal with someone and there was nobody against me. I
decided not to do that because I felt it would destroy the relationship oftrust which was indispensable for us to
work together ( ... ). It seemed more important to show that we were loyal, stable and reliable partners." (Louis
Schweitzer, Chairman)

News of the breakdown ofthe Daimler talks surprised the team of French negotiators as they got off the plane in
Tokyo, where they were due to continue talks on the legal aspects of the alliance. In the big meeting hall, the
atmosphere was solemn.
"We went to Ginza and met our Japanese friends. We said to them: 'We have leamed of the event that has
changed the circumstances of our negotiations. We note the withdrawal of Daimler-Chrysler. From now on, we
want you to know that it~isn't Renault's style and culture to take advantage of its partner's prob lems.' Mr
Shiga got up, he did this [mime of the Japanese salute] and sat down again." (:roAr Husson, VP, General
Counsel)

The alliance between Renault and Nissan was concluded on March 27, 1999. Both companies retained their
independence. Three French representatives left Renault to become members of the Nissan Board: Carlos Ghosn,
COO, Patrick Pelata, who is responsible for strategy, and Thierry Moulonguet, who is in charge of finance. A
Global Alliance Committee was set up to meet monthly to manage the alliance. Eleven global teams were formed
to start work in the field on the various as pects. The world's fourth-biggest automobile man ufacturer was born,
with 9.4% of the international market and strong prospects for growth. In the autumn of 1999, Carlos Ghosn
submitted the Nissan Revival Plan.

Nissan's Point of View

Ginza, June 1998 On a hot June morning in 1998, Nissan President Yoshikazu Hanawa arrived for work at the
company headquarters in the Ginza district of downtown Tokyo. He was greeted by the uniformed employees at
the reception desk and walked past a 1957 Datsun convertible to the elevator that exclusively served the
executive offices on the 15th fioor.

Entering his office, he was informed by an executive vice president of Renault's interest in a potential partnership
with Nissan. Problems Facing Nissan (1996-1998) Hanawa had come to power in the middle of the recession in
Japan. As of 1996, Nissan had accumulated a debt to sales ratio of 62%. Nissan had sustained continued losses
since 1992. This also was having profound effects on the approximately 1400 holding suppliers, dealerships and
other subsidiaries of Nissan, throwing them into financial disarray.

Over the first two years of Hanawa's tenure, the situation continued to deteriorate. For the fiscal year ending in
March 1998, Nissan reported losses of 14 billion yen, with the debt to sales ratio rising to 66%.

Nissan's problems need to be understood in the context of the changes taking place in the automotive industry.
One major factor was the world-wide over-capacity in the car market. It was estimated that automakers had a
capacity to produce 70 million vehicles, while demand amounted to only 52 million units. I The second factor
affecting the automotive industry was the stricter environmental and safety regulations that increased R&D costs
per car.

Global over-capacity within the automotive in dustry and rising costs per vehicle made it increas ingly
important for industry players to seek size through strategic partnerships or mergers. Ford's acquisition of Volvo
in 1998 and the merger of Daimler and Chrysler in the same year sent signals to the industry that served to
accelerate the trend.

History Nissan Motor Co. Ltd. was established in 1933 by Yoshisuke Aikawa to manufacture and sell small
Datsun passenger cars and auto parts. (i) Prewar The first small-size Datsun passenger car rolled off the
assembly line at the Yokohama Plant in April 1935, and vehicle exports to Australia were also launched that same
year. The slogan "The Rising Sun as the flag and Datsun as the car of choice'" was originated at that time,
symbolising

Japan's rapid industrialisation,

In 1936, as the signs of the war grew stronger, production emphasis shifted from small-size Datsun passenger
cars to military trucks.

(ii) Postwar Nissan suffered from a major loss of sales force in the early postwar period. This was due to the fact
that many leading auto dealerships, previously affiliated with the old Nissan network, switched to Toyota after
the dissolution of Japan Motor Vehicle Distribution Co. Ltd., which had monopolised vehicle distribution during
the war.

Nissan resumed production of Nissan trucks in 1945 and Datsun passenger cars in 1947. Post-war progress was
swift. By 1958, the Datsun 210 could be entered in the grueling Australian Rally, and, by 1960, the company
received the Deming Prize for engineering excellence. .t

(iii) 1960s The 1959 Bluebird and the 1960 Cedric captivated the imagination of Japanese car buyers and
quickened the pace of motorization in Japan. The Sunny was introduced in 1966 during the "my car" era in
Japan. Nissan's model lines during the 1960s were indicative ofthe company's competition with Toyota: the
Bluebird lined up against Toyota's Corona, and the Cedric against Toyota's Crown. J

This was a period of growth for Nissan. In1961, the company established Nissan Mexicana, S.A. de

C. v., its first overseas manufacturing operation.

Nissan also set up two state-of-the-art manufacturing facilities in Japan, the Oppama Plant in 1962 and the Zama
Plant in 1965. In the mid-60s, the Japanese government suggested a merger ofNissan and Prince Motor Co. Ltd.
to create a larger company that would be better equipped to handle any hostile takeover attempts by foreign
companies, leading to the 1966 merger between Nissan Motor and Prince Motor. Nissan maintains a strong
link with the Japanese government and to this day provides a large percentage of govermnent limousines.

(iv) 1970s The two energy crises of the 1970s increased the demand for small Japanese cars worldwide and led to
a surge in exports. 1n 1973, the SUlmy ranked first in the fuel and economy tests conducted by the U.S.
Environmental Protection Agency and thus gained instant popularity in the U.S. market under the advertising
slogan of

"Datsun saves." The sporty Z car also built a large following in the US. during the 1970s.

In 1975, Nissan opened the Kyushu Plant, a leading edge facility that today can still boast of the most
advanced automation technology in the world.

(v) 1980s During the 1980s, Nissan was the second Japanese car company, following Honda, to establish
a manufacturing base in the US. (1980; Nissan Motor Manufacturing Corp., US.A) and Datsun Truck and
Sentra production began in the US. Nissan then moved to establish a manufacturing base in Europe, the
first among the Japanese car companies to do so (1984; Nissan Motor Manufacturing Corp. UK).

11th Nissan President, Takashi Ishihara (1977-1985). During the 1980s, Nissan's domestic sales began to
fall. In order to stem declining sales, Ishihara sought out opportunities in overseas markets and started
establishing new plant facilities in the US. and the UK. But declining sales in the domestic market
remained unsolved,· leading Nissan into a vicious cycle of over-capacity, falling sales, and domestic price
cuts. This caused conflicts between the Japanese unions and the management. Nissan employees
protested against the idea of increasing production capacity overseas when their domestic plants itself were
under utilised. However, Ishihara did not stop to hear these voices and continued with his plan for global
expansion. This was an example· of Ishihara's so called "impulsive management strategy" and unilateral
approach.

The continuous conflict with the union badly affected the image ofNissan. The 12th Nissan President,
Yutaka Kume (1985-1992) realised the need to stimulate the Nissan brand image and focused on new
model introductions. The up-market Cima for the executive class and the sporty Silvia for the younger
generation were introduced in the late 1980s as part of a brand enhancement scheme. With the help of a
booming economy, the cars became extremely popular.

In addition, Kume realised that the internal health of the company was also a reflection of the Nissan brand.
By the time of his designation as President, employees had become tired of the continuous conflict between
the management and the unions during the previous Ishihara era. Kume emphasized improving the
environment of the workers, up to the point of creating an organisation in which people would not feel
hesitant to call him by his name, Kume-san, rather than by his title.

(vi) 1990s Kume, who focused on creating a better image for Nissan, had once said, "I want to make the
cars more attractive for the younger generation. Therefore, I believe when a concept for a new model is
being developed, the voices have to come from the bottom up." However, the botttm-up approach seemed
to lead to a loss of direction in the overall policy for model developments. Moreover, since 50% of Nissan
dealerships were owned by Nissan (Toyota owned only 10% of its dealerships), dealers . had no
autonomy in selecting car models, and market feedback was poor. This prompted Kume to worry that
"Nissan cars are becoming further and further away from the true voice of our customers.,,4

With the burst of Japan's bubble economy, Nissan's profits plummeted from 101.3 billion in March 1992 to
a loss of 166 billion yen by March 1995. The 13th Nissan President, Yoshifumi Tsuji (1992-1996), who had
spent most of his career on the production side, focused on improving domestic sales. He made frequent
visits to all of Ihe domestic dealerships, meeting with dealer representatives, sales board members and
sales regional managers. The meetings with the dealer represe~tatives had little effect. Domestic sales
appeared to be declining not because Nissan lacked in sales calability, but because there was a
fundamental flaw in the concept and the style of the product per e. Without combating the fundamental
problem lof product improvement, Tsuji presented a drastic down-sizing plan in February 1993 with a
targe1 to reduce costs by 200 billion yen by year 19951 in order to obtain profitability even at a low 2
mill]· on unit production level..

The Hanawa Era In 1996, Yoshikazu Hanawa ~ecame the 14th President of Nissan. After obtainrg an
economics degree at the University of Tokyo in 1957, he joined Nissan to start his first assigmnent in the Human
Resource Department. He later became involved in Nissan's overseas operations and was designated as head of
the committee responsible to establish Nissan's Tennessee plant in the US. By 1985, he was promoted as the first
and youngest director in the Corporate Planning Department. He was also involved in numerous restructuring
plans such as the closure of the Zama plant in 1995. Many of the Nissan top managers were Tokyo University
graduates, and Hanawa had the ideal profile to become the President ofNissan.

(i) Hanawa's Mission In one of his first interviews upon becoming President, Hanawa said,

Nissan must cooperate and integrate all efforts towards one vector in order to show better results, We must change the
''Nissan Bureaucracy" which has long been our image, , , ,5
When Hanawa took over as President, Nissan's domestic market share had dropped to 15.9%,' only half of that of
Toyota. Hanawa's initial plans focused on new car development, with the aim of recovering domestic market
share and an objective of 25%' by the year 2000. When announcing this target, he said, "It is not a healthy
situation both for the companies as well as for the customers for one car company to dominate sales. I would like
to establish an era for two mutual companies so that both Toyota and Nissan can stimulate one another and grow
together,,,

(ii) Internal Organisation From the early stages of Hanawa's time as President, his main concern was to change
the culture of the organisation. Hanawa was deeply concerned that Nissan had become complacent and lacked a
sense of "urgency," despite the economic distress experienced in Japan after the burst of the bubble economy and
the poor market and financial performance of the company.

When Hanawa joined Nissan in 1957, Nissan was still a small operating company, fresh with new ideas and
innovation. Recalling his early days at Nissan, Hanawa said, "As Nissan grew larger in scale, a new culture took
over. Most employees be, came more concerned with their own line of busi~ ness or function and did not know
where value was being added for Nissan as a whole. The company lacked both in cross-fimctional and cross-
regional communication. The passive internal culture was reflected in our cars, making them unattractive and far
away from customers' taste. Nissan had always thought that as long as the,e is quality, our cars will sell at a high
price. But that logic is no longer true in today's market. It is more about designing, and it is more about customer
orientation. But there is a bureaucratic culture rooted into our organisation, which makes it very difficult to
implement change, . , but we needed a change, and one solution was to bring in a new wind,"

(iii) Global Business Reform Plan Shortly after the end of the 1998 Japanese fiscal year, Nissan's Corporate
Planning Department presented a "Global Business Reform Plan" to Hanawa and the board. 1998 had resulted in
net losses of 14 billion yen on a consolidated basis, tracable to a fall in domestic vehicle demand, the write-down
in the carrying value of vehicles in the U.S. lease portfolio, and evaluation losses on marketable securities.'

It was evident to the employees that Nissan's future was not very bright. Nissan had been showing consecutive
losses since 1992. Everyone knew that something had to be done about it, but nobody seemed to know what or
who should take the initiative to unwind the bad cycle the company had become trapped in.

The "Global Business Refonn Plan" presentation proposed to achieve a consolidated operating profit to sales
ratio of 5% in the fiscal year ending March 200 I and 6% in the fiscal year ending March 2003. There were two
options presented in this plan in order to realise these targets. One approach was to implement an independent
survival plan by drastic down-sizing: through reduced development costs, integration of platforms,
streamlining sales channels, divesting nOll-core business assets and other cost cutting strategies. The
second approach was to form a global alliance and to survive through increased scale.

It was in this context that a global strategic alliance was proposed.

Another Joint Cooperation with Renault?

Hanawa contacted Yutaka Suzuki, Director & General Manager at Corporate Planning Department, to respond to
the proposal from Renault. Suzuki and Toshiyuki Shiga, Senior Manager at the Corporate Planning Department,
were specifically told by Hanawa to proceed with an immediate investigation on Renault. Shiga was
responsible for dealing with all external proposals such as teclmology alliances and joint cooperation. In fact,
when Shiga was contacted by Hanawa regarding the proposal from Renault, he first thought of previous talks for
a possible joint development with Renault. Shiga had met Andre Douin, head of Renault's Planning Depart ment,
in Paris in September 1997 concerning a pos sibility for Renault to produce pickup trucks under a Nissan license
in the Mercosur area. Therefore, not only did Shiga already know something of Renault, but also thought that
this was merely an extension of the possible joint cooperation Renault was seeking with Nissan since the
previous year.

However, Renault was not merely asking for another joint cooperation this time. Renault wanted to know if
Nissan might be interested in pursuing a global alliance at the corporate level. Nevertheless, when Shiga received
orders to study this proposal from Hanawa, he was not surprised. Nissan had received cooperation
proposals in the past from various car companies and it was his task to investigate the potential of each
proposal.

The Alliance Process

(i) Phase I: Preliminary Study (July-September 1998) Nissan's Corporate Plmming Department was the right
place to start off the investigation fora global alliance possibility. It was the only department that included
representatives from each of the maIn functional departments within Nissan: production, purchasing,
development, overseas sales, domestic sales, financial affairs, legal and HR. The Corporate Plmming
Department rolled out the investigation plan in the following manner.

The Research Group within the Corporate Plan ning Department conducted a thorough internal study of
Renault. It was the first time they had conducted such an in-depth analysis on a European car company.

Taiji Sugino, manager at the CQrporate Planning Departlnent with a background in international law and
corporate governance, had been involved in the research and commented:

My task was to get to know more about Renault as a company. Renault was not very well known in Japan and
we knew very little to start with. Before considering an alliance, we needed to gain an understanding of how it
might be possible to integrate with Renault from a business cooporation perspective. We also needed to see the
economic benefits of forming an alliance. I conducted a competitor intelligence gathering exercise, a SWOT
analysis and further strategic studies to understand the potential synergy effects on a daily basis.

On the strength of this research, Nissan saw considerable potential in the alliance. There were three main
reasons for optimism: first, the two companies showed strength in different regions of the world (Nissan in
Asia and the US, Renault in Europe), and collaboration between the two companies would give increased
geographical coverage. Second, Renault was better at making smaller cars, while Nissan was better at
making larger cars. However, despite the fact that the two companies' cars were not in direct
competition with one another, there was strong potential for platform inte gration, indicating a possibility
of reduced costs and increased efficiency for both companies. Third, the size of the two companies in terms
of market capitalization and number of units produced was very similar as of 1998, lessening threats of
filtnre dominance or possible take over from either side. Sugino said,

"We marvelled at the success ofRenauit, because light and small vehicles generate much smaller margins
compared to Nissan's large size vehicles, Nevertheless, Renault had managed to turn around its
performance in a very short span of time [on the basis of small cars]." (Sugino, manager at the Corporate
Planning)

At the time the alliance formation process was begun (1998), Renault had an earnings before tax margin (EBT)
of 4.6%. Since the loss-making year of 1996 (EBT: 3.6%), Renault had managed to become profitable and grow
total sales from 184,078 million FF to 243,934 million FF (1998).

However, Renault faced limitations for future growth. With over 80% of their sales coming from Europe, Renault
wanted to broaden coverage, gain scale, and solidifY its market position.

When the potential for a global alliance became clearer, the investigation was forwarded to the Strategic Group
within the Corporate Planning Department at Nissan. There, the people got together to develop "shopping list of
potential joint projects which could possibly take place between Nissan and Renault.

The Planning Department at Renault had developed a similar shopping list. In July 1998, Suzuki, Shiga and
Keiichi Maekawa, an engineering manager from the Corporate Planning Department, left for Paris to exchange
the two shopping lists. Initially, the combined shopping lists had approximately 100 possible joint projects, of
which ultimately 21 projects were prioritised after numerous negotiations between the two Planning Departments
during the months of July and August. With this list in hand, the three Nissan representatives went back to Japan
and reported to Hanawa on the progress oftheir investigation.

(ii) Phase II: Joint Study Teams (SeptemberDecember 1998) In September 1998, Suzuki was asked by Hanawa
to proceed with the 21 joint projects by forming "Joint Study Teams" between Nissan and Renault.

Now, for the first time, the operational level became involved in joint studies. However, the Corporate Planning
Department was given strict orders of confidentiality by Hanawa. They were told not to reveal the purpose of
the srudies to the engineers involved and that the teams should not know of each other or of the bigger picture
that their work fit into. They were to think that this was just like other joint study projects previously lmdertaken.
There had been joint study projects in the past, for example the Volkswagen Santana project. Under this proposal,
Nissan would have assembled VW cars at the Zama Plant. The cooperation with VW fell through because
engineers at VW and Nissan did not work well togeth.r. It was therefore very important to assess the soft
elements, such as operational fit at the engineering level, in the joint study teams,

The Corporate Planning Department was also not informed of the purpose nor the direction with which Hanawa
was planning to proceed with the joint studies. They only received repeated emphasis by Hanawa that from tlus
stage onwards, the engineers should take complete control in order to allow room for in-depth studies.

Faced with many uncertainties and a very short deadline for results (December 1998), the Corporate Planning
Department ofNissan in cooperation with Renault quickly formed the following teams:

Group A:
Regional Operation Group
·0 A-I) European Team
·1 A-2) Asian Team
·2 A-3) Mexico Team
·3 A-4) South Afriean Team
·4 A-5) Mereosur Team
GroupB: Product Group
Group C: Platform Integration Group
Group D: Powertrain Group
Total: 21 Joint Study Team
The 21 joint study teams worked under team leaders, and 10 operational people from each company participated
in the typical team.

Within teams, questions did arise about the level of cooperation. For example, the Nissan A-3 team members
asked why Nissan should allow Renault into their Mexico Plant. Suzuki responded to them:

"If we allow Renault into our Mexico Plant, then perhaps we can gain access to Renault's Brazill Argentina
Plant. We need to take a give and take perspective."

Suzuki, Shiga and Sugino were responsible for answering all questions raised by the teams from the Nissan
side.

Synergy meant two things for Nissan; complementarity and mutual efficiency. It made no sense for Nissan
if two companies having the same capability got together. It only made sense if the companies
complemented one another bringing overall efficiency and benefits for both companies.

There was a great amount of secrecy between the two companies initially. However, in order to see the
synergy effect and the actual benefits for both companies, the facts had to be revealed as Renault and
Nissan progressed with their joint studies. Shiga recalled, "The kind of information that we were sharing
with each other prior to the alliance agreement was a very rare case."

For example, one joint study was made on the development of a I liter gasoline engine. Based on the joint
study conducted by the joint study teams, Nissan calculated the NPV of this investment. In addition to this,
Nissan had projected a reference case on this development if it had been conducted separately with the
different research capabilities that Nissan and Renault individually had. If the combined NPV of Renault
and Nissan had exceeded the NPV resulted by the joint study teams, it made no sense to proceed with the
joint project. The difference of the two resulting NPVs was what Nissan called the "synergy effect."

There were a few "win-lose" projects but most of the projects resulted in a "win-win" projection. The
aim was to achieve benefits for both sides.

(iii) Phase III: Reporting The 21 Joint Study Teams produced a progress report each month between
October and December. Shiga reported the results to Hanawa and Suzuki.

As Renault and Nissan progressed with their joint studies, the two Planning Departments had come down
to a common strategy,

"The two Planning Departments of Renault and Nissan agreed that after identifying a strategic link through the
joint studies, we must form a common strategy in order to achieve profitable growth for both companies. The
basic policy for the alliance strategy would be to distinguish the brand identity from any kind of synergy.
We saw the possibility of manufac turing integration but not brand integration,just as we saw possibilities of
back office integration but not fro,nt office integration. In other words, Renault and Nissan felt that we
should integrate only the processes that were far away from customers." (Shiga, manager at the Corporate
Planning)

On 15 December 1998, a final report produced by the 21 Joint Study Teams was submitted to Hanawa.

(iv) Alliance Formation Process (January-March) In the beginning of 1999, the negotiation became more
aggressive and rapid, focusing on the restructuring of the organisation as well as financial and legal affairs.
Due diligence commenced on 15 January 1999 for the purpose of validating mutual claims. Shiga
commented on the alliance formation process,

Since both sides had strong individual needs to make themselves stronger, the joint study took place
"sincerely." It was not just a handshake between the top managers.

Sugino added his perspective on the alliance formation process,

For Nissan. the negotiations and the execution of the alliance contract were a process and not an objective.
The objective was not to finalise the contract wording but to examine how to share best practices. For
example, it was evident that Renault had strengths in two. things: cost management and customer
satisfaction. Nissan had strengths in technology, productivity, quality conh'ol, and global-level operations.
Nissan wanted to know how Renault managed to maintain such a low cost structure, but Renault would
not reveal this information lmless an alliance was formed. Therefore, forming an alliance was a means 0
fobtaining this know-how, and not an objective per se. Agreement finalisation was only the starting point
of
the alliance.

(v) Employee Involvement Sugino explained the relationship between Renault and Nissan at the
operationallevel to be the following:

Nissan employees thought of Renault as a company that placed emphasis 011 conununication improvement
rather than negotiation.

Because of Renault's emphasis on communication, it was easy for Nissan to understand Renault. However,
Sugino thought that the situation was quite the opposite for Renault.

"The only point of contact on the Nissan side, who really knew the entire pichlre, was Mr. H~nawa, and
hence 1 think that it must have been difficult for Renault to understand Nissan. ( ... ) All of us were not
really well aware of what was happening apart from what could be found in the papers. 1 knew in January
1999 because 1 had to prepare for due diligence. But I think most directors did not know about it until the
day of amlot1l1Cement in March 1999. Only board members, IVIr. Shiga and Mr. Sugino were informed
by Mr. Hanawa." (Anraku, managing director in charge of finance and accounting)

Hanawa, always at the center of control, was very quick to respond to his lieutenants: Suzuki, Shiga and
Sugino.

"He would normally respond within the day. His decision making was very quick. That's when I sensed
that
Mr. Han.awa and Mr. Schweitzer were talking to each other very frequently, otherwise 1I1r. Hanawa could
not have responded to me so quickly." (Sugino, manager at the Corporate Planning)

Although the word "global alliance" was never spelled out to his lieutenants by Hanawa, they gradually
grew convinced that Nissan would really form an alliance with Renault in the near future. Unusual actions
such as Hanawa's frequent calls to the Cor porate Planning Department for feedback on the joint projects,
or getting the managers there ac tively involved instead of confiding to his board members, or even the
rapid response from Hanawa concerning queries during the process, made Suzuki, Shiga and Sugino- gain
confidence that soon a big decision would be made by Hanawa.

There was also a sense of confidence building at the planning level. Although the decision would ultimately
be made by Hanawa, the actions leading up to the alliance were taken by the Corporate Planning
Department. As Suzuki said, "We made the.· alliance happen. We did it."

However, some people at Nissan wished that there were more key persons within the company involved
during the discussions with Renault. This would have helped avoid the shock that followed and allowed
Hlllnan Resources to have considered issues relating to post-alliance integration.

Hanawa and Sch weitzer

(i) Letter (June 1998) Hanawa explained that initially, he did not think that a global alliance was really
necessary. But rather, he felt the need to strengthen ,Nissan's overseas operation through, their central
office in Japan. Hanawa cOl1ll11ented, "At first I did not think of forming an alliance with Renault, but I
did consider possible joint cooperation. After all, everybody was doing that."

"1 think Mr. Hanawa initially wanted to take the independent survival approach when the options were
opened to him after the Global Business Reform Plan presentation in May 1998. During the months
between July and December I think he tried to do both, but ultimately, came down to the global alliance
approach." (Shiga, manager at the Corporate Planning)

(ii) Negotiation with Schweitzer (July-December 1998) In July 1998, Hanawa decided to meet Louis
Schweitzer, the Chairman of Renault. This was the first of many meetings to follow.

Between July and December, 1998, the two men met more than ten times in addition to numerous private
telephone calls, to discuss the alliance. All of the meetings were one-on-one affairs, with Hanawa's long-
time translator the only outsider present.

"The relationship I had with Mr. Schweitzer was one of honesty. In fact, the first thing I said to Mr.
Schweitzer when I met him in July was, 'I am going to be frank with you, whatever the negotiation results
may be. So let's be frank with each other.' But with many people around, it is difficult to tell each other the
truth, that is why I decided to negotiate alone. This also avoids insider risk. I think Mr. Schweitzer, on the
other hand, was more careful about opening up to me because of the previous experience with Volvo. I
believe the process leading up to an alliance is all about telling the truth; dishonesty only makes the
process longer." (Hanawa, President)

(iii) Proposal of Potential Synergies During the course of their discussions, Hanawa and Schweitzer both
agreed on the need to conduct joint studies prior to the alliance, in order to assess the organisational fit
at the operational level. Both CEOs indicated to their Planning Departments to fonn a shopping list of
possible joint projects and to perform these projects specifically in the form of "joint study teams." The
CEOs wanted the potential synergies to be proposed by the operational level of both sides and set a year-
end deadline for the results.

"In a car company, when there's a problem, the problem normally rises from the engineering department.
So engineers were selected from both sides to work on research topics for 3 months. Similar projects were
performed for other departments as well. As a result, there seemed to be a good chemistrchemistry
between Renault and Nissan." (Hanawa, President)

As the joint study progressed between Renault and Nissan, Schweitzer and Hanawa started to see an
organisational fit between the two companies.

"I was impressed with two things about Renault. Firstly, I was impressed with Mr. Schweitzer's
courageous decision to embrace a new business opportunity, and secondly, the fact that we had agreed on
the terms of equal position. This was important for me, as dominance destroys motivation. Once Nissan
picks up, we will buy a share in Renault's equity. These are the terms that we both agreed on." (Hanawa,
President)

Hanaw. emphasised that the assessment from the joint study teams was the determining factor for the
alliance.

"Take for example, platform integration between Renault and Nissan. Nissan currently has 26 ranges of
platforms and Renault has 8. If after the alliance, we can produce a common range of 10 platforms, it
would reduce cost and increase efficiency. We all know that the concept is good, but we will never know if
it is the right decision to make unless we do it. So I decided on the alliance to let actions take over, ... :Mr.
Schweitzer told me about Carlos Ghosn's key role in the turn around of Renault three years back ... I let
him know that I wanted that man [to help Nissan]." (Hanawa, President)

(iv) Renault's "Big Picture" Presentation (10 November 1998) In October 1995, Schweitzer met Hanawa
and articulated his perspective on the potential" alliance between the two companies. Hanawa
commented, "I did not agree with it from the start of course. But I was not surprised. Through our
discussions, I felt that Mr. Schweitzer always had a mOre comprehensive view of the partnership
than I did. I took it as one opinion."

At this time, Schweitzer expressed an interest

in sharing his views with a larger set of people at
Nissan. Hallawa agreed to let Schweitzer and his
team fly over to Japan and make a presentation
about Renault's cost reduction experience, as well
as the potential synergies to be gained from an alliance
between the two companies. The presentation
to Hanawa and some ofNissan's top executives
was held on 10 November at Nissan headquarters.
Schweitzer, Douin and Ghosn explained Renault's
cost reduction capabilities and presented a comprehensive
turn-around plan.

"At the presentation, the participants were informed

for the first time of the overall direction which the
joint studies might be leading towards. But to be
frank, I myself was amazed at the details of their
study concerning the potential synergies. I was surprised
at the level of research as well as the level9finvolvement
with which Renault had progressed with
the alliance plans. Because at Nissan, the negotiation
was strictly kept between Mr. Shcweitzer and 1. This
was the difference between Renault and Nissan.
Renault knew exactly what they wanted from the beginning.
I think our board only understood it as one
possibility." (Hanawa, President)

(v) Final Meeting (21-23 December 1998) On

15 December, the final reports from the joint study
teams were submitted, and the' "synergy effect"
figures were presented. Based on these figures,
Schweitzer and Hanawa met on 21-23 December
to hold a final meeting on the alliance plans. On
23 December, Hanawa let Schweitzer know that the
alliance talks would not be exclusive, and that
Renault would be asked to bid for both Nissan
Motor and Nissan Diesel.

In effect, DaimlerChrysler had been in negotiations

with Nissan Diesel, Nissan's affiliate truck
company, since May' 1998. Juergen Hubbert,
DaimlerChrysler board member for passenger cars
remarked that, "Nissan Motor would help DaimlerChrysler
to achieve its aim of 20-25% of group
sales being in Asia within 10 years. In the shortterm
we can do without a foothold in passenger
cars in Asia, but we cannot do without one in
trucks. Entering the Asian truck business is most
urgent for DaimierChrysler, but Nissan Diesel and
Nissan Motor are interwoven in such a way that we
are forced to talk about both."IO

Hanawa later commented upon the interest of

DaimlerChrysler,

When Daimler and Chrysler merged in May 1998,

Mr. Schremp talked about his interest in Nissan
Diesel. This caused problems as it was supposed to be
internal information, but by then, the Japanese press
took it up as a great scoop.

Just a rumor?

"Determining an alliance partner actually involves a

lot of work, joint study teams, bottom-up reporting,
etc .... In view of all the work that was put into the
study process with Renault, I imagine that evaluating
another alliance deal at the same time would really be
a major undertaking." (Shiga, Corporate Planning)

(vi) Final Run After December 23 and until

March 13, when Renault and Nissan finalized the
basic alliance agreement, Hanawa and Schweitzer
met only twice more. The core of the negotiations
ended in December 1998.

"Alliances are not a money-game, especially for car

companies. We have responsibility for people at all
levels. \Ve all believed and trusted in Mr. Hanawa's
decision. We believe he did the right thing." (Shiga,
Corporate Planning).

On 15 January, due diligence commenced and

the legal and finance departments took over.
Hanawa had set a deadline of March because he felt
that prolonging the proce$s only created conflict
and turmoil.

DaimlerChrysler ended all talks with Nissan

on March II, 1999. The RenaultlNissan alliance
agreement was officially signed on 27 March 1999.
This agreement aimed at strengthening Nissan's financial
position and achieving profitable growth
for both companies. On 28 May 1999, Renault invested
643 billion yen and acquired 36.8% of the
equity of Nissan Motor and 22.5% of Nissan
Diesel.