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Renault's message to Nissan: Fiat deal 'good for all of us'

The proposed merger will benefit Nissan, which is part of carmaker group producing 15 million cars a year

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Renault chairman Jean-Dominique Senard arriving at Tokyo's Haneda Airport on Tuesday. Mr Senard replaces Carlos Ghosn, and is trying to put the alliance back on stable ground.

Tokyo

RENAULT chairman Jean-Dominique Senard arrived in Tokyo with a crucial mission: to sell the proposed merger between Fiat Chrysler Automobiles NV and Renault SA to long-time partner Nissan Motor Co.

Mr Senard, who is said to be tapped to lead the combined company, will attend a monthly scheduled meeting on Wednesday morning for the board overseeing the alliance between Nissan, Renault and Mitsubishi Motors Corp.

While neither party has disclosed what will be discussed, there will be plenty to talk about. Under the terms of the Fiat proposal, Nissan will gain voting rights of 7.5 per cent in the new entity, compared with no voting rights attached to its cross-held shares in Renault. A merger would also dilute the French state's control over Renault, and indirectly over Nissan, easing a concern the Japanese company has had for years.

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Mr Senard's goal is to ensure that they all work well together. Although Nissan and Renault have been partners for two decades, the Japanese carmaker isn't in a position to block the deal. Nissan doesn't own a controlling stake in the French company, and a merger wouldn't breach their operating agreement.

Even so, Nissan is a critical part of what would be a global carmaking confederation that would produce 15 million cars a year, the most in the world. Renault and Fiat both need Nissan to facilitate access to markets in China, Japan and the rest of Asia, as well as electric-car technology.

Nissan chief executive officer Hiroto Saikawa told reporters on his way to the meeting that he's interested in learning more about the deal and its impact on the company. "There may be opportunities, but I want to look at it closely from Nissan's point of view," he said.

The three-way alliance later issued a statement, saying that they held an "open and transparent discussion" on the merger proposal. "The meeting also discussed and positively concluded several current operational alliance matters," the partners said.

"Senard has to convince the board members of Nissan this is probably a better idea for Nissan," said Koji Endo, an analyst at SBI Securities in Tokyo. "He will have to reassure not only Nissan but also the Japanese government that Nissan will remain as one independent company, because that's their primary concern." Renault's board is expected to give preliminary approval to Fiat's proposal as soon as next week, according to people familiar with the matter. While Fiat and Renault aren't seeking a merger with Nissan for now, the companies plan to eventually invite Nissan and Mitsubishi Motors to join forces, they said.

"The benefits that would accrue from a combination of Groupe Renault and FCA, we believe, would also extend to the Alliance partners - Mitsubishi and Nissan," Fiat Chrysler told its dealers and suppliers Monday.

"We look forward to engaging with them on even greater, mutually beneficial opportunities." At stake are the companies' ability to compete as the industry faces multiple challenges. With sales falling in the world's biggest car markets, manufacturers are being pushed by regulators to electrify and reduce fleet emissions, forcing them to combine efforts and investments. They also need to spend heavily on self-driving technology or risk getting left behind by new, deep-pocketed competitors like Alphabet Inc's Waymo.

Although Renault owns a 43 per cent stake in Nissan, the Japanese automaker is the bigger partner by sales and owns 15 per cent of Renault, with no voting rights. Nissan sold 5.65 million cars last year, more than Renault's 3.88 million units, but its profitability has been on the decline. Hurt by slumping US sales, ageing vehicle models and an out-of-sync product cycle, the Japanese carmaker issued an outlook for weak operating profit and cut its dividend for the first time in a decade.

The alliance was destabilised six months ago with the arrest of Carlos Ghosn, its architect and chairman, for alleged financial crimes during his time as leader of the Japanese carmaker. Ghosn has denied all of the charges and is preparing for his trial, which will probably start next year.

Mr Senard, who replaced Ghosn as chairman of Renault and the alliance, has sought to put the three carmakers back on stable ground following his predecessor's arrest. He worked earlier this year with Nissan to craft a new governance structure to oversee the partnership, giving up key concessions over board seats to assuage concerns by the Yokohama-based company.

Although Mr Senard had been prodding Mr Saikawa to consider further consolidation under a holding company structure, that's now on hold. Eventually, they plan to invite the Japanese carmaker to deepen ties, people with knowledge of the matter said.

Mr Saikawa, who had rebuffed any talk of merging, now appears to be shifting his message. Talks between the European car companies will bring more opportunities and be positive for the future, Nissan's CEO said. "It's better if the alliance's reach expands," he said.

Earlier this week, Nissan had signalled that it doesn't view an extensive deal between them as a positive development. "The deal shows what could happen between Renault and Nissan down the road," said Tatsuo Yoshida, an analyst at Sawakami Asset Management Inc. "Renault's bargaining power will increase if the merger talks succeed." BLOOMBERG