February 07, 2016, 23:55 / Auto / Business / Interview

“The future of the industry: the number of brands will remain, but the number of groups will decrease”

Carlos Ghosn - about the prospects of the global automobile industry, the Russian automobile market and the consequences of “dieselgate” Tatyana Lysova Alexander Gubsky President of Renault-Nissan, Chairman of the Board of Directors of AvtoVAZ Carlos Ghosn / Simon Dawson / Bloomberg

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The Davos Economic Forum is a meeting place for the powerful: politicians, businessmen and journalists from all over the world gather every year in this Swiss town to share their opinions on what is happening in the world and listen to other smart and informed people. Renault-Nissan Alliance President Carlos Ghosn, who came to Davos this year, invited journalists from Vedomosti, Les Echos and Frankfurter Allgemeine Zeitung to lunch to talk about what is happening in the global economy and the automotive industry. (The alliance also owns a controlling stake in AvtoVAZ; Ghosn heads the company’s board of directors.)

Ghosn, one of the highest paid executives in the global auto industry, chooses an unremarkable restaurant in the 4-star Meierhof Hotel for a meeting, orders himself a green salad with French dressing and schnitzel with fries, and the conversation begins.

Stock markets and refugees

Davos is a place to discuss global issues, so our first questions are not about what is happening at Renault (although the company has produced a fair amount of hot news in recent months), and not even about the prospects for the auto industry, but about the state of the world economy and stock markets. Here Ghosn is optimistic and believes that the January fall in world stock indices is just an adjustment. “Many indicators are in positive territory: commodity prices have fallen, oil has become cheaper, interest rates are low, there is a lot of cash, central banks are closely monitoring the situation, many governments are now determined not so much to stimulate economic growth, but to reduce the budget deficit, which they until recently,” he says.

According to the President of Renault-Nissan, the situation with refugees in the European Union was also actively discussed in Davos, and, according to Ghosn, the current situation requires changes to the Schengen Agreement. “Schengen existed because Europe seemed to live in a relatively safe world, where it could rely on its neighbors to control its own territory. This situation existed for many years and worked quite well,” he says. – Now it seems that we no longer live in a relatively safe world: the influx of refugees, the latest terrorist attacks, threats. It seems quite logical to me to change the Schengen rules in such a situation. How and who will decide this is not yet clear, but strengthening your own control over your territory is an absolutely logical step. I'm not saying whether Schengen is good or bad, but it is more suited to a situation where people have a sense of relative security, and in my opinion it cannot work in a world where people have a sense of relative insecurity. By taking control of borders, countries will be better able to ensure security on their territory.”

“But business is for freedom of trade and borders, and if controls are established on them, expect a slowdown in business activity and dynamics in supply chains. Business, by definition, is against any obstacles,” adds the top manager.

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New industry and new mobility

According to Ghosn, the most important and interesting topic this year at Davos is new technologies: how they will change the production process and products, how people will interact with each other, including in the workplace: “This is a fundamental question, that’s why it’s called the fourth [industrial] revolution."

The industrial revolution is gradually becoming a reality, but some experts are confident that the world is on the verge of a new transport revolution. Similar to what happened exactly 100 years ago, when horses, which had served as the main means of transportation for thousands of years, were replaced by cars in major cities within just one decade. (A century ago, there were 100,000 horses in Paris alone.) Something similar may await us in the next decade. The most radical futurists predict that the emergence of self-driving cars will destroy the institution of taxis, and will make owning your own car in a metropolis pointless: self-driving cars connected into a single network will pick up and drop off passengers moving in the same direction, moving around the city will become much cheaper and faster.

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These promising areas are already being actively pursued by technology companies who have seen a new niche here. For example, Google's self-driving car prototypes had driven more than 1.3 million miles autonomously in California and Texas at the end of last year. Tesla is also a young company that began producing electric vehicles only in 2008 and has already sold more than 100,000 of them. And this despite the fact that Tesla is much more expensive than both classic cars and other electric cars, and the infrastructure for charging them is not available everywhere - so wealthy car fans have been captivated by Tesla’s new technologies.

But Ghosn is confident that traditional automakers will be able to resist the newcomers: “Firstly, automakers do not deny new technologies and the existence of the problems that they bring with them - that would be the biggest mistake. Secondly, a car is a complex product to which simple universal standards do not apply: it must take into account such aspects as safety, harmful emissions, driving efficiency, aspirations, functionality of internal equipment, etc. Therefore, there are not many new players in this market.”

“But at the same time, electric cars, self-driving cars, fuel cell cars, etc. are emerging,” Ghosn continues. – It seems to me that people who already know how to cope with difficulties, who imagine the process of creating a car and if they have an open mind and are open to challenges and changes, have a higher chance of controlling this process. Over the next five years, automakers will continue to lead the way, after which the situation will become more open. But if I had to place bets today, I would say that automakers - through agreements, collaborations, partnerships with technology or other companies - will be able to survive and remain in the lead."

Renault-Nissan, like other major automakers, is developing alternative technologies, including electric vehicles. Last year, sales of the alliance's electric cars grew by 2.5% to a record 84,754 units. (bestsellers are Nissan Leaf, Renault Zoe and Kangoo ZE), and in general, since the start of serial sales of electric vehicles in 2010, the alliance has sold 302,000 of them. Nevertheless, the dynamics of demand for electric vehicles (and the alliance offers both passenger and commercial versions of electric cars) turned out to be worse than expected. The main problem with electric cars is not production, but sales, says Ghosn: “Because here the buyer decides whether he needs such a car. We thought that this sector of the market would grow much faster, but this did not happen. And it’s clear why: people are concerned about issues such as [insufficient] range, lack of infrastructure. As for the technology, it is very successful; at first everyone thought that there would be big problems with batteries. But people are still reluctant to buy such cars, considering them too expensive.”

“We believed that this sector would grow rapidly, in part because we believed that gas station infrastructure would be built faster,” Ghosn adds. – Changes in oil prices do not affect the development trajectory itself, because we understand that electric vehicles will still develop. And we want this sector to be not niche, but massive. But if you want to be more proactive about emissions control, there is no alternative to building more infrastructure for electric vehicle refueling.”

The president of Renault-Nissan says he is not afraid of the entry of technology companies into the auto sector: “We are more surprised and interested than worried. Worry is usually about short-term things where you don't have time to react. But here we are all talking about whether the car of the future will appear in the foreseeable future. And if someone like Apple comes along and says, “Shouldn’t we look at cars from a different angle?” – you need to pay attention to this. And most automakers are converting."

Competition among electric car manufacturers also does not frighten Ghosn, but encourages him: “The more electric cars, the better, because the choice increases. Many people buy a car thinking about how much they can sell it for later. The more widespread the technology, the higher the resale price.”

Changes in manufacturing processes, new technologies and new mobility will change the landscape of the automotive industry. “I think consolidation [in the global auto industry] will continue, but in different shapes and forms,” says the president of Renault-Nissan. – Without a doubt, in the future there will be fewer players, not more. Same number of brands, but fewer groups. And there will be a select circle of large groups that will be able to independently solve all technological issues. Some manufacturers will find it difficult to maintain this pace of change - it is a matter of scale. Consolidation will not take place in the form of “company A buys company B”: already now many manufacturers are cooperating with each other either on some technologies or in some markets, and this trend will gain strength. For example, in the case of Renault-Nissan, is it one company or two?”

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Consequences of dieselgate

Скандал с дизельными автомобилями Volkswagen Group, в которых, как выяснилось, использовалось программное обеспечение, позволявшее маскировать тот факт, что эти двигатели не соответствуют экологическим стандартам, поставил под подозрение всех производителей дизелей. В том числе и Renault (а во Франции подавляющее большинство автомобилей продается именно с дизельными двигателями). В середине января в техцентрах Renault во Франции прошли обыски, целью которых была проверка системы контроля за выбросами автомобилей.

«Дизельный скандал стал следствием использования приспособления, которое обманывало и было выявлено у одной компании, – говорит Гон. – И до этого были вопросы чистоты выбросов, но взрыв произошел после этого случая, который заставил многих автопроизводителей сильно понервничать: эта проблема есть только у одной компании или другие тоже занимались такими вещами? И теперь разные люди тестируют машины в разных условиях. Эта нервозность докатилась до Renault, и все заговорили: «Неужели Renault следующая?» Мы заявили: «Нет».

«Это разные вещи – когда у вас систематически используется обманывающее приспособление на разных двигателях, разных брендах либо когда вы находите одну машину с плохо отрегулированным уровнем выбросов, – продолжает Гон. – Пресса, конечно, сделала из этого большую историю, но нужно придерживаться фактов. В случае с Renault обманывающее приспособление не использовалось ни в малых, ни в больших масштабах. И французское правительство это подтвердило. Но люди могут беспокоиться и относительно других производителей, поэтому эта история еще какое-то время будет длиться».

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In the current situation, automakers have found themselves to some extent hostage to imperfect car testing standards: their environmental parameters are tested not on real roads, but on stands that simulate the behavior of an “average” driver. The problem is that the all-American FTP-75 test was created based on the results of measurements in one and only city - Los Angeles (needless to say, measurements in Alaska would have given a different result, and in Vermont - a third). The Japanese JC08 test is based on traffic measurements in cities with a population of over a million, but this is not all of Japan. And the European NEDC test was last updated in 1999, and according to it, accelerating a car from zero to 50 km/h should take... 26 seconds. The new global Worldwide harmonized Light duty driving Test Cycle (WLTC), which promises to reflect reality, should replace the NEDC no earlier than 2017.

It is this legally approved discrepancy between tests and reality that Ghosn points out: “Testing of cars from different manufacturers is carried out according to an officially approved protocol, and if the car passes this test, that’s it, there’s nothing to talk about. But if you test them in different conditions - with five passengers, not three, with the heater on, weaving along the road, constantly accelerating and braking sharply - then the results can be such that you exclaim: “Oh my God! The emissions levels are completely different from what was reported!” But this is obvious. And everyone knows about it. And interesting discussions begin: is exceeding the norm by 5 times a lot? And at 10? But there must be rules. If they are not there, no result will be satisfactory.”

The President of Renault-Nissan points out that despite “dieselgate”, the share of purchases of diesel cars in France increased last year. “And people are very careful about the resale value of a car,” he says. “After all, if disputes about some technology end badly for it, the person thinks, it will be bad for me, because I will have to sell the car for less money.”

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Faith in Russia and new markets

In 2015, sales of new cars in Russia fell by 35.7%. The alliance showed results slightly worse than the market: Renault sales decreased by 38%, Nissan - by 44%. AvtoVAZ increased its market share - its sales fell by 31%. “Russia is falling very quickly, and when this happens, it is very worrying,” Ghosn comments. “But we need to be prepared to recover.” Not only in terms of capacity, but also in terms of quality, new cars, platforms. So we must continue to work and invest so that when recovery comes, we are well prepared. Automakers who believe that there is no future in Russia have already left.”

According to the President of Renault-Nissan, the alliance will increase localization in Russia: “This is an important issue due to the weakness of the ruble. For us, this is a matter of competitiveness. Of course, the government will be happy to increase localization, but this is simply in our interests.”

Ghosn notes that AvtoVAZ President Bo Andersson has to act in very difficult circumstances: “At first we asked him to establish normal operation of the company. But, having arrived at a growing market, he unexpectedly found himself in a situation where it had shrunk by half - in a company that sells products mainly in Russia. At Renault, we are suffering from what is happening in Russia, but we are also working in other markets where we can compensate for these losses. And in the case of AvtoVAZ, exports are small - to the CIS countries. People don’t understand how severe a shock this is for AvtoVAZ. Devaluation may help exports, but not much.”

“[Andersson] is doing what we, as board members, with partner Rostec, ask him to do,” Ghosn adds. – This is a difficult task. We hope that one day we will see the light at the end of the tunnel. I think oil prices will continue to fall for a little while, and when they start to rise, we will see the beginning of a recovery.”

At the moment, according to the president of Renault-Nissan, the main growth points for Renault are India, China, where the company is opening a local plant in February, and Europe. “These three regions will account for the majority of Renault's growth,” says Ghosn. – There are many areas and opportunities for growth for Nissan, especially in the LCV and small car sectors; plus there's [luxury brand] Infinity. Nissan is also a major investor in Russia and Brazil. Now they are not showing good results, but when the recovery begins there... Let's not forget that we have 34% of the Russian market, and it fell by 35%. This is a huge loss for us, but when it goes up it will be a huge gain.”

Davos

Mikhail Overchenko contributed to the preparation of this article