Although Fernando Alonso is only 24 years old, he is already used to winning awards and being showered with champagne. The Spanish driver began to press hard on the accelerator back in 2001 when he joined the world of Formula One as a member of the Minardi racing team. Gradually, Alonso improved his racing position. He abandoned Minardi to join Renault, first as a test driver. Since 2003, he has been its official driver.
Alonso’s meteoric career has catapulted him to the highest possible level. Last Sunday [September 25], he became the new world champion of Formula One. Alonso is the youngest driver in history to win that title, eclipsing the record set by Brazil’s Emerson Fittipaldi 33 years ago. Fittipaldi was only 25 years old when he became the Wunderkind of the driving circuit.
Alonso has also been awarded the 2005 “Prince of Asturias Sports Prize.” That’s because his performances have thrilled millions and introduced so many Spaniards to auto racing, and because Alonso is the first Spaniard to win the Formula One title. The Prince of Asturias prize has been awarded to such personalities as cyclist Miguel Indurain, tennis player Steffi Graf, track star Carl Lewis and Juan Antonio Samaranch, ex-president of the International Olympic Committee. A native of Oviedo in Asturias, Alonso has recently been named a UNICEF ambassador.
A One-Man Advertisement
Alonso has become more than just an authentic hero for Formula One fans and an idol for young people. Alonso is also a one-man advertisement. Several major brands are using the young driver as the perfect store window for their promotional activities.
With his annual income of 15 million euros, Alonso is the second-highest money winner in the Formula One circuit, but he is light years behind his rival, Germany’s Michael Schumacher, who earns 66.4 million euros a year. Forty-seven percent of Alonso’s income (some 7 million euros) comes from his deal with the Renault racing team. The rest of his earnings come from his personal sponsors, including Sandoz, Hero Musely and Leaseplan. There is also some money from sponsors who back the entire Renault team. Marketing and advertising experts see Alonso as an attractive figure because of “his youth, his great potential for the future, and his international scope,” says Matteo Cambi, who runs the Guru clothing brand , one of Alonso’s sponsors, adding that his company values “his youth, his winning image, his intelligence and his personality.”
The young driver has also become a gold mine for the Renault team, and not just in the realm of sports. Such companies as Telefónica, the Spanish telecom operator; Mild Seven, the cigarette brand; Elf, which makes motor oil, and Michelin, the tire company, have sponsorship agreements with Alonso and his team. In fact, Telefónica has even announced that it is abandoning its sponsorship of motorcycle racing to focus entirely on Formula One and Alonso.
However, the impact of Formula One on these companies’ sales is less clear, analysts say. Experts agree that the positive image of the Renault team can help improve the fame of its brand. But they say that this does not necessarily translate into higher sales volumes. “The impact of the racing team on sales varies as a function of two factors,” says Ignacio Urrutia, a specialist on sports at the IESE business school. “The first factor is the trend in a company’s sales. The second factor is its brand recognition. In the case of Renault, sales are trending upward. In addition, the brand is very well known. As a result, in this case you can’t tell if the increased sales of Renault cars are a result of Formula One or just part of a trend that was already happening.”
Many investors view automakers’ participation in Formula One as an expensive diversion and a money loser for the companies. There have been recurrent rumors that Renault could abandon Formula One, especially since Brazilian-born Carlos Ghosn took control of Renault last April. Ghosn is known by the nickname of ‘cost killer’ because he is fearless about applying severe cost-cutting measures to the companies he runs.
“Carlos Ghosn’s strategy at Nissan … is hardnosed, and focused on cash flow,” wrote professors Kimio Kase, Francisco José Sáez-Martínez and Hernán Riquelme in their book, Transformational CEO: Leadership and Management Success in Japan. Kase explains: “If we extrapolate the conclusions we made in the book, I tend to think that the new management [at Renault] would not be very enthusiastic about participating in Formula One. That is what we think. However, the decision Ghosn makes could turn out to be quite different from our best guess.” Kase is a professor at IESE’s center for the management of sports institutions, known as the CSBM.
History of a ‘Cost Killer’
Carlos Ghosn is a multicultural amalgam. He was born in Brazil 51 years ago, but his family is of Lebanese origin. He was educated in France and earned a degree at the Ecole Polytechnique in Paris in 1974. He began his professional career at Michelin. At the age of 27, Ghosn became the youngest factory manager in the global tire company. Four years later, he was named head of Michelin’s South American subsidiary where he began to earn his nickname of ‘cost killer.’ His management skills catapulted him into the presidency of Michelin in North America, where he became the architect of the company’s takeover of Uniroyal Goodrich in 1990.
In 1996, Ghosn jumped to the top of the automobile world. Louis Schweitzer, president of Renault, picked Ghosn to manage a cost-cutting plan at a time when the company was facing serious problems. Ghosn’s plan led to the shutdown of the company’s factory in Vilvoorde, Belgium, which had employed 3,000 workers. Employees rioted in an effort to prevent the cuts from being carried out. At the time, the auto industry was becoming obsessed with the importance of corporate size, triggered by the merger of Daimler-Benz and Chrysler. Renault felt that it was too small to compete, and it decided to buy a 36.8% stake in Nissan for $5 billion. Ghosn’s moment of truth had arrived. Ghosn, Schweitzer’s number-two man, was named managing director of Nissan.
Ghosn’s role as a ‘cost killer’ for Nissan did not turn out to be an easy one. He was at the helm of a boat that was taking on plenty of water. Nissan was on the verge of suspending its payments and it had accumulated losses of $20 billion.
Thanks to Ghosn’s managerial skills, however, Nissan became the most profitable auto company in the world over the course of the past six years. During the three most recent fiscal years, Nissan has managed to increase its sales by 27%. Last year, Nissan recorded a profit of 3.76 billion euros. According to Schweitzer, the key to this success was that “we were also clear about the fact that each company has to respect the others, and it has to help itself. It’s not that one company eats up another. This works in both directions.” Ghosn’s success contrasts with the problems that befell other auto-sector alliances, including the merger between Germany’s Daimler-Benz and Chrysler and the alliance between General Motors and Fiat, which broke apart last spring.
Ghosn’s track record at Nissan led Schweitzer, who had run the show for the company for 13 years, to choose Ghosn to succeed him at the helm of Renault. Now, Ghosn faces a double-edged task: On the one hand, he has to run Renault. On the other hand, he also has to manage Nissan, the Japanese carmaker, in which Renault owns a 44% stake. That’s quite a challenge if you consider that it is the first time someone has tried to manage two companies with such a scale, including a combined total of 250,000 employees.
It won’t be easy to run the two companies in a coordinated way. “The Brazilian strategist will have to think about how to manage them. In a globalized world, it makes no sense that the company’s two brands (Renault and Nissan) overlap with each other. He has to differentiate them, the way Volkswagen has done with Skoda, and Mercedes has done with Chrysler. Ghosn has to position the two firms in different ways in the market,” says José Mario Alvarez de Novales, professor of strategy at the Instituto de Empresa in Madrid. Alvarez de Novales does not believe Ghosn has to merge the manufacturing divisions of the companies. He thinks it would make sense to maintain independent brands that have an independent focus, while having one of the two brands target the luxury car market.
On November 10, Ghosn will win an award from the International Academy of Management, which comprises 300 people from around the world who have made contributions to management. “His leadership at Nissan has been spectacular; it has turned the company around, and it has enabled the alliance with Renault to work to perfection,” explains Pedro Nueno, a professor at IESE and vice-president of the Academy.
“When he took on the presidency of Renault, he made a contribution to innovation in the world of management,” says Nueno. “That’s because he is the president of two companies at the same time, and he is not going to merge them, which is what tends to happen [in such cases]. In addition, he is maintaining the culture of each company, and both companies are continuing to compete. This is an innovative approach.”
Ghosn’s Strategy
Ghosn, the wizard of restructuring, has not given out any hints about what is going to happen next at Renault. He will offer details about his strategy in February when he will launch a three-year plan for increasing Renault’s efficiency. So far, he has merely declared that Renault “is a little paralyzed.” Fine-tuning the French automaker will involve, among other things, increasing production of its most luxurious models and increasing production runs of all-terrain vehicles. It will also involve improving Renault’s customer service, upgrading the attractiveness of its products, raising the productivity of its sales and marketing departments, and increasing reliability.
Alvarez de Novales believes that running Renault won’t be easy for Ghosn because Renault is a “traditional French company, very focused on building products and quite removed from the market and from globalization. Ghosn is going to bring the manufacturer closer to markets, but he will face a cultural conflict because the French are not going to accept change.”
For the time being, Ghosn has reiterated that he does not plan any major changes at Renault. However, experts do not believe that he will be happy with the company’s current level of profitability, which was 5.9% in 2004 compared with 10% at Nissan.
According to Nueno, “The dominant concepts in this sector involve maintaining and improving competitiveness; those are the only ideas. Ghosn will improve all the processes in the value chain, from the design of products all the way to the customer. He will continue to strengthen the alliance between Nissan and Renault, and he will try to win market share, especially in the United States. And he will bring the two companies into those emerging markets that have potential, such as China, India, and Eastern Europe.”
Ghosn understands that “in this industry, customers are in control. You always have to be designing cars for them,” adds Nueno. “You have to be continually reinventing the company. You cannot lower your guard.”
