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Carlos Ghosn may wait months for a trial. That's time Renault-Nissan doesn't have

Carlos Ghosn could be held in a Japanese jail for another six months before he's put on trial for alleged fi...

Posted: Jan 8, 2019 1:16 PM
Updated: Jan 8, 2019 1:16 PM

Carlos Ghosn could be held in a Japanese jail for another six months before he's put on trial for alleged financial crimes. The powerful autos alliance he leads can't afford to wait that long.

The auto executive proclaimed his innocence in a Tokyo court on Tuesday, appearing in public for the first time since his arrest seven weeks ago. But Ghosn's lawyers fear prosecutors will keep him in jail until a trial begins.

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"My greatest concern, and Mr. Ghosn's, is that he will be denied bail until the trial starts," Motonari Otsuru, Ghosn's chief defense lawyer, told reporters.

Ghosn, 64, is the architect of an unusual alliance between Renault (RNSDF), Nissan (NSANY) and Mitsubishi Motors (MMTOF) that produces one out of every nine cars sold worldwide. But his arrest and subsequent indictment has inflamed tensions within the group and thrown its future into doubt.

Nissan, which is cooperating with Japanese prosecutors and has also been indicted for alleged financial crimes, reiterated Tuesday that it found "substantial and convincing evidence" of misconduct by Ghosn. It has removed him as chairman. So has the alliance's other Japanese member, Mitsubishi Motors.

But Renault has stood by Ghosn, and he remains chairman and CEO of the French company. A Brazilian-born French citizen who grew up in Lebanon, Ghosn also remains CEO of the alliance.

Left behind

With its leader facing a protracted legal battle, the biggest risk facing the alliance is a lack of coordinated investment at a time of rapid change for the global auto industry.

"What value does the alliance serve? You can make big investments which over time pay off in big ways," said Demian Flowers, an autos analyst at Commerzbank. "That's precisely what's not going to happen in the current situation."

Carmakers are investing tens of billions of dollars to develop battery technology and autonomous vehicles that promise dramatic changes in global transportation. Automakers are partnering up and investing in joint research projects in order to fend off challenges from upstart automakers like Tesla (TSLA) and deep-pocketed tech companies, such as Alphabet (GOOGL), Apple (AAPL) and Uber.

So long as Ghosn remains in jail, the Renault-Nissan alliance is likely to be stuck on the sidelines.

"No deepening of the alliance can take place, which is really unfortunate," said Flowers. "You need to be making bold investments in order to survive in the current context."

What's next for Ghosn

A Tokyo court has already approved a request from prosecutors to extend Ghosn's detention until January 11.

Ghosn's lawyers said at a news conference Tuesday that they expect him to be either indicted or arrested yet again on new allegations. They plan to keep trying to get him released on bail.

The auto executive is unable to work while in jail. Visits from lawyers, family and friends are strictly controlled by prosecutors in Japan, making it difficult even for suspects to establish a defense.

Ghosn and Nissan were indicted in December on allegations that they under-reported his income by tens of millions of dollars between 2010 and 2015. That charge carries a maximum prison sentence of 10 years.

Prosecutors are also investigating allegations that the practice went on for longer and that Ghosn temporarily shifted 1.85 billion yen ($16.6 million) of losses from his private investments onto a Nissan subsidiary.

In his remarks on Tuesday, Ghosn denied the allegations of under-reporting his income, saying that he "never received any compensation from Nissan that was not disclosed."

He said that foreign-exchange contracts that he temporarily transferred to Nissan in 2008 during the height of the financial crisis didn't result in any loss for the company.

The stakes are high. More than 99% of people charged with a crime in Japan are convicted, according to experts.

A spokesperson for Renault declined to comment on Tuesday. A Nissan spokesman declined to comment specifically on Ghosn's remarks to the court or the legal proceedings.

"The most important thing today is that the presumption of innocence be respected and that we look after the Renault-Nissan alliance," France's labor minister Muriel Penicaud told local media in France. The French government owns 15% of Renault.

But the alliance is likely to be shackled while Ghosn remains in detention.

"It's much easier to do nothing than to make a bold investment," said Flowers.

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