Why the Carlos Ghosn scandal matters

He was the driving force behind one of the leading powers in the auto industry, an alliance of three separate companies that employs over 470,000 people, operates 122 plants and sold 10.6 million vehicles in 2017.

And now Carlos Ghosn is in deep trouble.

The auto industry was rocked Monday when Nissan said that an internal investigation had uncovered evidence that Ghosn had lied about his income over many years and misused company assets.

With 40 years of industry experience, Ghosn is no ordinary automotive executive.

In addition to his position at Nissan, where he was also CEO until last year, he is chairman at Mitsubishi Motors. He currently serves as both CEO and chairman of French carmaker Renault.

The three companies have more in common than a single chairman. They also share ownership stakes.

So while they sell to different customers under different brands, and are based on two continents, the trio of automakers function in some key ways like a single entity.

Many top executives in the alliance report to three separate CEOs. Major decisions by each alliance member on products and investment are made only with agreement of the other two partners.

Related article Carlos Ghosn saved two companies. Now his legacy is in doubt

Ghosn was the driving force behind the alliance. He took what had been three second-tier automakers and brought them together into a single power with joint sales roughly on par with Volkswagen, Toyota and General Motors.

Between them, Renault (RNSDF), Nissan (NSANY) and Mitsubishi (MMTOF) make one of every nine cars sold around the world.

The industry’s most successful alliance

There have been other auto industry alliances over the years, but none had worked so well or brought the different parties so close together. Ghosn showed the industry that alliances can work and produce billions in savings.

The alliance started with Renault and Nissan coming together 19 years ago. Renault holds a 43.5% stake in Nissan, while Nissan owns 15% of Renault. Mitsubishi joined in 2016 when Nissan purchased 34% of its stock.

At a press conference Monday evening in Japan, Nissan CEO Hiroto Saikawa said he’s confident the cooperation between the alliance partners will continue even though Nissan is seeking to remove Ghosn as chairman.

He said he thinks it’s very possible the three partners could agree on a single joint chairman as a replacement.

“I wouldn’t say the impact is zero,” he said through a translator. “However we will do our best [to minimize the impact]. This alliance partnership itself will not be affected by this event.”

The global auto industry needs to invest tens of billions of dollars to develop electric and autonomous cars — before tech companies get there. Other automakers, such as Ford (F) and Volkswagen (VLKAF), are in talks for new alliances.

Rebecca Lindland, a senior analyst with Cox Automotive, said the scale of the challenge facing the auto industry means the alliance created by Ghosn will survive. But it won’t be business as usual.

“It doesn’t break apart. But there’s going to be disruptions for sure,” she said.

The alliance had been planning for life after Ghosn, who was expected to retire as CEO of Renault by 2022. Lindland said that an accelerated search for a replacement would likely cause disruption in the top ranks.

“There may be plenty of people who’s day-to-day jobs won’t change,” she said. “But there is going to be some executive fallout. Anytime there is disruption at top, that is this sudden, it’s bound to wreak a little havoc.”

Mitsubishi said it was proposing that its board “promptly” remove Ghosn from that position, and Renault said its board would meet “very shortly.”