Carlos Ghosn on His Double Duty

The auto exec discusses how he'll help Nissan hang on to its industry-best profit margins while taking over as CEO of Renault

Carlos Ghosn is about to become one of the world's busiest auto execs. The 51-year-old Brazil native, CEO of Japan's Nissan Motor (NSANY ), will add CEO of Renault (which owns 44% of Nissan) to his résumé. The first job would be enough for most execs -- Ghosn is revered in Japan for his role in rescuing Nissan from oblivion -- and assuming the second one is a huge task by anyone's standards. Ghosn himself admits he'll be taking on these extra responsibilities at a time when business risks are especially great.

Ghosn's last act before assuming double duty was the Apr. 25 unveiling of a new strategic plan at Nissan, called Nissan Value-Up. He's confident the strategy will help Nissan remain the auto industry's most profitable company and allow it to post annual returns on investment of 20% through fiscal 2007. Nissan is also targeting a 24% increase in production, to 4.2 million vehicles a year, by fiscal 2008. Also on Apr. 25, Nissan announced record operating profits of $8 billion -- up 4.4% from a year earlier -- on sales of $79.7 billion.

The next day, in a one-to-one interview with BusinessWeek Tokyo Correspondent Ian Rowley, Ghosn spoke about his plans for Nissan and how he will square them with his new role at Renault -- where he was formerly chief operating officer (see BW, 4/25/05/, "What Ghosn Will Do With Renault"). Edited excerpts of their conversation follow:

Q: What can people expect from Nissan's new "Value Up" strategy?

A:

It's not a revolutionary plan. It's evolutionary because you see the same ingredients that were in our previous three-year plan. You see growth -- we'll [produce] 4.2 million cars a year by fiscal 2008 -- and you see top-level performance in operating margins.

Q: How do you respond to those analysts who have criticized Nissan for being too conservative in its forecasts?

A:

We've [had] record profits even in these uncertain times. We manage to be very transparent because it's the only way to be consistent. Sometimes the market will be favorable, sometimes it won't. But one thing I'm sure about is that it will always reward long-term performance.

Q: But you accept you've been cautious?

A:

I'm not usually cautious. When we announced [our last two] plans, no one could say we were cautious, but at the same time, we're pragmatic. I didn't say I was cautious without giving reasons. I gave five reasons [from exchange-rate volatility to higher interest rates] which no one can contest. From an economic point of view, nobody can predict today how 2005 is going to be.

Q: Last time Nissan launched a new business plan, you promised operating margins of 8%, but this time you're not specifying a numerical target. Why is that?

A:

When we announced Nissan 180 [Nissan's previous three-year plan], I knew the company was capable of much more than the 8%. We've since delivered more than 10%, which meant my intuition was justified. Today, I could give you an operating margin forecast of 10%, but that would be ridiculous if the yen-dollar exchange rate went to 130 -- we would be way above.

On the contrary, if the yen-dollar rate were to go to 90 and the steel price rose, 10% would be an extremely difficult target.

Q: So are you saying that Nissan's operating margin could fall below 10%?

A:

Yes, it may. But it may go up if the environment is better. What I'm saying is that we're committed to being at the top level among global auto makers independent of the environment.

Q: What's the thinking behind your plan to provide 20% returns on investment capital for the next three years?

A:

We want our shareholders and partners to know that we're using the company's assets in the best way possible. We're committed to returns of 20% [on invested capital] -- also the highest in the industry -- for the next three years. This gives us justification to grow the company.

Q: Is there still room for more cost-cutting at Nissan?

A:

I think 4% cost savings a year for the next three years is a reasonable number.

Q: Can you give an example where you'll make savings?

A:

We're going to be really using the potential offered by markets like China, Thailand, India, Egypt, and Brazil. One example is our Huadu Plant in Guangzhou, China, where we're establishing production capacity of 270,000 cars. The cost of investment at this plant is half the cost in the U.S. This isn't because it's less automated or the quality is low. The quality is equivalent to the top level within Nissan.

Q: Does that mean you'll be moving production toward lower-cost countries?

A:

There's huge opportunity for car manufacturers to use the potential of [those] countries. But it's to complement -- not to substitute -- production. I don't want this to be seen as a threat, it's more an opportunity. As we grow, we'll use more of these resources to add to our existing resources.

Q: Can you use Nissan's relationship with Renault to save costs?

A:

Sure. In purchasing we already work together. For instance, when we select suppliers for China, we're doing it for the alliance. When we work together, we can select the best, and it works very well.

Q: Will there be more opportunities once you're running both companies?

A:

Yes, but if you do something [where] one company is frustrated or not convinced, you may have a quick win, but it's going to be a long-term loss.

I'm not interested in maximizing today's performance to the detriment or three or five years down the road. I'm interested in having a good balance between the short term and long term. That's why I want the spirit of the alliance to be kept alive and strengthened.

Q: How can you manage two big companies like Renault and Nissan simultaneously?

A:

It's actually relatively simple. The most important [thing] is to make sure the strategy and the priority in each company is clear. That way, people can make decisions on their own without having to [confer with] anybody else. I'm not going to micromanage.

You also have to have a good management team -- people who are performers, not whiners. I'm blessed that on both sides we have performers and not whiners at the top level.

Q: What about yourself?

A:

Until December, 2005, I'll spend two-thirds of my time with Renault and one-third with Nissan. That's logical. I know Nissan by heart. I need to reconnect with Renault. It has changed a lot over the last six years. I need to recontact the people and start making my own diagnosis of the company. After 2006, 50% of my time will be with Nissan and 50% with Renault.

Physically, it will be 40% of the time in Japan, 40% in Paris, and 20% in other markets, particularly the U.S., which continues to be the most crucial market for Nissan and consequently the most crucial market for the alliance.

Q: At Renault, will you still be able to take a hands-on role -- regularly visiting factory floors and overseas plants -- as you have at Nissan?

A:

I don't see myself as someone sitting in a luxurious office in Paris or in Tokyo and asking for reports. To get a sense of a company you have to see the leaders, the plants, and the technical centers, and understand what people feel about the company.

Q: Can you deliver similar levels of profitability at Renault as you have at Nissan?

A:

There's a potential for Renault to grow and for Renault to be more profitable. If I didn't believe that I wouldn't take the job. I would've have stayed in Japan and enjoyed the ride with Nissan.

Regarding the details, you're going to have to be a little bit patient until I make my own diagnosis of the situation. After three or four months of listening, I'll have a pretty good picture of what's going on. But at the moment, I have one tool -- two ears, and that's it.

Edited by Patricia O'Connell

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