A New Order At Nissan
Nissan Motor Co. and Renault: The most improbable marriage in the auto world. That was the opinion among many car industry executives last spring, when the French auto company acquired almost 37% of beleaguered Nissan and installed a top executive in the Japanese carmaker's boardroom to turn things around. Executives in Detroit, Toyota City, and Stuttgart could barely believe it. Who would want debt-plagued Nissan--especially after DaimlerChrysler looked at a deal and walked away? And how could the French fix this mess?
Come Oct. 18, the auto world will get some answers to these questions. That's when Nissan announces a major restructuring plan. If the plan is as tough as analysts hope, the Nissan-Renault tie-up could turn out to be a winner in the auto-merger sweepstakes, and Nissan's workout will set a new standard for restructuring in Japan. If not, Renault's executives will look like suckers for believing Japanese promises of reform. And Nissan will sputter further back into also-ran status.
SECRET PLAN. The man at the center of this bold experiment is Carlos Ghosn, the former Renault executive vice-president who took the steering wheel of Nissan as its new chief operating officer on June 25. Ghosn stripped costs out of Renault's manufacturing and helped revive the carmaker's fortunes. Already, by working a solid 13 hours a day at Nissan, he has streamlined decision-making and shed assets ranging from stakes in parts suppliers to unprofitable telecommunications subsidiaries. He wants Nissan back in the black by 2001, in contrast to its $261 million loss last year. "There is one thing that is not negotiable--that Nissan comes back to profit very quickly," he vows. Meanwhile, Nissan Chairman and Chief Executive Yoshikazu Hanawa is keeping a low profile as Ghosn tears through the company.
Ghosn is keeping mum about his plans, which are expected to cause a huge stir. Analysts say the only way to put Nissan on a sound footing is through reducing head count--perhaps by as many as 11,000--and outright plant closings, even in Japan.
Analysts estimate Nissan's Japan factories are operating at only 60% of capacity. That's bad: Auto makers need to reach 70% to break even. "They have no choice but to close more than one plant in Japan," says Koji Endo, automotive analyst at Schroders Japan Limited. Likely targets include assembly plants in Murayama and Oppauna, the factories of Nissan body assemblers Nissan Shatai Co. and Aichi Machine Industry, and Nissan's four engine factories, such as Nissan Koki. Nissan also needs to cut in half the number of platforms it uses to build cars. And it should coordinate research and parts purchasing with Renault.
Many in the industry wonder if Ghosn can overcome the institutional resistance to such massive, painful change. He does seem to be lighting a fire under his managers. They're pulling all-nighters at the office, fixing problems over 7 a.m. power breakfasts, and picking up the new languages at Nissan--English and French. "For us, it's as big an impact as the Meiji Restoration, when Western civilization first arrived in Japan," says Ryoji Nitta, general manager of domestic product planning at Nissan. "This is an entirely new Nissan."
And that's just how their new foreign boss wants it. "For a company that has been losing money for seven years out of eight, there is not enough of a sense of urgency. People should be banging their heads on the walls everywhere," says Ghosn.
Outside Nissan, execs watch with envy. Ghosn symbolizes not only the potential arrival of major layoffs in Japan but also the end of stifling seniority systems, boards where everyone is over 60, and business decisions based more on relationships than on profitability. Says the director of the board of a Toyota-affiliated auto-parts supplier: "Maybe we could use someone like Ghosn."
Of course, Ghosn is inspiring the troops now because he has not yet announced the bad news. Nissan's unions are cooperating, but that could change if Ghosn wants massive layoffs. Even Nissan executives who admire Ghosn now may balk at forcing people out in the middle of a recession.
Thus Ghosn's work is really just beginning. The company is widely believed to be planning the sale of its aviation and aerospace division. The pain will spread to Nissan's vast archipelago of suppliers. For years, Nissan has valued suppliers' loyalty over their performance. Ghosn plans to turn that formula on its head. He believes Nissan can no longer afford to be crippled by second-rate parts makers. "We need more global suppliers," says Ghosn. "Global means companies that are able to rework and supply across continents."
Analysts expect to see the same discipline applied to Nissan dealers. Nissan has already started to streamline its dealership networks. Yet Nissan still doesn't have enough killer models to support its web of 3,769 showrooms, and many dealers are hemorrhaging. Some worry Ghosn may ask them to sell Renault cars in their showrooms as well. "Selling Renault cars requires investment in new equipment," says Hiroyuki Ogura, spokesman for Tokyo Nissan Auto Sales Co. "That will be difficult for dealers in their current condition."
So Nissan needs to roll out exciting new models as fast as it can. Ghosn wants to combine Renault's flair for style with Nissan's excellent engine technology. "The problem is putting more attractiveness in our cars," he says. Nissan needs fewer conservative sedans like its $16,600 Bluebird, and more snazzy models like Renault's $16,700 Megane.
Ghosn also wants Nissan to be more strategic in its launches. The first new auto out of this embryonic partnership will probably not emerge for two more years. It will likely be an entry-level auto built from a platform shared by Nissan and Renault. The problem is that until Nissan launches its own sizzling models, rival Toyota Motor Corp. will continue to gain ground. Toyota already has a hit in the hot subcompact category, thanks to its recently launched $9,300 Vitz.
NO QUARTER. Nissan has launched some stars of late. Its new sleek $35,600 Cedric luxury sedan is selling well in Japan, and the new $17,900 Xterra sport utility has struck a chord with the Generation X market in North America. Nevertheless, Nissan is losing share in both markets. In Europe, Nissan's sales have skidded by 6.8% compared with the first eight months of 1998.
And Japanese competitors do not plan to make room for Nissan on the roads. "We will not be caught off guard," says Fujio Cho, president of Toyota Motor Corp., which recently took direct aim at Nissan's Cedric when it launched the sporty $35,400 Athlete version of its new Crown luxury sedan.
In this high-stakes game, no wonder some Nissan managers are nervous about their futures. Ghosn is forcing managers to take more responsibility for their actions by asking them for specific commitments to sales targets and prices. So managers wonder if their jobs are at risk if they don't keep their promises. It could happen. Says Ghosn: "People must feel there is nothing guaranteed when you don't deliver." True enough. But it's Ghosn who has to deliver most of all.