Nissan: "Le Cost Killer" Has a Rescue Plan

Carlos Ghosn hopes to reverse the erosion of market share in Japan and keep sales in the U.S. riding steady

With the Japanese economy in the doldrums, most captains of industry in Japan Inc. are wearing long faces these days. But amid all the gloom, one CEO of a major Japanese firm is feeling pretty chipper: Carlos Ghosn, president of Nissan Motor Co. (NSANY ). Less than a year into the job -- and only 20 months after arriving in Japan -- the former Renault executive will preside over Nissan's best earnings performance in a decade. After seven years of losses, the auto maker is primed to handily meet a $2.1 billion profit target, says Ghosn (rhymes with bone). He has staked his job on putting Nissan back into the black.

But that's just the first step of an ambitious makeover. In the fiscal year started Apr. 1, the goal is to reverse steady erosion in Nissan's home-market share and keep sales on an even keel in the U.S. despite fears of a slowdown. By 2003, the last year of the so-called Revival Plan, Nissan will be buff. So buff, Ghosn recently told BusinessWeek Editor-in-Chief Stephen Shepard and Tokyo Correspondent Chester Dawson, that Renault won't hesitate to start boosting a 36.8% stake in its Japanese partner up to a domineering 44%. Following are excerpts from the conversation:

Q: How are you living up to your nickname as "Le Cost Killer"?

A:

First, we are reducing the number of suppliers. This is very important. Suppliers need scale and volume. Second, we are going more and more for global contracts. It's not only increasing the volume in the U.S., Europe, or Japan -- it's worldwide contracts, which is another way to spread the fixed costs on higher volume of sales. We have a 20% cost-reduction plan over the next three years.

Q: When will Nissan shift its focus from cost-cutting to growth with new products?

A:

There is a growth chapter in the [Nissan Revival] Plan. But obviously growth usually takes a little bit of time to build, while cost reduction can be implemented immediately. From the first day, besides all our cost-reduction efforts, we started rebuilding the brand. We modified the product planning for the next three years, adding or subtracting some products. We have decided to boost investment. At the same time we were in the midst of drastic cost reduction, we [also] said we would be increasing our investment by 25% because we wanted to really fuel product development...and take some decisions that are very important for the future of the company, like [building] a new plant in the U.S. [in Canton, Miss., to make pickup trucks, SUVs, and a next-generation minivan].

Q: But does it make sense to build a new plant in the U.S. now that sales are falling?

A:

The three products are, in a certain way, new products for Nissan: large pickup trucks and large SUVs. Because today we don't participate at all in this very important segment -- we're talking about more than 2 million units [sold per year] in the U.S. market. And highly profitable. This will be the first time we will build our own minivan in the U.S. market. But the most obvious risk [for us] today is the U.S. market. So far, we're glad with what's happening, because it's not going lower than what we expected. A 6%-to-7% decrease [this year] from a record year in 2000 is not so bad. Nothing really crazy is taking place in the U.S. market so far [in terms of incentives to entice car buyers].

Q: When will the first vehicle start rolling off the production lines in Mississippi?

A:

First production will start in the summer of 2003. It will be a 2004 model.

Q: How soon will Nissan snap its long losing streak in its home market of Japan?

A:

We have been losing market share for 26 years [including last year]. But now we are much more comfortable with our level of market share, which is approximately 18% in Japan. In 2001, we will continue to boost profitability in Japan at a stable market share, and in 2002, you should see a resurgence...in [our share of] the Japanese market. We have four new products coming. We have a light commercial vehicle in May, a sedan coming in June, a kind of station-wagon car in September, and then we're going have the most important car -- the replacement of the March, our entry-level car [by March, 2002]. We have shown it already to our dealers, and they were amazed. So we feel pretty confident that 2002 should be seeing a significant market-share increase for Nissan.

Q: Where else is Nissan expanding its presence, outside of Japan and the U.S.?

A:

We have announced an investment in Brazil, to come back in the South American market. And in the next few weeks, you will see other announcements clearly thought [out] in order to sustain the future growth of Nissan in critical markets.

Q: Your former bosses at Renault have an option to lift their controlling stake in Nissan up to 39.9% by May, 2003, and then as much as 44.4% the next year by buying stock priced at less than half the going share price today. Will Renault exercise that option?

A:

When you have an option to get 44% at 400 yen a share, you need to have a good reason not to do it.

Edited by Douglas Harbrecht