At Nissan, "Our Revival Is Complete"

Nissan and Renault CEO Carlos Ghosn talks about hitting some tough turnaround targets and remaining challenges ahead

As Carlos Ghosn strides around the Tokyo Motor Show this week, the CEO of Nissan (NSANY ) and Renault has some extra bounce in his gait. He recently met a key goal, increasing Nissan's annual global sales by 1 million vehicles vs. three years ago. Worldwide sales in the 12 months ending Sept. 30 were 3.67 million. Some CEOs set lofty growth goals and sacrifice profits to achieve them. But Nissan boasts one of the world's highest operating profit margins among carmakers, currently around 10%. "Our revival is complete," Ghosn says.

He did it by ruthless cost cutting and generating several new designs, such as the Altima sedan, the Murano crossover SUV, the 350Z sports car, and the Infiniti M45 that would never have been made by the Nissan design studio he inherited in 1999. That studio and product-development process routinely hamstrung the Japanese carmaker turning out dull and too-small designs that made sense in downtown Tokyo but not on American roads. Given the positive changes Ghosn has made, no wonder Ford (F ) Chairman and CEO Bill Ford recently admitted to having tried to lure Nissan's boss to the struggling Detroit auto maker as his eventual replacement (see BW Online, 10/7/05, "Ford Seeks A Driver Who Will Hit the Gas"). In Tokyo, Ghosn told reporters, "Rumors about me leaving me Renault and Nissan are, in my opinion, unfounded."

Having put Nissan on the right track, Ghosn is now working on a plan for Renault. The French carmaker owns a controlling stake in Nissan, and it was recently retired Renault Chairman Louis Schweitzer who sent Ghosn to fix Nissan in 1999 and supported him to be CEO of both companies (see BW, 4/25/05, "What Ghosn Will Do With Renault") .

In a double-barreled interview, BusinessWeek Marketing Editor David Kiley spoke to Ghosn in New York just before the CEO returned to Tokyo for the auto show, and BusinessWeek Tokyo Correspondent Ian Rowley caught up with him at the show. Here are edited excerpts of the conversations, first with Kiley, then with Rowley:

David Kiley: Nissan recently forged an agreement with rival Toyota (TM ) for hybrid technology. Aren't you admitting that you won't be leading in this important area when you buy your rival's technology off the shelf?

There's no question that the U.S. is now following the global marketplace for more fuel-efficient cars. What we're trying to do is pursue all the technologies and avoid going to market with one particular car or one particular technology to try and solve all the problems. Every vehicle segment we are in requires its own technological response.

We are launching a hybrid Altima. We have diesel technology with innovative filters for particulates and NOx [nitric oxide, an automotive pollutant] for our cars in Europe and our trucks and SUVs. We have a continuous-variable transmission for cars, and crossovers that save up to 10% in fuel economy. And we have a fuel cell that, of course, isn't ready to market, but we have the technology in development.

But taking such a multipronged strategy can take you out of a leadership position. No?

I think there's a lot of noise made about one-technology hybrids. The technologies that are in the shadows of hybrids may present consumers with choices they like better than hybrids. Electric cars were hyped like this. We had them. We didn't sell any. We went to J.D. Power a while back and asked them where the market [for hybrids] was going. They say 500,000 by 2011. That's a big number, but its only 3% of the [U.S.] market.

You have great experience working all over the world, especially in Europe. It decided years ago to force conservation of fossil fuels and limit air pollution by imposing gas taxes that have made gasoline very expensive in Europe. It seems to have worked. Would you advocate that strategy in the U.S.?

As a businessperson, I'm not going to say higher taxes are a good solution for anything. Trying to tweak what people want to buy through taxation is a bad way to go. We are seeing that the market for sport-utility vehicles is softening, and the demand for more fuel efficient vehicles in the U.S. is happening.

We'll have to see how much of this is being driven by a spike in gas prices, an erosion of consumer confidence overall, a fashion trend, or a combination of all three. We're starting to see passenger cars take up a bigger share of the market. We don't need government to intervene. We are introducing the Versa, a new small fuel-efficient car, because we see demand for it.

I believe in having a very balanced portfolio of products in order to react to market changes. [Whereas General Motors (GM ) and Ford for many years haven't been able to make any profit from passenger cars, relying on trucks and SUVs to generate earnings], the vehicle that contributes the most profit to Nissan in the U.S. is the Altima sedan.

GM Chairman G. Richard Wagoner Jr. and Ford Chairman Bill Ford both advocate gas taxes to drive a move to more fuel-efficient cars rather than current Corporate Average Fuel Economy standards set by the government.

That's a different question. That's a choice between two evils. In that case, I agree. The gas tax looks better in that comparison. Look, oil prices are going up because demand is getting ahead of capacity and the expectation that we will have a shortfall of supply in the future.

You have been lauded for streamlining what had been a very divisive structure at Nissan when you arrived. Can you explain what you found and what you did?

When I joined Nissan in 1999, the American team wasn't working efficiently with the Japanese team, which wasn't working effectively with the European team. It's very important to have people across borders working efficiently. Nissan North America had a president, and Nissan Japan had a president. In reality, the U.S. president was isolating himself and the operation from Japan to give himself and his position more legitimacy. The Japanese president did the same thing. This doesn't help the company.

Now, each region in the world has a leader on the executive committee in Tokyo. That gives the local operating head a powerful advocate in Japan to get action and solutions from the company. We've been working like this for five years. I'm chairman of the management committee in Japan, Europe, and North America. I make sure the problems are being solved in North America, and then I go back to Tokyo and make sure the problems are solved there and that each region is getting the support it needs.

It's much more efficient for me to run things this way because it doesn't give territoriality a chance to take hold. This also exposes me to all the talent around the world, so I can identify talent and move people around as I see fit. Our worldwide chief marketing officer came from the U.S., as has our worldwide head of communications.

You have assumed the dual CEO post at Renault and Nissan. Why?

It would have been stupid to have two CEOs of the two companies. Nissan and Renault have been working successfully in an alliance. That has worked so well because Lou Schweitzer and I worked so well together. The two companies are separate, and neither is subordinate to the other. I wouldn't want to see two CEOs competing for stature in the alliance.

For this to work, we have to have two co-dependent companies exploiting all synergies possible. I have had a very good relationship with Lou Schweitzer. We didn't always agree. But we always reached a conclusion that benefited the alliance. We decided the best way to continue was for me to continue it alone. It will be another 10 years before the alliance has achieved the efficiencies I have in mind.

What's your biggest problem at Nissan?

Continuing the growth without falling into the trap of pursuing growth at the expense of profits. There's a perception that if you want to achieve sales growth you have to sacrifice profit. You can grow sales without profit. It's easy. And what goes with that is that you cannot decrease your profitability without growth. Profit and growth have to go together. This is a major challenge. It's a task of every moment. And it's difficult.

You're bullish on the Nissan brand in China?

We have 250,000 sales there now, and we'll have 500,000 by 2008. It will be out third-biggest market in a short time. Our brand is very well thought of in China. And our designs have been right. We established a design center in Taiwan years ago, so we have been very close to the market.

You're going to announce a plan for Renault in early 2006. Why will it take eight months to come up with your plan?

When I arrived at Nissan, the place was on fire. You have to move fast when a house is on fire. Renault is a more difficult diagnosis and takes longer, because it is far healthier than Nissan was when I took over.

Do you see a future for the Renault brand in the U.S.?

Not in the next five years certainly. We can grow it in Eastern Europe and China before we think about a return to the U.S.

Ian Rowley: What's Renault-Nissan's view on new alliances, in Japan or elsewhere? Is it something you would consider?

We always said that the alliance [between Nissan and Renault] is two, but it's open. There's no precondition that it should be limited to two. Now, is there any plan? No, there's no plan. Is there a project? No, there's no project. But if an opportunity comes, why not if it makes sense for both?

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