Carlos Ghosn transformed Nissan. You ain't seen nothing yet, he vows.
Until recently the role model for managers at Japanese companies was General Electric's Jack Welch. Now there's a new hero to talk about: Carlos Ghosn , the outsider brought in to rescue a nearly bankrupt Nissan Motors in 1999. In three years Ghosn shrank the payroll by 29,000 workers, cut the company's roster of suppliers by 60% and revived the line-up of new models. For the six months to Mar. 31 Nissan's 9.3% EBIT margin (profit before interest and taxes) was better than the latest annual ebit margins at any of the world's 11 other mass-market automakers.
|By the Numbers|
|All Up From There|
|Huge Nissan was in dire straits when it turned to Carlos Ghosn in 1999.|
|$20 billion Debt load that year.|
|7 Losing years out of the previous 8.|
|1989 Peak year for production.|
Source: Nissan.Chapter two of the Ghosn saga has just begun. It could be as exciting as the first. The plot line: Ghosn takes his global car-production techniques to Renault, the French firm that bailed out Nissan with a $7 billion cash infusion, installed Ghosn and owns 44.4% of Nissan's stock. Ghosn, 48, is scheduled to be elevated to chief executive of Renault in 2005 while retaining that title at Nissan.
The voluble Ghosn relishes his fame as a turnaround magician. Says he: "The Japanese public sees in Nissan a company that is representative of problems that many Japanese corporations face. The fact of turning Nissan around in a clear, neat way is a strong message of hope in Japanese society. People stop me in the street and say gambatte [go for it!] and wish me luck."
How did he do what he did? By having a "near-death experience," Ghosn says, Nissan discovered excesses that more routinely profitable companies let pass. Nissan, whose $50 billion in annual sales makes it the seventh-largest auto company (just behind Honda), managed its transformation while relying on cars designed when it was a cash-strapped basket case. This year will be the most dramatic so far in the rehabilitation, with a dozen models produced under star designer Shiro Nakamura (poached in very un-Japanese style from Isuzu Motors).
Not everything will go smoothly. Nissan's remodeled Altima, designed by American Bruce Campbell and just named North American car of the year by an association of automotive journalists, has drawn more than its share of complaints about manufacturing defects. The knocks caused Nissan overall to fall to sixth in the J.D. Power ratings of initial customer satisfaction, below Detroit's Big Three. "We're naturally disappointed," says Emil Hassan , who must address the issues as quality chief for Nissan North America.
North American sales of Nissan's top-end Infiniti, meanwhile, were up 34% in May from the year-earlier month, thanks to a redesigned line called the G35. Although Infiniti still badly trails marques like Lexus, BMW and Mercedes in this important market, Nissan officials say that more focused marketing and better design will change that.
In Japan, the March, a compact car with e-mail capabilities, became the first car to be built using a common chassis with Renault. By globalizing design in this fashion, Ghosn says, Renault and Nissan can each save 20% on development costs. The March has received at least 55,000 orders in the not-quite three months since its introduction, making it the third most popular car in Japan.
If you want a sense of what globalization is all about, look at Nissan. Ghosn had to bridge four distinct cultures, at the French Renault, the Korean Samsung Motors (a troubled Korean automaker bought by Renault in 1999), the Japanese Nissan and the very Americanized Nissan North American operations.
"Going truly global gives you a huge advantage, but it is difficult to implement," says the Brazilian-born, Lebanese-raised, French-educated boss. Ghosn was able to draw on his experience in turning around a militantly unionized work force at a Goodrich Uniroyal plant in the U.S. after he was put in charge by owner Michelin in 1990. There he was able to convince most unionized workers that avoiding rigid job definitions was in their own interests. The key, he says, is to stamp out "emotional parasitism," or defining anything different from your way as wrong.
This philosophy was put into practice by Kouji Hori , the head of the French/Japanese team that put together the March. When his engineers came to look at the platform their Renault counterparts put together, they were pleasantly surprised by innovations that made the ride smoother and the car more maneuverable. At the same time, though, the Nissan engineers thought the overall result looked "clunky" and had room for improvement. "It took a lot longer to put together than if only Nissan engineers had done it, because we had to have regular meetings to iron out differences," says Hori, 49. But, he continues, the end result is clearly better than anything Nissan could have produced on its own.
Renault, though, has yet to reap the full benefit from its own investment in improving Nissan. Nissan now has a market capitalization that is double that of Renault, even though Renault owns that 44.4% share of Nissan, while Nissan owns 15% of Renault. The implication is that investors view Renault as pretty close to worthless apart from its ownership of Nissan shares.
"Renault has already given a lot in terms of best practices, people, management, etc., to Nissan," Ghosn says. "And now Renault is taking some of Nissan's skills in terms of manufacturing, engineering and management of quality. We are not at our full potential in terms of synergy. We have established common platforms, but until we market them we get no benefit. March is the first and Cube, another Nissan small car, will come later in September. But Renault cars will not come until much later."
Nissan expects its European sales to stay flat this year but to enjoy a rise of 6% in Japan and 6.2% in the U.S. even though it foresees the total U.S. market shrinking. Ghosn aims to add 28 Nissan models and boost sales by 40% by 2004, while cutting costs by 15% and regularly posting an EBIT margin of 8%.
The early signs are good. Nissan is selling all the Altimas and Marches it can produce. Other new cars are also posting double-digit sales growth. To help sell more, Nissan is building big new facilities in Smyrna, Tenn. and Canton, Miss. In Japan the capacity utilization of its plants has gone from 51% two years ago to 75% today.
Nissan is hiring 1,000 engineers in Japan to design those new models and work on power trains, including some using fuel cells. "Nissan is reconstituting its technology, rebuilding its brand. This is not theory, this is fact, this is reality," Ghosn says. There's a little bit of hubris in this kind of talk--but Ghosn is entitled to be boastful.