Nissan’s U-Turn to Profits

Carlos Ghosn is the architect of the most dramatic turnaround of an automaker’s fortunes in recent times, but he doesn’t dress the part. No fussy monogrammed shirt, no sparkling ingot cufflinks, no Italian loafers-none of the trappings that would signify his Captain of Industry station are apparent when Ghosn introduces Nissan Motor Co.’s new Altima sedan at New York’s International Auto Show.

The conservative manner is not some hastily contrived image makeover for the CEO of the resurgent Japanese automaker; it is simply a reflection of a man more focused on results than appearances. Ghosn’s straight-ahead manner and disdain for window dressing underscore the message he aims to communicate about both the comeback of Nissan and the car in the spotlight: Forget about perception-look at performance.

Inside the company, that message is proving a critical factor in Ghosn’s ability to transform Nissan’s perennially lagging organization, famously resistant to resuscitation, into a motivated team that’s fixed on winning. With financial results steadily improving, even the ranks’ cynics now buy into the program, and momentum is gaining as Nissan recovers to a level of health it last enjoyed in the mid-1970s.

In a period when most automakers are scrambling to eke out a profit (in spite of strong sales), Nissan Motor Co. recently reported its best financial results in history: $2.7 billion in net profit for fiscal year 2000, ended March 31, 2001. Results for the first half of the 2001 fiscal year include a 34 percent improvement in net income over the same period a year ago and a robust operating margin of 6.3 percent.

To understand how remarkable this revival is, consider that the company, once a leader in its home market-building a third of all the cars sold in Japan-had contracted by 1999 to a market share slightly over half that size. Nissan North America Inc., meanwhile, one of the earliest Japanese automakers to make the leap into the U.S. market, was the one that stumbled most visibly.

Like Toyota, it had established a beachhead with small, reliable pickup trucks at the end of the 1950s. Then it followed with a brilliant sports car, the Datsun 240Z, an auto that was inspiring to drive and affordable for millions of enthusiasts. But after attaining status as 1975’s No. 1 import, a decade later Nissan could not sell enough vehicles to meet its allowed quota under the import limits of the voluntary restraint agreement that Japanese carmakers had accepted.

Nissan lost momentum by cranking out boring products conceived by Japanese engineers blind to American tastes, and through slow entry into important market segments like minivans and SUVs. Despite repeated efforts of top executives, Nissan lost market share worldwide for 10 years, and failed to generate profits for most of the 1980s.

Fast forward to March 1999, when automaker Renault signed an agreement to take a controlling interest in Nissan of 37 percent and installed Ghosn, then an executive vice president at the French company, as COO. The Renault/Nissan Alliance, a name carefully chosen to sidestep associations with ill-fated mergers and buyouts in the industry, brought Ghosn and a 20-person French management team to Japan to map out Nissan’s future.

There were many unknowns, but never any doubt about who would captain the team, according to an anecdote Ghosn, who replaced Yoshikazu Hanawa as CEO in June 2001, relates after cautioning that he doesn’t mean to be immodest: Renault Chairman Louis Schweitzer stated publicly that he never would have signed the deal if he did not have Carlos Ghosn to count on.

The blueprint Ghosn and a team of 200 turnaround managers drafted became known as the Nissan Revival Plan, released in October 1999. Pieces of the comeback strategy came right out of the turnaround specialist’s playbook: cut costs (by lowering worldwide headcount by 21,000, closing five plants in Japan, and reducing purchasing outlays by 20 percent); slash debt; and divest assets. Less evident was the plan’s ownership provision that Ghosn enforced in order to ensure its embrace. “From the beginning, it was clear the plan would be a Nissan plan-we didn’t hire any consultants and Renault executives served only as facilitators and coaches,” says Ghosn. “The plan would be built by Nissan people, and every team, every department, every employee [would know] what his or her own contribution would be.”

It wasn’t just the midlevel managers who faced the risks ahead. To emphasize the urgency of a do-or-die commitment, Ghosn’s cohorts agreed to a pact of their own: “We said very clearly that if any one of the goals were not reached, the president of the company and executive committee would resign.”

When Renault took its stake in Nissan, industry observers predicted a collision of cultures, particularly because the French automaker did not operate on anything like the global scale of its new partner. Nissan’s dire need for a savior may have helped smooth the process. At the same time, Ghosn’s own background helped to bring a broader perspective to the relationship. Born in Brazil of Lebanese ancestry and trained as an engineer in France, Ghosn, 47, speaks several languages fluently and can negotiate various corporate cultures and national identities. (To local suppliers, he delivers formal speeches in Japanese.) His 18-year tenure at tire maker Michelin-during which he rose to the top position of the North American subsidiary and oversaw the integration of Uniroyal Goodrich into the company’s portfolio-schooled him in the dynamics of corporate alliances.

To ensure that Japanese engineers understood their French managers, Ghosn designated English as the common language. Even so, the company had to overcome the potential for varying definitions of important concepts. The solution was straightforward: A team created a dictionary of essential terms. “At the beginning, I noticed that some key words were not understood the same way by different Japanese people or even different French people,” Ghosn recalls. “So we established a dictionary for the 100 key words in management, with clear definitions. For example, the meaning of €˜commitment’ can be extremely variable. We created and shared the definition through the organization, so everybody understands the same thing.” Other words in the dictionary include “authority,” “objectives,” “transparency,” and “targets.”

At Nissan’s U.S. design center in San Diego, ties to the Japanese headquarters are deep because of the global nature of vehicle development. The changes since Ghosn’s arrival are marked by an enormous boost in morale, thanks to an increased recognition for the value of good design-witness Nissan’s SUV Xterra and the new Altima family sedan-and excitement about the company’s winning streak. Questions are asked that never would have been under previous management philosophies: How was this decision reached? Who is responsible?

More important, decisions are made-a substantial change from earlier practice-and they are honored. When a tiff between design staff and American marketing executives arose recently regarding the Altima’s interior trim, the ruling that came back from the bosses in Japan was swift and decisive: “The rule is that the design team is responsible for these decisions. Please apply the rule.” What’s more, the team of Renault managers that came to Nissan display no fetish for meddling. As one longtime Nissan manager put it, “The French are invisible.”

Living Up to Promises
Nissan’s resurrection is all the more remarkable because it is a structural reworking of business practices; notable turnarounds by competitors have been product-driven. Chrysler, for example, bootstrapped itself to success through inventing the contemporary minivan, and Volkswagen reaped renewed public affection thanks to the much-adored profile of the New Beetle.

Nissan has stayed the course set out under the Nissan Revival Plan and has thrown its energy into meeting its original business objectives, which concentrate on fundamentals rather than a sudden flood of new models. “One thing that Ghosn brought to the party was a clear focus on our priorities and a clear plan by which to execute those priorities. He has not wavered from day one,” says Jed Connelly, Nissan North America’s senior vice president of sales and marketing.

At times, though, Ghosn’s sticking to the script has startled the investment community. In a move that caused jitters among investors, Nissan announced in October that it would take a 15 percent stake in Renault, effectively buying a piece of the parent company. Ghosn sees the action as simply fulfilling a commitment in the original agreement between the companies that would allow Nissan to benefit from its alliance with Renault, then the markedly stronger company. Still, the move comes quickly and many question the timing.

But Paris-based analyst Gaeton Toulemonde, a member of Deutsche Bank’s automotive team, explains the potential of the arrangement. “By advancing the schedule, Nissan sends a strong signal to the markets of its revival, and there’s also the advantage of buying the Renault shares when prices are depressed.” Among Nissan watchers there’s also a feeling that the cross-ownership will provide an incentive for Nissan’s people to work more closely with their French counterparts, returning the favor of their rescue by extending a lifeline to Renault.

Ghosn’s dedication for restoring Nissan’s luster is unquestioned. The fringe benefit is that he can nurture an affection for high-performance cars. In Tokyo he drives a Japan-market Skyline, which will be the basis of the upcoming Infiniti G35. When the new 350Z goes into production next spring and his own is delivered next summer, Ghosn promises it will get a parking lot of its own.

But in an industry whose “car guy” managers have too often let their passion overrule good business sense, Ghosn maintains his wits. “I am a car enthusiast,” he says in a qualified admission, “up until the moment I have to make an important decision.”

The measure of Ghosn’s success may not be determined for years, when it is known whether the disciplines he’s instituted will be enough to assure sustainable growth and weather cyclical downturns, always a sensitivity of the auto industry. But Ghosn insists the best is yet to come. His Revival Plan calls for top-line results to become apparent only after the plan expires next year. In the U.S. alone there will be a new full-size pickup truck and SUV arriving at that time, in spring 2003. The company is bolstering its Infiniti brand, and will release its own minivan after years of sharing a chassis with Ford. But most of all, there’s the return of Nissan’s spiritual touchstone, the powerful Z sports car, to energize the company’s psyche. It hits the market in 2002 as the 2003 model year 350Z.

Even as he rattles off his list of works-in-progress, Ghosn knows that bringing new models to market means little until their sales start adding profits. “You know, when you announce a plan like this, there may be a lot of people skeptical about what you’re doing. Are they going to deliver or not? Is it going to be successful?”

Those questions mark a prelude, an invitation to evaluate him on the numbers and strength of the Nissan that has risen from the dust. Charged with leading the world’s No. 8 carmaker out of darkness, Ghosn can foresee a combination with Renault that gathers enough momentum to climb a few rungs up the ladder. “When the indicators start to show that you are making a lot of improvements, it encourages more and more people to jump in and help the rest of the team achieve more. It’s a kind of nurture circle where performance feeds motivation, and motivation feeds performance.”

Keiretsu Meets Business Necessity
When Ghosn and his team began to assess Nissan’s desperate situation, there was no shortage of advice. “People said, €˜You can’t touch the keiretsu system,'” recalls Ghosn, referring to Japan’s system of interlocking industrial cartels, “€˜you can’t close plants in Japan, you can’t reduce head count in Japan.'”

Ghosn says, “I had to choose between accepting outside advice and doing something that would be inadequate to get the company out of trouble, or forgetting about what I heard and going for what I was intimately convinced was necessary for the company to change.

“It was uncharted territory. I finally considered that if I was chief operating officer, my one option was to fix the problems, not to try to water them down.”

Jed Connelly, senior vice president of sales and marketing for Nissan North America, has witnessed the results of Ghosn’s tough decisions. He sees a marked departure from the company’s traditional ways. “[Ghosn] allows the best and the brightest to come through. That didn’t happen under the old Japanese hierarchical system where you had to €˜go through the chairs,'” explains Connelly, referring to the standard Japanese approval process which involves working your way up through the ranks.