THE SUN ALSO SETS : Their Position Slipping, Nissan and Other Sputtering Japanese Auto Makers Try to Regain Momentum in the American Market with New Models and an Ear for Buyers’ Demands

THE LONG GRAY WALL OF THE BUILDING SQUATS LOW IN THE EUCALYPTUS and ivy lining La Jolla’s Genesee Avenue, the foliage nearly hiding the small black letters that spell out Nissan Design International. Inside, a sleek blend of glass, black furniture, textured concrete and a gurgling stream that flows through the lobby forms a placid setting, veiling the complex and sometimes furious passions that have driven activity here over the last few years. But a visitor senses that with four wheels and a big V-8 engine, this angular structure could accelerate to 100 m.p.h. within seconds and not stir a paper on a desk.

For the past decade, the design center has been Gerald P. Hirshberg’s front-row seat for the car wars that have racked the U.S. economy. It was a time when the Japanese auto makers’ share of the American market climbed to one of every four cars sold--at considerable cost to the U.S. industry. Chrysler Corp. nearly went bankrupt--twice. American Motors Corp disappeared. Ford Motor Co. amputated factories and workers and is regaining its health, but it still expected a $7 billion loss for last year, mainly because of accounting changes regarding retiree benefits. General Motors Corp., where Hirshberg worked before coming to Nissan, is still bleeding. European manufacturers of Volkswagen, Audi, Volvo and Mercedes-Benz saw their portion of the U.S. pie become mere crumbs. Renault and Fiat pulled out altogether. The American companies as a group lost billions of dollars, and the fallout of their restructurings and plant closings contributed heavily to the scope and pain of the past two recessions.

But now the pendulum is swinging back. Ford and Chrysler poured billions of dollars into new product development and assembly plants, and it’s paying off. The two companies picked up three points of market share last year, equivalent to more than 350,000 cars and trucks. Beleaguered GM, the world’s largest auto maker, also spent heavily on new products but the company is still losing ground, mainly because of continuing management and structural problems. Its Chevrolet and Oldsmobile divisions in particular continued to lose market share in 1992.

The increased sales at Ford and Chrysler came mainly at the expense of the Japanese auto makers, turning on its ear the notion that the Japanese companies are always able to stay one step ahead of the car buyer. If anything, the Japanese have been shown by recent events to be as capable of shortsightedness as any of their Detroit counterparts.

But as Hirshberg sits at a black lacquered table discussing the plight of companies like Nissan, he appears more a picture of mirth than melancholy. He displays a wry grin as he considers the gloating of some American auto executives now that the tide has begun to run against the Japanese. “What’s interesting is that Americans are finding the Japanese not to be superheroes,” he says. “It didn’t serve us well when the Japanese first started beating us and we eulogized them. Americans could not just be beaten by anybody. We had to be beaten by superheroes. No, the Japanese were just doing well. And now it turns out they are struggling.”

Nissan and its Japanese counterparts are facing perhaps their most difficult period since they began selling cars in the United States more than 30 years ago. Given Nissan’s vast real estate holdings in Tokyo, the company probably would be making a profit if it wasn’t so involved in selling cars in America and other countries. Hirshberg recalls a recent remark, which he thinks was made only half in jest, by a top Japanese financial executive of Nissan on a visit to the design center. How’s the company doing? Hirshberg asked. “We’d be doing fine if you people would stop screwing around trying to sell cars,” the Tokyo man replied.

Hirshberg, 53, is a modest, introspective man. He has graying hair and touches of wrinkles around his pale brown eyes, but he seems perpetually to wear the boyish smile of one who never had to give up playing with the toys of childhood. When he talks, his mind seems to move in as many directions as his hands, flitting from musical metaphors (a design project was “like asking an orchestra conductor to do Debussy rather than Wagner”) to styling appraisals (“We wanted to break what I call the tyranny of the wedge”). His life has taken a number of turns since his days at Ohio State University, when he studied mechanical engineering and dabbled in rock ‘n’ roll under the name Jerry Paul. He has been vice president and the top-ranking American of Nissan’s U.S. design center since its inception in 1979. When he left General Motors for Nissan that year, his friends told him he was the first design executive ever to leave the giant American auto maker.

He remembers his father-in-law telling him that departure from GM was like sailing off in a small boat from the safe and secure mainland of corporate America. Hirshberg has since been to Japan 55 times and has come to appreciate both the vast differences and the unusual similarities between the two cultures. He doesn’t view the contest between Japanese and the American firms as anything but that, healthy competition that has made all of the auto makers produce better vehicles.

“The greatest significance of what the Japanese auto industry has done is to raise the entire game to another level,” he says. “Detroit won for a long time on this planet in automobiles. Americans never learned how to compete. Now we know how to compete a little bit better, and we actually understand that competing means losing sometimes. This is healthier for the world economy and most of all for consumers. Detroit can’t sell us their mistakes any more. There is an alternative and it’s permanent. The days of controlling the market, defining the playing field from one cultural perspective, are finished, and I think that’s good.”

Competition may be good, but Nissan lost $178 million in the first six months of the current fiscal year, which began April 1, 1992. It was the first such loss in its 40-year history as a public company. Its vehicle sales in Japan are down 11.3% so far this year and off about 1% in the United States. Now, in the midst of a recession and in an American market crowded with 219 models clamoring for buyer attention, Nissan has introduced a new sedan, the Altima, that some analysts are calling a “make or break” car for the company in North America.

That may be hanging too much on a single product, but Hirshberg, whose staff designed the Altima, recalls the message that came with the assignment from Tokyo in 1988: “They told us it would be the most important car we would ever design in the history of this company.”

NISSAN CERTAINLY IS NOT THE ONLY JAPANESE COMPANY WITH PROBLEMS:

--Honda Motor Co., which set the standard for quality and value in the 1980s, is experiencing what one analyst calls “Accord backlash” as potential customers turn away from a car too many of their neighbors already drive. Accord sales were down more than 4% last year and Honda is rushing to add a van and sports utility vehicle--hot models in the American market--to its lineup through an affiliation with Isuzu Motors Ltd.

--Mighty Toyota Motor Corp. is also slipping; its sales and market share are down slightly for both cars and trucks, and its once-invincible 4-Runner is rapidly losing sales to Ford’s popular Explorer in the highly competitive sports utility vehicle field.

--Mazda Motor Corp. has introduced five new models in the past year, but recorded only a negligible impact on its sales or share of the market. The company recently abandoned plans to add a luxury car division under the Amati name. Beginning in September, Mazda, 25% owned by Ford Motor Co., will buy from Ford its compact pickups for the U.S. market and sell them under the Mazda name--an ironic partnership because Ford dealers in the 1970s, when Ford didn’t have small trucks of its own, bought them from Mazda and sold them as Ford Couriers.

--The Illinois assembly plant operated by Isuzu and Fuji Heavy Industries Ltd., maker of Subaru cars, is running well below capacity as the companies’ sales continue a yearlong decline. Isuzu makes its Rodeo sports utility vehicle at the plant and recently agreed to sell the vehicle through Honda dealers in 1994 under the Honda name. Isuzu dealers will continue to sell trucks, but any cars they sell will be made by Honda.

--Daihatsu Motor Co., the last Japanese car company to enter the U.S. market, in 1987, became the first to leave. The company announced that it would stop selling cars and trucks in the United States at the end of 1992.

Overall, the Japanese companies’ U.S. sales last year slipped 2.6% through the end of November, compared to a combined 6.5% sales increase for the Detroit companies. The Japanese have lost 1 1/2 points of market share, equivalent to nearly 200,000 cars and trucks, and more than $3 billion in sales.

Beyond their individual difficulties, the Japanese companies also face a host of developments that have hurt them and helped their American competitors. One major change is that the difference in quality between Japanese and American cars is no longer as significant to consumers as it once was.

“The Japanese have maintained their quality lead,” says John H. Hammond, an economist with J.D. Power and Associates in Agoura Hills, a company whose Customer Satisfaction Index has become the industry benchmark for car quality. “They had a 30% advantage over domestics seven years ago, and they still have a 30% advantage. But everybody has been improving their quality to a point that many of the (American) domestics are now over the threshold of acceptability. So while the Japanese still have the lead, the question is at what point do you say, ‘Who cares?’ ”

J. David Power, president of the company, has seen the industry develop from the time when General Motors dominated product and pricing to when Japan began setting the rules, first with small size and low price, and later with advanced technology. Now, with 33 car companies in the United States fighting ever harder for the consumer’s dollar, Power says comparisons have gone beyond both size and quality of the car.

“The playing field is completely level now,” he says. “Size no longer dominates. Financial resources no longer dominate. Even ‘Toyota Bank’ has not got the funds to dominate a market. No one manufacturer has control and no group of manufacturers have control. No country has the ability to control the situation by import restrictions. Those are breaking down dramatically. The consumers are dictating where the auto industry is going with their dollars. The rest of the industry has to respond.”

Maryann N. Keller, an auto industry analyst with the Wall Street firm Furman Selz Inc., says another factor for the Japanese downturn is that the fastest-growing part of the market now is in compact vans, sports utility vehicles and full-sized pickups--weak segments for the Japanese.

“The Japanese didn’t understand the truck and van market, so they have been very late coming to it,” she says, referring to the fact that using trucks and vans as family transportation is a distinctly American habit. “To the extent the truck market continues to grow, the Japanese share of the total vehicle market in this country will decline.”

The weakness of the dollar against the yen also plagues the Japanese. The dollar today is worth about 120 yen, less than half what it was 10 years ago. Last year, the weak dollar forced the Japanese to raise their average car prices by $650 more than the U.S. companies, a 5.5% increase for a Japanese brand versus 1.4% increases imposed by Detroit companies. This has made it less profitable to make cars in Japan and sell them in the United States at or even slightly above the price of American vehicles. A Honda that sold to the American distributor for $7,000 in 1982 would have to bring $14,000 today to recover the equivalent value in yen. The weak dollar helped push the Japanese to open nine assembly plants in the United States in the past decade. The plants produce about 40% of the Japanese vehicles sold in the U.S. market and even make vehicles, such as the Honda Accord wagon and Toyota Camry wagon, that are exported to Japan.

Analysts and industry executives agree that Toyota and Honda likely will come through the current slump in good health, prepared to take advantage of new opportunities and weak competitors. But the other Japanese companies are vulnerable, and the one with the most to lose is Nissan. By the year 2000, Nissan will either be one of the three remaining major Japanese companies in the market or it will be simply nibbling at the edges of the biggest automotive pie in the world.

CHUCK KING OFTEN TOLD THE STORY, shaking his head and laughing with dismay, about the time he had to deal with a boatload of Datsuns, orange, yellow, red and green ones--all with bright blue interiors. The year was 1972, and King had just left Chrysler for Nissan, which made Datsuns, to head the company’s sales operations. On hearing of the color mismatch, he flew to the port of Seattle to see for himself. A Nissan official told him that Tokyo had shipped what it meant to, and that the blue seats could not be changed. So King had a sample of the cars shipped to Los Angeles, lined them up in front of Nissan headquarters in Carson and invited the company’s top Japanese executives downstairs to see them. In a group, the cars looked even more garish than they had individually. The executives, convinced, ordered the interiors changed.

As King rose in the Nissan hierarchy to eventually become senior vice president of sales, the top-ranking American in the company, the incident stuck in his mind as an example of the cultural ocean separating Japan and the United States. Getting Nissan to build the right car for the American market would never be easy. The company was constantly scrambling to build its image around an odd mixture of products, shifting its market focus from high performance to low price to high mileage to low maintenance and back to high performance, ever in search of a formula that would help it keep even with Toyota.

Nissan would pass Toyota in total sales once, in 1975, but would eventually fall from a strong second to a weak third behind Honda among the Japanese car makers. Nissan’s market share in the United States would peak at 5.7% in 1983 before declining to around 4.5% in 1992, a period during which Japan’s overall share of the U.S. market grew from 18.7% to 25%. In 1991, Nissan sold fewer cars and trucks than it had in any year since 1982.

“There were times when we were chasing two different images at once, and it went on for a long time,” says one of the company’s retired American executives. “That probably has a lot to do with why the middle-of-the-market, bread-and-butter cars fell out of sight.”

The bread-and-butter cars were what made Datsun a success in the first place. The company’s rise to prominence began in 1960, when Nissan sent Yukata Katayama to the United States to establish Datsun dealerships. Katayama knew he had a tough task, for the cars he had to offer were unsuited to American tastes. They were small, ugly and underpowered. Some insiders joked that the company had used the Datsun brand name rather than Nissan, the corporate name, in North America so if the cars flopped, it wouldn’t be as embarrassing. But Katayama was confident that, given enough information about the U.S. market, the product planners in Japan could design highly popular cars. Each year, the engines in the Datsuns sent to America got bigger and more reliable, and the company fixed problems such as stifling heat in the passenger space and inadequate brakes.

Katayama’s years of badgering and pleading paid off in 1968, when the new Datsun 510 models arrived at San Pedro. The 510 was a pacemaker, a small, durable four-door sedan that performed well and sold for a price--around $1,800--in nearly everyone’s reach. Automotive buffs compared the car favorably to the BMW 1600, a German-made sedan that sold for about $5,000 in the United States at the time. The 510 pushed total U.S. Datsun sales over 150,000 by the end of the decade.

Katayama led Nissan to another great success, a highly profitable project that helped mold the company’s image but that, eventually, led it away from the sedan market. At his urging, Nissan introduced the Datsun 240Z in 1969, a car that defined the company’s image for performance. The sleek two-seater sold for $3,500, was nimble and fast and ushered in a generation of vehicles that redefined the sports-car market. Its success led Nissan to begin focusing on a “sporty” image.

One of the company’s American executives, who asked not to be identified, laid Nissan’s love affair with speed and performance to deep desire among Japanese executives for a flashy formula to catch Toyota. In the early 1980s, he attended the Tokyo Auto Show with the top brass. Nissan was displaying sports models; Toyota was showing four-door sedans.

“They were trying to be seen among the new buying set in Japan, to be a young person’s car company and not be the car company that made Cedric and Bluebird and Gloria sedans,” he recalls. “I think they put the emphasis on the sporty cars.”

The quality, styling and performance of the Datsuns that were shipped to American dealers generally improved during the Katayama years. He was a maverick in a corporate culture dominated by yes-men, and, despite his success, his outspokenness earned him few admirers among his peers. A stiff and bureaucratic period followed Katayama’s departure in 1977. Product planning at Nissan’s headquarters in Carson increasingly bogged down in paperwork and committees. American executives recall that arguments with Tokyo over what types of cars and trucks to sell in the U.S. market became difficult. With the rise of strong-willed Takashi Ishihara to the presidency of the parent company in 1981, the arguments became all but impossible. Current and former executives say that, with few exceptions, the parade of Japanese executives that arrived during the Ishihara era would overrule almost any recommendation from the American product planners that might displease the bosses in Japan.

“The Japanese executives in the U.S. company weren’t reading the market well, and they were fearful of going against the grain of Japan,” says a former American executive with Nissan. “Most of the Japanese I knew would not oppose anyone in Japan, no matter what the highest-ranking Americans here thought.”

Part of the problem was that Nissan could not afford to build individual models for both the Japanese and the American markets, so American Datsun dealers were getting what was sold in Japan. This was true to some degree for Honda and Toyota as well, but Honda was a much smaller company than Nissan, with a small share of the Japanese market, and its energies were focused primarily on the United States. Toyota was (and still is) the largest of the Japanese auto companies, and its success in the home and world markets, as well as more flexible manufacturing techniques, gave it the resources to build cars more suited to American tastes.

To stay competitive, Nissan had to continue building sedans as well as trucks and other cars. But with its limited resources focused on sporty models, the quality and styling of the family sedans began to slip in the 1980s. Cars like the Sentra and Stanza, successors to the 210 and 510 models, lost sales and market share to Honda, Toyota and Mazda. Nissan’s U.S. executives were increasingly frustrated at their inability to offer vehicles that would compete with cars like the Honda Accord and Toyota Corolla.

FOR NISSAN, THE STORY OF MISSED OPPORTUNITIES was the minivan. The staff in Carson proposed building a compact van for the U.S. market in 1976, seven years before Chrysler introduced its Dodge Caravan/Plymouth Voyager vans and created a market that has grown to more than a million sales a year. Before the oil crisis sounded taps for Detroit’s gas-guzzlers, the full-sized station wagon served the passenger and cargo needs of growing families. Once fuel prices zoomed in the early 1970s, it was, as one Nissan executive recalls, a “no-brainer” to figure out that a small van would become the station wagon of choice for the baby-boom generation and their families.

“The minivan was a product of courage,” he says. “What we described in 1976 was essentially the product that Chrysler brought out. Every product planner at all the companies was looking at it, but Chrysler was the first with the guts to take the risk and get it to market.”

Nissan not only didn’t lead the pack, it didn’t even start designing its own small van until 1988, five years after the Chrysler breakthrough. In the interim, the company tried to answer American demand by modifying and shipping cargo vans sold to florists and other small-business men in Japan. U.S. buyers were not amused, and the vehicles flopped.

For troubled Nissan, the years of stagnation showed signs of ending when Yutaka Kume became president of the parent company, many industry officials say. The decision to produce a Nissan van was made in 1987, shortly after Kume, an engineer, succeeded Ishihara, an accountant. The Japanese company is collaborating with Ford on a Nissan-designed, Ford-built minivan for the U.S. market. Ordinarily, as it had on the Altima, Nissan’s studio in La Jolla would compete with its counterpart in Japan to come up with the design that would ultimately be built. However, in this case, with the partner being Ford, Tokyo turned the entire project over to the U.S. designers.

Ford executives went to La Jolla to discuss their ideas for the vehicle and returned in two months to approve what became the final design that Ford would build for both companies. Nissan dealers are selling it under the name Quest; Ford’s Lincoln-Mercury agencies offer the van under the name Villager. It hit the market nearly a decade after Chrysler showed the way and more than two years after Mazda and Toyota began selling minivans in the United States. Sales of the Villager and the Quest are off to a good start. (Ford has been selling its own small van, the Aerostar, through Ford dealers since 1985.)

But what Nissan also needed was a car right in the middle of the market, a mid-sized sedan positioned between the entry-level Sentra and the top-of-the-line Maxima. Kume gave approval for the car that was to become the Altima in 1988, setting off a design competition between the studios in La Jolla, which employs 53 people, and Japan to determine which one would be in charge of the car. The La Jolla studio won.

Hirshberg recalls that his designers, by nature given to risk-taking, were somewhat constricted in that the Altima was to be a “car-car--not a van-car, not a truck-car, not a sports-car, but a car-car with four doors, four wheels and room for four or five people. You don’t want to do anything goofy with something like that.” What emerged, he says, was a “monoform” design, one that doesn’t break the car into three distinct segments of hood, passenger compartment and rear deck.

The Altima, which is manufactured at Nissan’s U.S. plant in Tennessee, has won praise for its styling, design and performance from the critics. “Supple, smooth and satisfying” is how Motor Trend magazine described the car, while Road & Track said, “The Altima rides with the aplomb and assurance of many larger sedans.” Its base price, about $13,000, is more than $2,000 below those of the Honda Accord, Toyota Camry and Ford Taurus, its main competitors. Some analysts have questioned Nissan’s decision not to offer a V-6 engine in the car (an option available in the Camry and Taurus), but critics have been enthusiastic about the car’s performance with only a four-cylinder engine.

Earl Hesterberg, Nissan’s vice president in charge of sales, said the primary marketing strategy for the Altima is to position it as representing high value for the price. “The car looks like it should cost $20,000 but we sell it for $13,000,” Hesterberg says. “That’s been the success for the Accord and Camry--a lot of car for the money.”

Another hope is that dealers will have something to offer middle-of-the-road customers. “One of the major points of the Altima strategy is now we’ll be able to drive a lot of customer traffic in at the middle of our line,” he says. “If some end up with the Maxima and some end up with Sentras, that’s fine, too. That’s why this car is so critical to our franchise. Now we’re bringing them in at the fat segment.”

Altima sales so far have met the company’s goals, surpassing 10,000 per month almost immediately after its introduction last September, a peak never achieved by its mid-sized predecessor, the Stanza.

Nathan Malla, sales manager of Miller Nissan in Van Nuys, says the Altima is selling extremely well, particularly the fully loaded models going for about $16,000. He said the dealership sold its inventory of 36 Altimas in November and didn’t have any cars for the first week of December. “Whatever they give us, we’re selling,” Malla says. “We have no top-of-the-line models. If we get one, it’s gone in two hours because the salesmen have so many orders for them.”

How will the success be measured? Nissan is forecasting Altima sales of 130,000 the first year, a goal apparently within reach. But the segment leaders, the Accord and Taurus, each sell around 400,000 per year. The Altima would have to be one of the most successful cars in Nissan’s history to surpass them.

Kume also moved Nissan into the luxury-car segment by starting the Infiniti division, which began selling cars in 1989 in the $25,000-to-$40,000 range. The Infiniti is doing well, in sales if not in profits, against strong competition from Honda’s Acura division and Toyota’s Lexus models. Infiniti sales were up over 16% in 1992, in contrast to the more than 2% sales decline for Nissan models.

THE HORN-RIMMED GLASSES, THE STARCHED WHITE SHIRT, THE GOLD CUFF links and the pale tie patterned with muted red and blue peacock feathers can’t disguise the fact that Thomas D. Mignanelli looks like a bruising hockey player. When he talks, his streetwise Rhode Island accent lends punch to his words, and he moves smartly about a room as if ready for the puck to come zinging his way. An avid hockey fan, he has two well-worn sticks in the corner of his glass-walled, eighth-floor office at Nissan’s American headquarters in Carson.

Mignanelli, 48, is president of Nissan’s American sales subsidiary. He joined the company in 1987 from Ford, just in time to see the auto maker’s unresponsive, bureaucratic culture begin to change. He is blunt about what went wrong.

“The mistake we made is we didn’t participate in the biggest part of the market,” he says, referring to the sedan market. “We attempted, knowingly or unknowingly, to become sort of a niche marketer, and a niche manufacturer. Had we stopped 10 years ago and said what’s the best thing to do for us right now, you would not have made the decisions that were made about building 240Zs and all the image, which were great then but are clearly niches about that big today.” As he pauses, he moves his thumb and index finger a half-inch apart.

“The biggest single change in the last five years is that we now look at the dealer and Tokyo looks at us as valid input, instead of ‘Let them say what they want and we’ll send them an econobox,’ or ‘We build it in Japan and it sells here so we’ll just send it there.’ We’ve walked on broken glass for a long time but my guess is we’ll start to look smarter in a few years when people see the results of what we’re doing now.

“People say we are searching for our image and we don’t know what it is, but I would say that if Nissan had built the right cars, had had a lower middle car like the Accord or the Taurus, people would never ask questions about Nissan’s image.”

One often cited reason for Nissan’s slide was the edict from Japan in 1981 that the name Datsun be dropped worldwide and all cars be called Nissans for the sake of uniformity. The name change angered American dealers, confused buyers and cost Nissan millions of dollars to change signs at its 1,100 U.S dealerships. But Mignanelli thinks the name change had nothing to do with Nissan’s problems.

“I would bet that if the name had remained Datsun, we would have the same problems. I think people hid behind the name change. I think the name change was this false front that allowed people to accept the failure that was becoming more and more imminent because of the planning process. Toyota could have changed its name and, given the products it brought out, it would have been as successful.”

Mignanelli has transformed the way Nissan does business in the United States. He has reduced from 12 to four the layers of management between himself and Nissan’s dealers. In addition to meeting employees from all over the country who come to Carson in small groups, he has established a toll-free hot line to his desk that any Nissan worker or official can call with a question or complaint. When he first installed the line, he got 25 calls a week. The number has fallen to about five a month, a decline he attributes to better communication throughout the company.

But Nissan must also run ever faster to keep up with the technological change in the industry. Government pressure and the unstable oil prices of the past two decades continue to spur auto makers toward ever-greater fuel efficiency for their vehicles. And the challenges of the 1990s--collision avoidance systems, “smart” highways, passenger security and alternative fuels--will require enormous spending on research just for a company to stay in the race.

In the meantime, Mignanelli has no illusions about the Altima sedan and the Quest van suddenly reviving the company’s fortunes in the U.S. market. He is fond of metaphors, particularly those conveying action, and he sees Nissan’s future in those terms:

“You always get nervous before you play a game. You swallow hard and wonder what’s it going to be like when this guy hits me. But if you do your homework, if you are physically and mentally prepared, after the first hit, you know what’s going to happen. Our gut feel is the Altima and Quest are going to change the way the company is viewed.”