Nissan Is Struggling to Shift Out of Reverse
Thirteen years ago, David Halberstam’s “The Reckoning” explored the changing industrial fortunes of Japan and the United States through the rise of Nissan Motor Co. and the decline of Ford Motor Co.
The book portrayed Nissan as a determined, customer-driven company that made U.S. inroads with high-quality, sporty cars. In contrast, Ford was depicted as a faltering, risk-averse concern run by accountants absorbed with profit and stock value rather than emotion-stirring vehicles.
But today it is Nissan that has a stable of largely forgettable vehicles and is facing the financial abyss, while Ford is riding high with cutting-edge cars and trucks that are generating a hefty profit.
“Nissan lost touch with the market,” said George Peterson, president of AutoPacific Inc. in Santa Ana and a former Nissan executive. “It became very conservative. Instead of being entrepreneurial, Nissan went into a shell.”
So deep are Nissan’s woes--some say worse than those faced by a bankrupt
Chrysler Corp. in 1979--that President Yoshikazu Hanawa earlier this month said the Tokyo-based auto maker would consider selling a controlling stake in itself to a foreign company.
On Jan. 22, Nissan and DaimlerChrysler said they had held “constructive” discussions in Japan about possible equity investments in both Nissan’s commercial truck and passenger car operations. Talks are continuing.
Paris-based Renault also said it is interested in acquiring a major stake in Nissan. Ford, too, with its $23.8-billion cash reserve, had been seen as a possible suitor. It already controls Mazda Motor Corp. of Japan. Ford last week announced that it will buy the automobile operations of Sweden’s Volvo in a $6.45-billion deal.
Nissan’s reckoning comes as the global auto industry is consolidating. A worldwide glut of production capacity is increasing competition and forcing auto makers to reduce costs as never before.
The solicitation of buyers by Nissan amounts to a humbling public auctioning of a Japanese icon. The drama starkly highlights the severity of Japan’s economic problems, which show little sign of abating.
Nissan, the onetime dandy of Japan’s auto makers with headquarters in Tokyo’s ritzy Ginza district and a garage full of sports cars, has lost ground globally to Toyota Motor Corp. and Honda Motor Co. as well as to the large U.S. and European auto makers. It has been wounded by a long succession of management miscues at home and abroad.
“This company was hit with a big ‘stupid stick,’ ” said Jason Vines, the blunt-talking spokesman for Nissan North America.
Despite repeated restructurings and a continuing reputation for well-engineered products, Nissan has lost money in five of the last six years and is expected to be in the red again for the fiscal year ending March 31. Its consolidated debt is a whopping $37.7 billion.
Nissan officials concede that the company disconnected from consumers, both in Japan and the United States, its two top markets. It produced vehicles that repeatedly missed the mark and muddled its image. Nissan maintained production volume by inflating sales with rebates that eroded brand equity. Its production costs are high. U.S. management has resembled a revolving door.
“It has been one mistake after another,” said Maryann Keller, analyst with ING Baring Furman Selz.
Nissan entered the U.S. market in 1958. A decade later it began to make inroads with the Datsun 510 sedan, its first vehicle styled for U.S. consumers. Its affordable 240Z sports car, introduced here in 1971, became a hit with baby boomers.
The company’s U.S. problems can be traced to the decision to stop selling vehicles under the Datsun name in 1982. As part of a global strategy, top Japanese managers ordered the Nissan brand name to be used worldwide. The edict enraged dealers and confused consumers. Sales stalled.
“ ‘Debacle’ is not too strong a word,” consultant Peterson said.
As the Japanese economy cratered in the 1990s, Nissan failed to invest in new products, and design decisions were dictated from Tokyo.
“We did not invest enough in developing the kinds of vehicles customers want in the United States,” acknowledges Minoru Nakamura, president of Nissan North America. “We had holes in our product line--no small [sport-utility], no four-door truck and no V-6 truck.”
The biggest shortcoming, however, came in the mid-size sedan segment. In the early 1990s, Nissan offered a three-sedan strategy with the compact Sentra, mid-size Altima and near-luxury Maxima.
The Altima got a good reception when it was introduced in 1992 as a small, affordable alternative to the Honda Accord, Toyota Camry and Ford Taurus. But as its rivals redesigned their models, making their sedans larger while holding the line on price, Altima was left in the dust.
Nissan was forced to follow in competitors’ wake with the undersized Altima and the more expensive Maxima. But even with two cars--which also meant twice the development costs--it couldn’t keep up. Last year, Honda sold more Accords and Toyota more Camrys than all of Nissan’s sedans combined.
To stay in the game, Nissan was forced to resort to rebates, which at one point averaged $2,000 a car. It also subsidized leases, costing the company hundreds of millions of dollars in resale value when used-car prices fell.
Hoping to re-energize the brand, Nissan undertook a $200-million image marketing campaign. Its “Enjoy the Ride” ads drew praise from the advertising community but failed to lure buyers.
To some extent, Nissan ran into many of the same problems in Japan that tripped it up in the U.S. The company was production- rather than marketing-oriented, which moved it further and further from its customers. It was forced to discount vehicles, undercutting profit.
A series of investments abroad left it with too much production capacity and meant it was unable to export excess vehicles from Japan. Its inventory at home soared, leading to more discounting. What had been a close race with Toyota turned into a dusting as Toyota’s superior sales network in Japan left Nissan far behind.
The company, increasingly seen as a maker of stodgy, boxy sedans, also was slow to get into the sport-utility market in Japan, as it had been in the U.S., which put it behind Toyota and Honda in that high-growth segment.
On the cost side, Nissan’s earlier restructuring efforts were ineffective and done only under duress. In August 1992, for instance, it announced a 30% cut in model and parts variations over the next three years. The plan was never implemented.
“Nissan’s restructuring plans have not been a complete failure,” said Noriyuki Matsushima, senior analyst with Nikko Research Center. “However, all of them were incomplete.”
This time it will be different, company officials say. Last May, Nissan unveiled yet another turnaround plan that focused on reducing costs, speeding vehicle development time, selling assets to raise cash and revitalizing U.S. operations with a new product blitz.
“This is a company responding with a burst of innovation on all fronts,” said Jerry Hirshberg, president of Nissan Design International.
At the recent Los Angeles and Detroit auto shows, Nissan gave a taste of what’s to come.
It will soon introduce V-6 and full-size four-door versions of its Frontier pickup. It will produce the Xterra, a small, rugged SUV that it says it will price competitively.
And Nissan promises to upgrade its entire car line. It is also showing two tantalizing concept vehicles--a sport-utility truck (an SUV with a small pickup bed) and a Z concept car--with hints they will move quickly to production.
North American executive Nakamura also notes that Nissan has reduced U.S. inventory, rebates and production costs. But the question remains whether Nissan can devote enough cash to product development while dealing with its massive debt.
One problem for any potential investor is determining Nissan’s actual liabilities. Its total consolidated debt of about $38 billion overstates its obligations, since about half that is attributable to its captive finance company and is backed by marketable assets. But other debts, such as pension liabilities and supplier loans, are more difficult to ascertain.
The debt issue could be skirted if a foreign player took only a minority 10% to 20% stake in Nissan, analysts said. In such a case, the investor would not have to assume Nissan’s debt, could keep other foreign suitors at bay and gain an opportunity to assess Nissan’s problems and turnaround potential.
But any equity tie-up could lead to cultural clashes. Without being in control, an outsider could face a resentful work force uncertain of whether to follow the lead of Nissan management or the suggestions of new shareholders.
For such reasons, several analysts said, another auto maker should seek at least a one-third stake in Nissan, a level that could be translated into a controlling interest and give it a clear mandate for change within Nissan.
While many parallels have been drawn between Chrysler in the 1980s--which was saved by a massive U.S. government bailout--and Nissan’s current plight, Japan’s government appears far less willing to prop up Nissan.
Tokyo extended loan guarantees recently of about $745 million through the Japan Development Bank and other government institutions to help ease Nissan through a potential credit crunch. But the government seems unenthusiastic about bailout or regulatory moves that would protect Nissan from partial or full foreign ownership.
“We will not stand in the way of a foreign buyer,” said Takato Ojimi, deputy director general for trade and economic affairs at Japan’s trade ministry.
Of course, a takeover is not inevitable; several U.S.- and Tokyo-based analysts said Nissan can survive alone. They note that Nissan’s latest restructuring efforts are more substantive and serious than previous plans, if still not drastic by U.S. standards.
Despite its debt, Nissan remains attractive for several reasons. It has substantial sales outlets at home, offering an outsider a quick way to break into the Japanese market once the economy turns around. Nissan also has strong engineering capabilities and is a global player with worldwide production capacity of 2.5 million vehicles.
DaimlerChrysler is the most frequently cited Nissan tie-up candidate. It has been negotiating with Nissan since May for a major stake in heavy-truck maker Nissan Diesel. DaimlerChrysler, as well as Ford, could benefit both from Nissan’s small-car expertise and its strong presence in Japan and Asia.
But on a geographic basis, Renault might make a better partner. That’s because there is less overlap than with DaimlerChrysler. Renault is strong in Europe while Nissan has a big presence in Japan and North America.
Donald W. Nauss reported from Detroit and Mark Magnier from Tokyo. Etsuko Kawase in The Times’ Tokyo bureau contributed to this report.
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Car Troubles
With a stable of largely forgettable vehicles, Nissan is facing a financial abyss. Once a Japanese icon, the auto maker is now shopping for a suitor in hopes of resolving financial problems provoked by Asia’s economic collapse and the company’s increasing disconnection from consumers. Earnings and revenue at Nissan since 1993:
Revenue, in billions
1998: $49.7 billion
*
Net income, in billions
1998: -$0.1 billion
Source: Nissan North America
