Nissan Unveils Plan for Sweeping Restructuring
Nissan Motor Co., once a highflying icon of Japanese economic might, on Monday announced a historic reorganization providing both a stark reminder of its fall from grace and the most dramatic evidence yet that Japan is on the road to meaningful restructuring after years of paralysis.
Any thought that new Nissan Chief Operating Officer Carlos Ghosn might go easy on his Japanese colleagues was dashed when he unveiled the plan--more sweeping than many analysts had predicted--to close five factories, cut 21,000 jobs, pare $9 billion in costs, overhaul suppliers, stop selling bland cars and fundamentally alter its Japanese management practices.
The precedent being set by Nissan--albeit one forced on the company by a non-Japanese partner, Renault of France--sends a broader signal: If Nissan can pull itself back from the brink, it will encourage other Japanese companies in overbuilt smokestack industries to follow suit.
The announcement also underscores a stunning reversal from the ‘70s, when Japanese auto makers had forced their American counterparts to undertake the same kind of painful downsizing now facing Nissan. Its fall has been spectacular--a $19-billion debt, losses in six of the last seven years and a humbling capitulation in which it had to sell a controlling interest to Renault in March. Marketing blunders, symbolized by Nissan’s decision to stop selling vehicles in the U.S. under the Datsun name, and lackluster vehicles conspired to stall sales in key markets around the world.
In a 90-minute, rapid-fire presentation Monday, former Renault executive Ghosn outlined a few of the problems he identified during a four-month review of Nissan Motor Co., which remains Japan’s No. 2 auto maker behind Toyota Motor Corp.
These include Nissan’s crushing debt, a steady drop in market share, little long-term planning, no sense of urgency and a habit of looking to competitors rather than customers for cues.
“Nissan is in bad shape,” he said.
Ghosn, who moved over from Renault after the French auto maker agreed to inject $6.8 billion for a controlling 37% stake, said the plan is only the first step. The far more difficult job is making it work. Nor can cost cutting alone direct Nissan out of trouble, he added. Ultimately, the company needs exciting, well-designed cars the public wants.
Nissan said it will reorganize its design department and release a slew of new models in major markets, including a new version of the famed Z, a distinctively styled high-performance sports car, in the United States.
“Product development will be at the heart of Nissan’s revival,” Ghosn said.
Analysts said the plan is welcome, comprehensive and long overdue. The key to its success, and Nissan’s future, however, will be whether suppliers and employees accept the drastic cuts, an end to long-term relationships that no longer make sense and the new corporate focus on individual performance over seniority.
“The next three months are going to be the most critical,” said Stephen C. Usher, senior analyst with Jardine Fleming Securities (Asia).
The fact that the changes are being forced on Nissan by a non-Japanese partner may actually help, some said, by allowing Japanese managers to take tough steps while blaming them on foreigners.
Another reason Japan appears willing to accept this plan and all it represents is its lack of options--both at the corporate and economic level--after a decade-long recession. In Nissan’s case, it is running out of time, had more than $19 billion in debt before Renault showed up and could otherwise face bankruptcy.
“They have to do it within two or three years,” said Koji Endo, senior analyst with Schroders Japan Ltd. And because the yen is stronger than expected--making Nissan’s vehicles more expensive in overseas markets--second-half results will be weaker than expected, Endo said.
Ghosn’s aggressive plan and blunt style have not gone unnoticed in Japan, even as his message may be slowly gaining acceptance.
“I think his style overwhelms people a bit,” said Yuji Genda, assistant economics professor with Gakushin University. “But this will be a trigger for people to start thinking about what real ability means.”
In one concession to Japanese sensibilities, however, Ghosn avoided using the term “layoff” and said Nissan will do everything possible to reduce the human cost through transfers, attrition and early retirement. The work force is productive, he said. The bigger problem is that there are too many plants. But another Nissan official said outright layoffs would be the final option.
Despite Japan’s traditional nature, a lot has changed since Nissan was roundly criticized in the mid-1990s for closing its Zama factory, the first plant closure by a major Japanese auto maker, as many Japanese accept the need to question all assumptions about lifetime employment. The question for many, though, is where Japan can find new jobs.
“For Japan as a whole, the anxiety is still whether it will all lead to greater unemployment,” said Testuro Sugiura, chief economist with Fuji Research Institute, “and whether we can create new industries.”
During the Nissan plan’s unveiling to hundreds of journalists, broadcast simultaneously to company employees worldwide, Nissan Chief Executive Yoshikazu Hanawa played a bit part, frequently deferring to Ghosn.
Several Japanese in Tokyo, meanwhile, said Renault’s nudge was probably helping Nissan do things it wasn’t able to do itself.
“It’s good to import a system that works well,” said Katsuji Fujishima, 32-year-old owner of a mobile noodle stall. “A company should be able to hire someone really good and lay off someone bad, although it’s hard on the workers.”
Among the major points in the Nissan revival plan:
* Reduce the 148,000-employee global work force by 14% in three years while boosting productivity by at least 20%. The job cuts aren’t expected to affect U.S. operations, where Nissan cut about 400 jobs in 1997; it employs about 20,000 workers in North America.
* Close three plants in Japan by March 2001 and two more by the next year, helping reduce Nissan’s global capacity by 30% to 1.65 million vehicles annually from 2.4 million.
* In the United States, bring a new Sentra to market in February, a new Infiniti Q45 in April 2001, a medium-size sedan in late 2001 and a new minivan to replace the Quest, in addition to the new Z.
* Cut sharply the number of Nissan suppliers worldwide and pare by 20% what they are paid in return for giving them more business. Nissan aims to halve its supplier base to 4,000 by 2002.
