Sputtering Nissan Shifts Gears
When Nissan’s plant here on the outskirts of Tokyo opened four decades ago, it was a symbol of hope and possibility for a nation still recovering from World War II.
The network of supplier companies that sprouted around the hulking factory made locals feel they had something as certain as the rich Japanese soil--a lasting harvest of paychecks to replace the 80-year-old silk factories and tea plantations then in the throes of decline.
“It was so bright when the plant was going day and night,” recalled longtime resident Shigeaki Takahashi.
During the 1960s and ‘70s, Nissan rode the wave of national prosperity and rising middle-class affluence to become a symbol of Japan’s postwar success and automotive expertise.
Starting in the late 1970s, however, the gears started to slip as a string of bad management decisions, unexciting models and poor market moves led to a loss of traction. Year after year, rising debt and falling market share signaled how far out of sync Nissan was with customers.
In a recent announcement that jolted Japan, Nissan said it would padlock the Murayama plant.
“Now it’s becoming dark and a bit scary, sort of like a ghost town,” said Takahashi, head of the local chamber of commerce.
One community’s tragedy, however, may be a company’s--and ultimately a country’s--salvation. The factory is one of five in Japan that Nissan is shuttering under a draconian three-year revival plan designed to put the battered Japanese blue-chip auto maker back in the passing lane.
If the plan works, it could provide a model for thousands of other near-bankrupt Japanese manufacturing companies hemmed in by cultural baggage, illogical business ties and outdated structures.
Early evidence suggests Nissan is on the right road, but there are still lots of problems ahead--including its own troubles, a slowing U.S. auto market and economic uncertainty across Asia.
In the last year, Nissan has returned to the black, its stock has soared, costs are down, morale is up and a string of new models are in the wings, including a revival of the famed Z sports car so admired in the 1970s and ‘80s.
The man most directly associated with Nissan’s every move these days is company President Carlos Ghosn--a Lebanese Brazilian picked by a French firm to turn around a Japanese icon with global ambitions.
Ghosn has made that association even stronger by offering to quit if his recovery plan fails. Though this underscores his commitment, it also makes pretty good headlines in this land of the samurai spirit.
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Ghosn has come on like a tsunami since arriving from Renault 18 months ago. That followed a decision by the French auto maker in March 1999 to “bet the farm” by acquiring a 36.8% stake in Nissan for $5.4 billion.
The hard-driving executive has pushed the company to meet restructuring deadlines--the first time in years that has happened--cut supplier costs by 10%, pare 300 unprofitable Japanese dealerships and sell deadwood and non-core assets ranging from auto-parts makers to aerospace firms and golf-course memberships.
Along the way, he’s injected a do-or-die urgency and tried to overhaul the way Nissan pays its employees, designs its cars, communicates with its workers and evaluates its markets.
By directly confronting a number of sacred Japanese management practices, the executive dubbed “Le Cost Killer” has also picked up a new nickname: “Le Ice Breaker.”
Cutting costs is a well-honed skill these days for most top-level managers operating outside protected markets such as Japan. Perhaps more surprising is that Ghosn also has earned a measure of respect along the way, not only from stockholders and businessmen, but also from some of those most affected by his actions.
“The Murayama closure is devastating,” said Keiichi Baba, president of the local auto workers union. “But we wouldn’t have a future if we’d gone on the way we were going. So we’ve come to believe and trust in Ghosn-san.”
Cost cuts are only part of the game plan. Nissan also is trying to rebuild by turning out popular and profitable models, attracting younger customers and resuscitating its languishing brand. This is a break from its engineer-driven past, when it often paid scant attention to profit, pizazz or buyer preference.
The 67-year-old company last month announced a new $930-million factory in Canton, Miss., its second U.S. assembly plant. This complements previously unveiled plans to introduce 22 models worldwide within three years, beef up engine production, spend nearly $1 billion with Renault on fuel-cell technology and expand to 500,000 vehicles its annual production in Smyrna, Tenn.
For many Japanese used to falling back on arguments that capitalism works differently here, the Ghosn phenomenon has been something of a bitter pill. Using essentially the same resources as his predecessors--including Japanese managers, line workers, suppliers, engineers and sales channels--the outsider has achieved in a matter of months what Nissan failed to do in a decade.
By refusing to let cultural differences stand in the way of change, he has sliced through often-illogical business combinations and reversed a long-standing focus on market share over profit. In the process, he has aimed a mighty blow at Japan’s already- reeling keiretsu system of interlocking companies.
The fact that Japan’s weaker auto makers--including Nissan, Mazda and Mitsubishi--are turning to the West for help is rich with irony, given how much the United States and Europe looked to Japan in the 1980s. That said, the industry problems in Japan have not been universal. Toyota and Honda have remained among the world’s best vehicle producers with strong leaders who kept their eyes on the road.
There’s no question Ghosn is being watched closely by a nation unable to overcome its decade-long downturn and, at least so far, largely unwilling to embrace tough restructuring.
Ghosn’s energy and early results have even turned him into a Japanese pop icon of sorts. Books detail his business philosophy, camera crews cover his every move, and magazines and newspapers pore over his every comment. Fans ask about his brand of eyeglasses and where he buys his suits, and French restaurants fan rumors that he’s a regular. Colleagues say he now may be the best recognized gaijin, or foreigner, in Japan.
“The big question is whether other Japanese managers, short of getting taken over, will take the lesson to heart,” said Christopher Richter, analyst with HSBC Japan. “Some at troubled companies may want to hide behind the fact that this is restructuring by foreigners, that it doesn’t apply in Japanese culture, all that nonsense.”
Senior Japanese auto, parts and steel executives have already publicly questioned Ghosn’s methods and ability to create lasting results, criticism that is rare in Japan.
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Many here vaguely resent globalization for its swagger, a feeling shared by some Europeans and other Asians. Some Japanese voice a suspicion that international standards are really American standards wrapped in multilateral clothing.
That argument has been more difficult to make in this case, however, given that Renault, Nissan’s white knight, has been state-owned for much of its history and was until recently sharply criticized for its own inefficiency, bureaucracy and lack of vision.
Nissan’s turnaround strategy extends far beyond Japan. In North America--Nissan’s most important market, exceeding even Japan--the company has regained momentum with the release of the popular Xterra sport-utility vehicle.
“The trend around the world is that vehicles are part of the fashion market, an extension of who you are and what you wear,” said Wesley Brown, a consultant with Nextrend, based in Thousand Oaks. “From that perspective, the Xterra is a hot commodity.”
The company also plans to unveil in the U.S. market a revamped Altima and, from its luxury Infiniti line, a new flagship Q45. And it’s given more autonomy to its worldwide design team, including Nissan Design International in San Diego, which is working on a production version of the new Z car.
Europe has been a tougher market, given the sagging euro, which has hurt sales by making Japanese products more expensive. Furthermore, Nissan won’t get its new Primera and Micra models into European showrooms until early 2002, so analysts don’t expect much real profit there for another year.
A key part of Nissan’s longer-term plan will be to leverage its Renault ties with joint purchasing and production. This month, the first Nissan-Renault vehicle rolled off a Mexican assembly line, one of millions the two companies expect to produce together in coming years, although the first shared platform won’t arrive until at least 2005.
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While serious missteps at DaimlerChrysler have raised doubts about the wisdom of global consolidation, Ghosn believes the industry has no choice. “It’s not that the principle is wrong but that the execution is difficult,” Ghosn said. “It’s a difficult path but a very promising one.”
That said, the heart of Nissan’s problems is in Japan. Without a convincing turnaround at home, the company, with its 144,000-strong global work force, faces little chance of long-term survival.
“We still have a lot of work to do,” said Thierry Moulonguet, Nissan’s chief financial officer. “We’ve seen a steady decline for the last 20 years, so you can’t turn that around overnight.”
Nissan’s market share in Japan has been in a nearly uninterrupted decline for 26 years, to 17% today from more than 32%, fed by internal turf battles and a system that left engineers operating under few cost constraints. Until recently, for instance, the lowly Sentra used a grade of steel similar to that found on the far more expensive S-class Mercedes-Benz, part of the company’s legacy of building solid but boring vehicles. By 1999, debt had ballooned to $13.8 billion. (It has since been cut by 30%.)
Nissan has cut costs in Japan, but it has so far not been able to reverse its fusty reputation.
“People who have been driving Nissans will probably continue to do so, but people who drive other cars probably won’t switch to Nissan,” said Yoko Jogenji, a 30-year-old secretary at an insurance company. “Toyota and Honda, on the other hand, really capture their customers.”
Last month, Nissan unveiled in Japan the X-Trail, a small SUV, in a bid to reverse that long-held perception.
Analysts also caution that Nissan still sells a huge number of boxy cars around the world at little or no profit, that its strategy of sharing platforms with Renault is untested and that it lags far behind Toyota and Honda.
They also say fuel cells may be a long time coming and a waste of precious capital, and that some of the dramatic financial improvement seen this year was a foregone conclusion.
“They wrote off everything bad they saw coming, so there was going to be a profit this year no matter what,” said Dave Healy, analyst with Phoenix-based Burnham Securities. “That said, I think the change is genuine--they’re doing a lot of things the old management was incapable of doing.”
Back in Musashimurayama, 20 miles from Tokyo, town residents are wishing Ghosn had put off his factory-closing decision just a little longer. The town is scrambling to figure out what it will do after Nissan leaves. Possibilities include a theme park, a recycling center and a research institute.
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For longtime Nissan employees who bought homes backed by the promise of steady paychecks, Nissan’s decision to shift production to another part of Japan is forcing some tough changes. Many employees bought their homes during the “bubble years” and are now so deeply in debt they can’t move, forcing many to live and work hundreds of miles away, returning only on the occasional weekend in a practice known as tanshinfunin.
In a concession to Japanese practices, Nissan’s 16,500 targeted staff cuts companywide will be through attrition, not outright layoffs, including hundreds of workers and their families being transferred out of Murayama.
“People are just shocked,” said Atsumi Naomi, 32. “When my husband started at the plant, who would have ever dreamed all this could happen?”
Ghosn has bet his job on the Nissan revival plan. And labor leader Baba said he appreciates Ghosn’s willingness to take some responsibility.
“Still, if he quit tomorrow, it wouldn’t be a problem. I’m sure he has enough to retire on,” Baba said.
“If the workers don’t work, however, they have nothing to live on. I sure hope it all works out.”
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Nissan’s Turnaround Man
Nissan has been losing market share in Japan almost without interruption since 1976.
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Market Share in Japan
Estimate for 2000: 17.4%
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Net Earnings
Source: Nissan
*First half of fiscal 2000.
