Nissan's Ghosn, on Track to Run
Renault, Faces Bumpy Road
By JATHON SAPSFORD
Staff Reporter of THE WALL STREET JOURNAL
January 7, 2005; Page B1
TOKYO -- Ever since he came in to rescue Nissan Motor Co. from the brink of bankruptcy in 1999, Chief Executive Carlos Ghosn has been the talk of Japan's business world.
The 50-year-old Brazilian-born Frenchman has swiftly rebuilt struggling Nissan into one of the world's most exciting and profitable car makers by meeting or exceeding every major goal he has set.
But now, as he is slated to rise in April to CEO of both Nissan and its controlling shareholder, RenaultSA of France, Mr. Ghosn (rhymes with "stone") faces one of his biggest tests: Can he fulfill his public promise to boost Nissan's annual sales by one million vehicles before September 2005?
The goal is so ambitious that all of Japan is abuzz about his prospects. Obstacles to success are mounting, including some that Nissan hadn't counted on. Key markets from China to the U.S. are facing higher interest rates or tightened credit, factors expected to weaken demand for cars. Prices of crucial commodities from steel to rubber are rising, driving up production costs. The dollar is also faltering against the yen, making Nissan's exports less competitive in crucial markets.
The stakes are high for Mr. Ghosn and his hard-earned credibility. If he succeeds, it would cement his position as one of Japan's most successful business leaders -- he was recently lauded on the cover of the Japanese edition of GQ magazine -- just as he moves on to his new role.
But if his plan stalls, it would be a serious black eye. Mr. Ghosn won't say what the consequences will be for falling short. But with earlier targets, he has said flatly that failure would result not only in his own resignation, but in those of his entire management team. By making the company's sales targets so public, he has put his employees under immense pressure to deliver or risk being stigmatized as failures.
"Perhaps this will be a crowning achievement for him as he takes the helm at Renault," says Michael Yoshino, professor emeritus at Harvard Business School. "He isn't the type to take stupid risks."
Mr. Ghosn acknowledges that setting public targets -- which he calls "commitments" -- is tricky. But he stresses it can do wonders in pushing employees to produce results. "If they have clear priorities, clear milestones, they are going to make it happen," Mr. Ghosn says.
When Mr. Ghosn took over Nissan in 1999, it was a bloated company few thought would survive. Promising a turnaround, Mr. Ghosn took bold steps unheard of in Japan, where seniority and job security were long considered sacred. He cut the number of board members by two-thirds to 10. He closed three plants, cut jobs and instituted a meritocracy. He reduced the number of suppliers, giving fewer companies more business in exchange for huge price cuts. Some called him "the destroyer" and "7-11" for his long hours at the office. But the results were stunning.
By 2002, Nissan had gone from bleeding red ink to all-time record profits. In May of that year, Mr. Ghosn set out a series of new goals called "Nissan 180" with each digit -- 1,8,0 -- representing a target. By 2005, he would boost annual vehicle sales by one million units, raise operating profit margins to 8% or more, and cut the car maker's long-term debt to zero.
In 2004, a year ahead of schedule, he met two of the Nissan "180" targets. The company is now effectively debt free and cash rich. It has profit margins of more than 10%, among the highest in the industry.
But supporters and rivals alike say that the remaining goal, moving one million more cars, is the hard one. To keep the promise, Nissan has to sell 3.6 million vehicles in the year ended Sept. 30, 2005, a million more than it sold in the year prior to making the commitment in May 2002. So far, only partial numbers through December are in, showing strong increases in crucial markets. Sales in the U.S., for example, were up 33% over year-earlier levels. But even that may not be enough for Nissan to keep the promise, analysts say. Those numbers don't include key growth markets like the Middle East, and don't reflect all the new models being released around the world. Employees say they find it all a little nerve-wracking.
Nissan's Tokyo launch of its luxury Fuga sedan was assisted by models to stress its sleek design.
"If I said we aren't feeling any pressure at all, well, that would be a lie," says Norio Matsumura, who as head of global sales at Nissan is a key executive in charge of keeping Mr. Ghosn's promise. Mr. Matsumura has his sales team producing regular internal reports to monitor weekly progress. But he adds determinedly: "We will definitely make it."
To boost sales, Nissan has been putting a lot more emphasis on eye-catching designs, tapping young, hot designers and challenging them to be creative. In the U.S. it launched a version of its Quest minivan with orange leather seats and the speedometer in the center of the dashboard, rather than in front of the driver. Its Murano sport-utility vehicle has swooping exterior lines that Nissan touts as sculpture on wheels.
Nissan also is stepping up new-model launches: it will have introduced six new models in Japan before the September target, as well as revamps of the Pathfinder SUV and the Frontier pickup in the U.S. And Mr. Ghosn, ever the showman, is staging some glitzy marketing efforts. He recently unveiled the sleek new Fuga luxury sedan at an outdoor fashion show in Tokyo's Roppongi party district -- with leggy models prancing down catwalks between cars.
But Nissan has hit stumbling blocks in a bid to ramp up production. One example: after opening new facilities in Canton, Miss. -- which make such models as the Quest minivan and the Titan pickup -- customers complained about quality problems such as excessive wind noise. Nissan says it is fixing the quality snafus, with Mr. Ghosn dispatching 200 Japanese technicians to North America, including Canton, to address the issue. Still, the quality problems underscore the risks involved in a hurried ramp-up of new-model production to meet ambitious sales goals.
One delicate challenge for Nissan: how to balance price and volume in the competitive U.S. market. So far, Nissan gives smaller discounts, called incentives, than rivals like General Motors Corp. and Ford Motor Co., whose incentives are so large that they have seriously eroded profits.
But as competition heats up, Nissan's incentives have been getting bigger and bigger. They increased on average 21% during the six months to September to $1,853 per unit sold, according to CNW Marketing Research, a Bandon, Ore., automobile research firm. That helped Nissan's U.S. sales increase: In the second quarter ended in September, sales rose to 254,000 vehicles from 235,000 in the first quarter.
Some investors worry that if Nissan focuses too much on meeting its goal of selling one million more cars, it may do so at the expense of giving more discounts, which in turn would shave the profit margins that Nissan worked so hard to boost.
Mr. Ghosn flatly denies Nissan is willing to do that. He adds he is using discounts very selectively. "We go to incentives only when we see a risk of being priced out of the market," he says.
