Nissan Case Study

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FIRST PERSON

Saving the Business Without Losing the Company
by Carlos Ghosn
the call from Louis Schweitzer, CEO of Renault, asking me if I would be willing to go to Tokyo to lead a turnaround at Nissan, the struggling Japanese motor giant. The two companies had just agreed to a major strategic alliance in which Renault would assume $5.4 billion of Nissan's debt in return for a 36.6% equity stake in the Japanese company. The combined company would be the world's fourth largest carmaker. On paper, the deal made sense for both sides: Nissan's strength in North America filled an important gap for Renault, while Renault's cash reduced Nissan's mountain of debt. The capabilities of the two companies were also complementary: Renault was known for innovative design and Nissan for the quality of its engineering. The alliance's success, though, depended on turning Nissan into a profitable and growing business, which was JANUARY 2002

How do you transform a company without destroying its identity? As the turnaround at Nissan shows, you have to respect the dignity ofyour people even as you challenge them to overturn deep-seated traditions.

I

T WAS IN M A R C H OF 1999 that I got

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F I R S T P E R S O N • Saving the Business W i t h o u t Losing the Company

what Schweitzer was calling on me to do. I suppose I was a natural candidate for the job, as I had just finished contributing to the turnaround initiative at Renault in the aftermath of its failed merger with Volvo. We had had to make some controversial decisions about European plant closures, difficutt for a French company with a tradition of state control. I had been in challenging situations before then as well. In the

Carlos Ghosn, President and CEO, Nissan

1980s, as COO of Michelin's Brazilian subsidiary, I had to contend with runaway inflation rates. In 1991, as the unit CEO of Michelin North America, I faced the task of putting together a merger with Uniroyal Goodrich, the U.S. tire company, just as the market went into a recession. But Nissan was something else entirely. It had been struggling to tum a profit for eight years. Its margins were notoriously low; specialists estimated that Nissan gave away $1,000 for every car it sold in the United States due to the lack of brand power. Purchasing costs, I was soon to discover, were 15% to 25% higher at Nissan than at Renault. Further adding to the cost burden was a plant capacity far in excess of the company's needs: The Japanese factories alone could produce almost a million more cars a year than the company sold. Carlos Ghosn is the president and CEO of Nissan, headquartered in Tokyo.

And the company's debts, even after the Renault investment, amounted to more than $ii billion (for the convenience of our readers, the approximate exchange rate at the end of September 2001 of 120 yen to the U.S. dollar is used throughout). This was, quite literally, a do-or-die situation: Either we'd turn the business around or Nissan would cease to exist. It was also an extremely delicate situation. In corporate turnarounds, particularly those related to mergers or alliances, success is not simply a matter of making fundamental changes to a company's organization and operations. You also have to protect the company's identity and the self-esteem of its people. Those two goals - making changes and safeguarding identity-can easily come into conflict; pursuing them both entails a difficult and sometimes precarious balancing act. That was particularly true in this case. I was, after all, an outsider - non-Nissan, non-Japanese - and was initially met with skepticism by the company's managers and employees. I knew that if I tried to dictate changes from above, the effort would backfire, undermining morale and productivity. But if I was too passive, the company would simply continue its dovmward spiral. Today, less than three years later, I am pleased to report that the turnaround is succeeding. Nissan is profitable...
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