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Can This Company Be Saved?

Carlos Ghosn didn't earn his nickname by biding time. So when "Le Cost Killer" strode to the podium in a packed Tokyo ballroom last week, he got right to the point. "Nissan is in bad shape," declared the Brazilian-born Renault executive dispatched from France after his company took control of Japan's second largest carmaker in May. Now Nissan Motor Co.'s chief operating officer, he outlined a radical blueprint to tear apart a sprawling keiretsu supplier network, close three auto plants and slash 21,000 jobs--"drastic solutions" needed to rescue the behemoth from collapse. His aim: cut costs, shed hundreds of unproductive subsidiaries and shrink Nissan's $12.6 billion debt, all by 2002.

"One rule," he said: "no sacred cows, no taboos, no constraints."

In the land of half measures and endless compromise, Ghosn's blunt appraisal stunned his audience. According to sources close to Nissan, he kept his plans from all but a handful of people (only one of them Japanese: CEO Yoshikazu Hanawa), forestalling pre-emptive resistance from Nissan's board, suppliers and labor unions. Few observers therefore anticipated his frontal assault on the company--and, by extension, on Japan Inc. itself. Ghosn aims to shorten Nissan's command chains, turn senior managers into "coaches, not masters" and shift the carmaker's emphasis from production to profitability. He plans to shrink capacity in Japan by 30 percent, end Nissan's lifetime-employment system and globalize purchasing. "I'm awfully sorry to hear it," said a senior government official when asked by NEWSWEEK to comment on Nissan's restructuring. But, referring to the traditional dawn alarm rung at Zen temples across Japan, he added: "It took Mr. Ghosn to come and hit the gong!"

For many Japanese, the wake-up call is as jarring as it is inevitable. In an editorial entitled "The Shock of French-Style Restructuring," the mass-circulation Yomiuri Shimbun praised Ghosn's plan, then cautioned him to "keep the resulting friction [with suppliers and labor unions] to a minimum." Inside the company, where Renault's rescue boosted the morale of many, the fact that it took gaijin, or foreigners, to engineer a comeback plan also spawned a bit of self-loathing. "When MacArthur came after World War II, the Japanese just surrendered to his leadership," said a retired Nissan executive. "A similar thing is happening at Nissan today."

But can Ghosn really fix Nissan? If so, Renault and Nissan would form a powerful survivor in the global auto-industry consolidation now underway. Analysts have been skeptical of his prospects ever since Renault bought its 36.8 percent stake in Nissan. Now, while there is widespread agreement with Ghosn's diagnosis, opinions differ on the prospects of his cure. Nissan's tough unions may fight hard against downsizing. Delays in unwinding Nissan's noncore assets, including land and shares in hundreds of Japanese companies, could put off profitability for two years or more. There's also doubt that Nissan's stale fleet of automobiles, many designed in the 1980s, can carry the company until new models are designed, produced and sent to showrooms, a two- to three-year pipeline. Add to this list worries about the strong yen and a possible downturn in the critical American export market and Ghosn's chances look only fair. By Friday the company's stock had fallen 5 percent since his announcement (though that may be partly because investors anticipate affiliates' selling Nissan shares as the keiretsu is unwound). "Raising a target is one thing," says Noriaki Hirakata, an auto analyst at Morgan Stanley Dean Witter. "Hitting it is another."

Established in 1933, Nissan pioneered Japan's entry into the motor age. But the pivotal year in its history is 1958, when Nissan shipped its first tiny sedans to California. The strategy looked like folly until the first OPEC oil shock hit America broadside in 1973. Nissan's "Datsun Saves" campaign appealed to mileage-conscious consumers, while its flagship vehicle, a sleek two-seater called the 240Z, gave driving enthusiasts an affordable alternative to Detroit's gas-guzzling hotrods. Led by Nissan, Japanese makers rose to dominate the imported-car market in the United States.

Back home, however, Nissan squandered its victory. Executives hatched misguided expansions crafted to overtake Toyota as Japan's top automaker. Even as friendly banks funded those plans, rising production costs, a strengthening yen and intense competition in the critical U.S. market combined to shrink sales and erode profits. By last December, Nissan was so ravaged that the state-owned Japan Development Bank had to inject $708 million in emergency loans to save the company from collapse.

Desperate, Nissan put itself up for sale, negotiating with Ford and DaimlerChrysler before sealing a deal with Renault last May. Together, the two form the world's fourth largest automaker, combining Renault's strong positions in Europe and South America with Nissan's formidable presence in Asia and the United States. Yet Renault's partner is a crippled giant, a company with more debt at the end of 1998--$19.4 billion--than many small countries. Nissan's global market share plunged from 6.6 percent in 1991 to 4.9 percent last year. On average, its cars now sell for $1,000 less than competitive models in the United States.

To a gaijin cost killer, it's perfectly obvious that such a company must change. But for many Japanese, the idea that radical surgery is needed at this proud, 50-year-old industrial icon is pure culture shock--one that could reverberate for years. Ghosn plans to cut off some 600 suppliers, more than half the current total, and divest Nissan's stakes in all but a handful of companies. One day after his Tokyo presentation, he met with hundreds of Nissan suppliers to demand that they discount their parts by 20 to 30 percent over three years. For those that comply there's the lure of more business with Nissan and partner Renault. Yet the restructuring could also destroy hundreds of small-scale suppliers and cost thousands of Japanese their jobs. "I am very worried about affiliated subcontractors," said Takashi Fukaya, Japan's Trade minister, last week, adding: Nissan should "try not to fire employees." Even Prime Minister Keizo Obuchi expressed veiled criticism, calling Ghosn's restructuring "understandable" but asking Nissan to "give full consideration to the employment problem and impact on subcontractors."

The shakeout Tokyo dreads is already underway. Seiji Fujita, 70, owns the tiny parts company Nitto. He subcontracts wire harnesses for Calsonic, a large supplier in Nissan's traditional keiretsu. His run-down factory is less than a kilometer from Nissan's massive Murayama assembly plant, which under Ghosn's plan will close in 2001. In the boom years, such proximity made possible Japan's celebrated just-in-time manufacturing system. In bad times, the lack of business spreads the pain down through layers of subcontractors. Fujita's remaining employees, seven women, all part-timers, stand in rows while stoically sorting strands of wire. "About three years ago I had to let four men go," he says. "Otherwise we wouldn't have survived." Now, he fears, Nissan's restructuring will force further price cuts. "Even if we don't die it won't be easy," he says. "We are wringing an already dry duster."

Musashimurayama is a Nissan town, and it, too, could die with the massive Murayama plant's closure. The complex, which covers 10 percent of the town's land area, sports a test track, huge parking lots and cavernous factories that have churned out economy cars and vans and Nissan's top-end touring sedan, the Skyline, since 1962. Nissan pays nearly $10 million in yearly property taxes, employs 3,100 people (down from its 1992 peak of 5,500) and supports scores of local suppliers. Although it is a distant Tokyo suburb, the town lacks train lines because commuting to work was never an issue. The town's annual fair is the Industry Festival, a two-day party featuring folk dancing, food stalls and, of course, a Nissan-only motor parade down its main street. "Nissan says we will stage the event as planned this year," says Shigeaki Takahashi, head of the city's Society of Commerce and Industry. "But as for next year, they don't know."

Is the party over? Under Japanese law, Nissan must offer its full-time workers transfers to other facilities. To thin the ranks, it must persuade employees to volunteer for early retirement--a task that usually requires generous incentives. As it cuts capacity, Nissan will discontinue unprofitable vehicles and begin building cars on common platforms, some of them shared with Renault. By 2004, Nissan will produce just half the number of platforms it makes today.

To mark its restructuring, Nissan launched a new advertising campaign, pledging a "ReNaISSANce with Nissan at the center." Newspaper ads show hundreds of colored eggs, with Nissan cars occasionally breaking out, like chicks. In the television version, Ghosn is featured prominently. "We wanted to create an image that said, 'Let's all do this together, with Ghosn-san at the center'," says Shinji Gonda, manager of Nissan's advertising department.

Improbable as it sounds, the gaijin cost killer could prove a shrewd front man for Nissan. "Several years ago, lots of people might have resented this," says Tatsuo Sekine, chairman of the TV Commercial Research Center in Tokyo. "But 10 years of recession has completely changed us. The economy is still bad, but Japanese have made a choice to work with foreigners to start over, rather than sticking to the old system and continuing to decline. Even office ladies know Ghosn-san is doing something inevitable. They may sympathize with his employees, but they don't hate him."

But as Ghosn-san well knows, cost-cutting alone can't secure Nissan's future. Only some popular cars can do that. Which is why, on the same day he unveiled the restructuring, he poached Isuzu's top designer, Shiro Nakamura, "with the mission to bring back to Nissan car design the attractiveness and consistency it urgently needs." At Isuzu, Nakamura won plaudits for revitalizing a staid line of light trucks. His latest work--Isuzu's prototype VX3, one of the hits at this year's Tokyo Motor Show--is a futuristic four-wheel-drive sedan that looks like a touring car on steroids.

Nissan's dull offerings at the same show reveal the challenges Nakamura now faces. The Silvia, a venerable sports coupe, is practically the same vehicle that won Japan's Car of the Year award in 1988-89. Nissan's hottest production model, the Cube, copies boxy Japanese minicars pioneered by Suzuki and Daihatsu in the early 1990s. "It will take three years to come up with new cars," forecasts Koji Endo, auto-industry analyst at Schroders in Tokyo. "And with nearly 50 models in production, Nissan will need six good ones to make any difference."

As important as creating new products is weeding out bad ones, a task that doesn't come naturally at Nissan. "In the past, we always added models," explains executive vice president Hiroshi Moriyama, the board member now responsible for doing just the opposite. "We thought that more models would mean more volume. But that wasn't true." Across the convention center, Renault's presentation hints at Nissan's future. Modern and compact, it features a sleek concept van, a retro two-seat coupe and select samples of Renaults currently in production. The vehicles are fresh and attractive. None appears to have been built simply to keep people working. They were made to move--for a profit. That's how it works when Le Cost Killer takes the wheel.

 

 

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