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U.S. suppliers help turn on Nissan's profits

Nissan's U.S. suppliers can take comfort that their cost cutting is helping Nissan's profitability in Japan.

Nissan Motor Co. President Carlos Ghosn made it clear last May that the automaker's $2.7 billion in record earnings was due in large measure to its suppliers.

Cost-cutting efforts in North America alone saved the automaker $700 million last year, said Emil Hassan, senior vice president of Nissan North America Inc. in Smyrna, Tenn.

That represents average savings of $1,013 for every car the U.S. and Mexican operations built last year.

Hassan, responsible for North American manufacturing, purchasing, logistics and quality, said while cost cutting is painful for suppliers, the effort overshot its goal last year. Nissan initially obtained commitments from its North American suppliers to cut 8 percent of their costs. Nissan pushed for 10 percent in cuts and ended up achieving a little more than 11 percent, Hassan said.

"It's been a tremendous first year," Hassan said. "I see it continuing. North America is the main engine in that turnaround."

Under Ghosn's Nissan Revival Plan, suppliers worldwide have been asked to help Nissan achieve a 20 percent rollback in supplier costs by 2003. When announcing the earnings last May, Ghosn called the cuts "the single most important item contributing to the improvement in our profitability."

The program does not require each supplier to cut its cost 20 percent. Hassan said every supplier has a different cost goal assigned by Nissan. "For some of our suppliers, it is less than 20 percent because they are already pretty competitive," he said.

In other cases, he added, suppliers still are trying to reach the goal and even trying to determine how to reach it.

He emphasized that the program was not simply about price reduction but about finding ways to reduce the overall cost of Nissan's parts and materials.

At the same time, Hassan said Nissan has parted ways with about 10 percent of its 300 North American supplier companies over the past year, replacing them with competitors who could meet Nissan's Ghosn-inspired cost targets. Most of those supplier changes involved smaller companies.

"I think our suppliers understand how serious we are now," Hassan said. "They can see the results. They recognize that they have to make a short-term sacrifice for long-term gain."

The automaker is spending $2 billion in the U.S. market, expanding its capacity to build cars, trucks and engines. Nissan expects to use its existing supply chain.

You can reach Lindsay Chappell at lchappell@crain.com

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