Nissan CEO: 'We still have a lot left to do'

TALK FROM THE TOP

With his Nissan Revival Plan, Nissan Motor Co. Ltd. President Carlos Ghosn has set the benchmark for auto industry restructuring. Unveiled in October 1999 and launched the next March, the three-year plan already has led Nissan to record profits in three consecutive six-month terms.

Now he is laying the groundwork for the next stage of Nissan's history with his Plan 180. The elements:

"1" stands for the goal of selling 1 million more vehicles in 2005 than in 2000.

"8" stands for an 8 percent operating-profit margin, which would put Nissan in the top ranks of automakers globally in profits.

"0" stands for the goal of having Nissan be debt-free, so that investment decisions can be made without concern for debt load.

Ghosn spoke with Automotive News Asia Editor James B. Treece in Tokyo late last month.

Is there any chance that Nissan will bring forward the production start at the Canton, Miss., plant, much as Honda moved its production start in Alabama up by about half a year?

The building of the new plant is on time. As you know, first production is supposed to start in the spring of 2003. For the moment, I don't have any concrete information that would materialize the fact that we would start before that. Maybe it's possible, but our plans are not counting on that.

Given the state of the U.S. economy right now, would there be any desire to pull it forward?

If it were possible, we would. The two products that we will be manufacturing in those plants are brand new products, entering a new segment for us. So the faster the better. Today our market participation in these products is zero. Even if you are facing a market that is a little bit on the decline, still it's good for Nissan to start as soon as possible.

From the other side, we have a third product, which is a renewal of our minivan, the Quest. We are extremely interested in putting that new product on the market as soon as possible. I don't think for us there is any interest in delaying anything between the startup of the plant and the launch of the three products that will be manufactured at the plant.

Next year, Infiniti gets an all-new midsized sedan and a new coupe. I understand that these are new models, not replacements for existing models. Is that correct?

Yes. We are extending the range of products of Infiniti.

In the first quarter of calendar 2003, Infiniti also gets a new sport-utility. Do you worry about the Infiniti line showrooms getting too crowded?

No. If it happens, it would be a nice problem to deal with. We would love to have this kind of problem. When you say too crowded, do you mean too many customers coming to the showroom?

No, too many cars in the showroom, so that you can't display them properly.

No. Since the beginning of my tenure as president of this company, I have always heard from my Infiniti dealers, "We need more cars. We need a bigger product range." We have the distribution network sufficient to handle much more activity. So in fact, we're just responding to something that is obvious in the market.

People are beginning to talk about the possibility of deflation in the United States, just as Japan has experienced it. Is this the wrong time to be bulking up on the luxury end of the market?

I know that there is some talk about deflation in the United States, just as there's been talk that the U.S. economy will be depressed during 2002. Really, it's not our central hypothesis. We think that there has been some overreaction, in terms of forecasts, to the first half of the year and the unfortunate events of September.

Our central hypothesis is a recovery in the U.S. market, which will take place sometime in 2002. Now we can debate the exact timing. Is it going to be in the first half of 2002? Is it going to be in the second half of 2002? But really, our central hypothesis is a steady recovery during the year 2002.

Now price pressure is going to be here. It has always been here. I don't think there has ever been a time in our industry where we could price our product wherever we wanted. There is and there will continue to be price pressure. The price pressure is coming from the fact that this is an industry that is extremely competitive. Which is good for the consumer, and it's even good for the car manufacturer, because it's keeping us really focussed on what makes a car company successful. So I think that we're going to be seeing in 2002 and 2003 a steady recovery of the market, but still a lot of competitive pressures.

One of my colleagues in Europe had the chance to drive the Renault Laguna and said, "This would do very nicely in the Infiniti lineup." Is that something you are still exploring in the alliance?

Not for the moment. Renault has been very clear in saying that if there were any product in the Renault lineup that would fit the need of Nissan customers in the United States, they would make it available. For the moment, we don't see any necessity to do that, but it does not mean that in the future it would not happen. But if you're asking me, if presently and actually there is any product of Renault that is part of a project to be the object of an introduction in the United States, I would tell you no.

In Japan, Nissan went from having only four out of 43 cars being profitable in fiscal-year 1999, representing 12 percent of unit sales, to a projected 18 out of 38, or 42 percent of sales, this fiscal year. What about in the United States?

In the United States today, 100 percent of our product line is profitable. I can tell you today that there is no unprofitable car that we sell in the United States. And we are very careful about this.

The problem in Japan that we faced is a lot of car companies have a tendency in their home market to go the extra mile to maintain their market presence. But you see, the market presence that you hold without profitability, you are not going to hold for a long time. One day or another, reality comes back, and you're going to have to reduce this market presence - or do something strong about it. Which means convert an unprofitable product into a profitable one.

We said from the beginning of the Nissan Revival Plan, we're going to really clean, in a certain way, our product lineup in Japan, to make sure that the majority of the product, the big majority of the product that is sold in Japan, will be profitable. That means a lot of efforts from the company in the renewal of the product line, and at the same time a lot of efforts to make our cost structure extremely lean, at the same time that we are reinforcing our brand power. This is something that is a main driver of the NRP (Nissan Revival Plan).

You say "the big majority." Does that mean not all? Less than 100 percent?

For the moment, our forecast is that in 2002, more than two-thirds of our products (in Japan) should be profitable. In 2003, this percentage should increase.

Will we be reaching 100 percent? I really don't know. It depends too on how strongly the products that we are launching will be received by the marketplace. Anyway, we're not in the business of gaining market sharing or holding onto a market presence without profitability.

You've said that the new Altima in the United States will be contributing three times the profit levels…

Of the former Altima. But you see, part of it is a little bit normal. When you are replacing a relatively old product with a new one, usually your profitability, unless you've done something totally wrong, improves. Just by the mechanics of introducing a more up-to-date product: more up-to-date design, a better-equipped product and so on.

You have to judge the Altima over its life cycle. We think fundamentally, this product will be, over its life cycle, compared with the previous Altima, more profitable. And guess why it's more profitable? Because, in our opinion, it answers the requests of the customers better than the former Altima. For example, as you know, with the former Altima there was a lot of criticism of our product that we did not have any V-6 engine. Now that's solved. Or that the product was not as well equipped as its competitor. We think that this problem is solved.

The reception of our new product on the market makes us feel confident that the Altima will be delivering on all its promises. But we still have to wait. I would not judge the success of a product based on a couple months of sales. I think we have to be a little more careful, and judge it on a six-month or one-year behavior on the market.

Is that "three times" as profitable a benchmark target for other new models that are coming as well?

No. I think "three times" is the observation of what happened in September and in October. This is the profitability results of this car in the first couple of months after its launch. In the product contract, one of the objectives was to have a higher level of customer satisfaction, and as a consequence, a higher level of profitability. We think that we will be able to maintain maybe not three times during the cycle time, but a substantial level of profitability during the cycle time.

In Europe, are any of your cars profitable?

Yes. Not a lot of them, but yes. Here we have a problem that is not so much linked to our cars, as linked to the structure of our organization in Europe. As you know, especially in the year 2000 - a little bit less in the year 2001, but especially in the year 2000 - we were mainly producing cars in the U.K., which means that the cost structure was in pounds, and selling the majority of them in Europe. Just to give you a very simple number, 70 percent of our production is in the U.K., and 70 percent of our sales are in Continental Europe. This is not the situation where you want to be. It would be much better to have 70 percent of your production in Continental Europe and 70 percent of your sales in the U.K., taking in consideration the strength of the pound against the euro.

The situation is a little bit better in 2001. And we hope that from now on we're going to see much more predictable levels of exchange rates between the pound and the euro, which is crucial for our profitability in Europe. But obviously, we're not waiting for that. We're acting. That means, even the products which today are manufactured in the U.K. have a majority of their sourcing being done in Continental Europe, which means their costs are in euros. This is to avoid any good or bad surprise coming from elements that are beyond our control.

How will costs for the next-generation Micra be split in terms of euros, pounds and yen?

What I can tell you is that practically 70 percent of the currency footprint of the Micra will be in euros, which matches very well the mix of sales, because a little bit more than 70 percent of the sales of the Micra will be in euros. So we are in relatively good shape with the Micra.

Do you have a volume target for Nissan in Europe, once you're profitable there?

The minimum level of sales to have any hope to be profitable in Europe is above 450,000 cars sold in Europe. It would be very difficult to be profitable below this volume. Now, above 450,000 cars sold in Europe doesn't mean that you are going automatically to be profitable. You still have to be careful about the attractiveness of your product, about your cost structure. But it would be very difficult under a certain volume level to be profitable. Today, we are around 490,000. So we have the minimum level of volume necessary to come back to profit and, as I've told you, we are confident that this year should be, obviously not significantly profitable, but we should come back to profit.

But once you are profitable, do you have a forward volume target?

Sure. There are many reasons for this. First, the new products we are preparing for Europe we think will be much better focussed and more attractive than the previous lineup. Second, we are preparing our currency footprint in order to avoid any positive or negative surprises coming from evolutions of the exchange rate in the European continent. And on top of this, we continue to work very hard to make our cost structure as lean as possible.

On top of all these elements, which are elements proper to Nissan, we can count on the alliance with Renault, which has a much stronger presence than us in Europe, in terms of efficiency and effectiveness; efficiency being a good understanding of what the customer wants in the different European markets, because as you know, Europe is one market, but in fact constituted by many different markets with a lot of specificities to them. And on top of this is effectiveness, which means having as much as possible common back offices and common hubs, which would help us to do more with less.

Nissan is taking a 15-percent stake in Renault. But since those shares have no voting rights, their symbolic value seems a bit weak. Is there a chance for that 15-percent stake getting voting rights sometime in the future?

You can't. You have to change French law. The non-voting rights of the 15-percent share of Nissan are not due to the alliance. They are not the fruit of an agreement between Nissan and Renault. This is only the result of the existing French laws, which don't favor too much cross-shareholding.

When you have the situation where you are buying shares in a company that already has significant level of shares in your company, you just cannot exercise voting rights in the shareholders meeting. It doesn't mean that the shares we will be buying will have no voting rights. They will have voting rights. But as long as Nissan holds them, Nissan as a company where Renault has already shares, cannot exercise them. But if we sell the shares someday to somebody where Renault does not have a stake, they would have voting rights.

Are there any plans to do such a thing?

No, no. We are not planning to do this in the foreseeable future. I'm just saying this is not the fruit of the agreement between Renault and Nissan, this is just the existing legislation in France.

How do you explain Renault's relatively poor performance?

You have to ask them.

The reason I ask is, does it come from sending so many of its top executives, including you, to Nissan?

This is a flattering explanation, but you have to ask them. I think it's very difficult to make comments on why a company is successful or facing a difficult time while you are outside the company. You have to ask the people who are really inside the company, seeing all the opportunities and all the risks around them. So I won't comment.

Have you been approached by any other automakers?

This is becoming a classic question.

It can't be a new question.

This is a classic question, to which I will give the classic answer. I have been very clear that I consider today my mission is to really help establish Nissan on track for lasting profitable growth, and nothing will divert my attention from that.

I didn't ask if you were going. I asked if you had been approached.

You have always worked for French-based companies. Would you like to experience something else at some point in the future?

It's true that I have worked for two French companies. I didn't work for many of them: I worked for two main companies. What's interesting about these companies is that, well, Michelin is a global company. Its origins were French, but it is global. Renault, when I joined, had the intention to become a global company.

So it's true that I worked for two French companies, but both had a global presence and a global ambition. That suits me very well because as you know, I am basically of French culture and education - I made practically all my studies at engineering schools in France - even though I have global experience. I spent seven years in the United States; four years in Brazil. Now Japan is probably going to be another major experience.

When you work for a company that is global, or working to become global, you don't feel so much the need to say how about something else? Because you have already interacted with different cultures and different ways of management.

You have here in your office one Daruma doll with both eyes filled in and another with one eye still blank. (Editor's note: In Japan, one eye of a Daruma doll is filled when setting a goal, the second eye upon achieving it.)

It's very simple. The Daruma with the eyes filled in means the commitments taken for 2000 have been fulfilled. The one for 2001, still not. But hopefully, if you come back next year, you'll see the second eye already filled in, which will mean that the commitments taken for 2001 have been fulfilled.

And next year you'll see another Daruma, the Daruma for 2002, which will be even bigger than these, because 2002 is another critical year. On top of all the restructuring and re-engineering of the company that we have done, you will be seeing some significant growth coming, which is due to all the work we've done on the renewal of our product lineup. Plus the fact that all the work we've done on efficiency over the past two years will have a full impact in 2002.

At the same time, some of the investments we have been making on top of products will start to deliver results.

Not product-related investments, you mean?

For example, we have been investing in our Indonesian operations. The real results of our Indonesian operations will appear in 2002. For the moment it has mainly been investments and resources and energy spent, not so much results. This is one example. A lot of things have been done during the period of NRP, which should enrich the period of Plan 180. The most powerful example I can give you is our new plant in Canton, Miss., where, both in terms of new facility and products, the results will be seen during the period of Plan 180.

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