TOKYO -- Last month, Nissan CEO Carlos Ghosn announced that Nissan had posted record profits for the third straight year and predicted a fourth in the fiscal year that began April 1.
In addition, Nissan had achieved two of the three goals Ghosn set in his Nissan 180 plan - at the end of the first year of the three-year plan.
Nissan slashed automotive debt to zero from 432 billion yen, or E3.2 billion, at the start of the last fiscal year, and from a staggering E15.3 billion before Ghosn joined the company. That was the "0" in "180."
It topped the target 8 percent operating-profit margin - the "8"- with an industry-leading 10.8 percent profit margin.
The only remaining goal: to boost sales by 1 million vehicles compared with the level at the start of the plan.
Ghosn sat down with Automotive News Europe's James Treece and Yuzo Yamaguchi to discuss Nissan's results and future.
For years, Nissan was the best-selling Japanese brand in Europe.
Three years ago.
That changed about the time that Toyota opened its plant in France. Now, almost every month it seems Toyota widens its sales lead over Nissan. What's going on?
It's very simple. Nissan had a sales increase in Europe that was very significant in the 1990s. Unfortunately, the sales increase has not been synonymous with profitability for the company.
I think it's relatively easy in our industry to boost your sales while undermining the profitability. It doesn't take a lot of skills to do that.
Our mission is not to maximize volume. Our mission is, through the sales of attractive products to customers and the sales of our services, to build value and to create value for our corporation. Boosting sales in a continent or region with negative operating profit and no return on investment is a silly game.
That's almost a perfect lead-in for discussing China. There's a joke going around that you did the deal with Dongfeng Motor so that you, Carlos Ghosn, wouldn't be bored now that Nissan is back on track.
It's a joke. You don't invest $1 billion just for that. There must be a cheaper way to keep me occupied.
You cannot be out of China. Today everybody recognizes that those who are not in China are missing a huge opportunity. It's not going to be easy. But the growth of the market, the kind of profits you are making in China, the focus that the Chinese are putting on the development of their economy make it a no-brainer.
We had the opportunity to get in with a major partner with the support of the Chinese authorities. And we don't want to miss it.
Are you doing anything to realign your supply network in China in light of SARS?
No. We're not at that stage.
How long before China represents a material factor in Nissan's performance?
In 2006, we will be selling 220,000 cars in China, at the same time that we will be developing buses and trucks.
I think 2006 will be a good step to say China is an important contributor to Nissan. 2010 will be even bigger because we're saying 900,000, with 450,000 cars. Well, 450,000 cars will not be very far from European sales in 2010. Hopefully, Europe will turn out to be bigger than this.
But 2006 is a first important step, where China will represent a significant contributor to Nissan results both in terms of volume and profits. In 2010, China will be one of the four major regions we have, with the USA, Japan, and Europe.
Last year you brought automotive debt down from 432 billion yen to zero and still generated 8 billion yen in extra cash, for a net swing of 440 billion yen, or 3.3 billion. You are forecasting that net cash generated by operations will be 100 billion yen, or 742 million, even after investing $1 billion to buy your 50 percent stake in Dongfeng. What is Nissan going to do with its extra cash this year?
We have a very big increase in investment. We invested in 2002 309 billion yen (2.3 billion). Next year, we're going to go to 420 billion yen (3.1 billion). So you have an additional 110 billion yen (817 million) of capital expenditure. This is very important. Then we have an increased dividend, and we are increasing taxes. This is going to be the first year of normal tax treatment in Japan.
What's very important is that in a company where you are increasing capital expenditure by 30 percent, where you are making 120 billion yen investments to buy a 50 percent stake in one of the three largest carmakers in China, where you're going to pay more taxes, where you're going to be spending 20 percent more on r&d, we will still be able to generate 100 billion yen of free, net cash. That's what's most important.
Will Nissan put any more money into Nissan Diesel?
No. As you know, one of our main limitations today is our engineering capacity. When you take a look at the number of products we will be launching in the next two years, you can see that, even though we are hiring massively and modernizing and changing our systems, we are running practically at full capacity in engineering. The limitation today is not cash.
So you may see us from time to time partnering with other car or truck manufacturers, Nissan Diesel being one of them, to outsource some of the development, some of the technical work. What we have in our strategy today is above what our r&d capacity is, particularly in the light-duty truck segment. Nissan Diesel has capabilities in this field. So common projects and specific joint ventures to develop one particular product are things we will consider. But putting money into Nissan Diesel doesn't make sense.
You don't have a turbodiesel engine, which might be desirable for a full-sized pickup. Is that sort of project you might seek to do with others?
A diesel engine is a possibility. But it's not today what we're considering, which is more light-duty trucks.
Does it seem to you that the alliance has peaked? Where else is there for the alliance to go? Where does the big plan go next?
A lot of work has been done and continues to be done, but the results are not visible for a very simple reason.
Some of them will show concretely when, for example, we have a common platform. You're seeing results of the common platform mainly on the Nissan results, with the Micra, the March and the Cube. But on the Renault results, this will happen only when Renault launches its entry-level product in 2005 and 2006.
On common purchasing, when we started it was 30 percent of purchasing. Then we boosted it to 40 percent. Now we're prepared to take it higher. So the scope is expanding little by little.
You're going to have other elements.
We said from the beginning that the door is open for our partner to join Dongfeng Motor. They have not yet decided what they are going to do, but they will do it one day, because I don't think Renault will be out of China for a very long time. We have this alliance: The framework is ready. The joint venture is ready. The plants are ready. We just have to go.
This alliance is not based on big statements. It's based on a pragmatic approach, day-to-day work, delivering results systematically and moving forward by concentrating on the bottom line and top-line revenue growth. We are going to continue to respect the independence of each company and to work on synergy.
At the Nissan earnings conference, you said you expect to hit sales of 852,000 units in the United States this fiscal year. That's a huge number.
Yes. We also said our global sales will reach 3.04 million from 2.77 million. This means we will increase our sales by approximately 270,000. Of that, we have 126,000 coming from the United States.
With 126,000 out of 270,000 coming from the United States, well, it is the year of the United States, no doubt about it. [Nissan opens a new US plant in Canton, Mississippi later this month.]
On top of this, all of the products we have coming in 2003 are in very important segments of the market. Except for the convertible (Nissan) Z, which is more of a niche. There is no doubt both in terms of volume and profitability, the USA is going to be the main focus of the whole company, as Japan was the main focus in 2002.
Hiroyuki Yoshino at Honda has announced that Takeo Fukui will succeed him as CEO in June. He said one of the reasons for announcing it now was so that Fukui could prepare Honda's next medium-term strategic plan since he will be responsible for implementing it. By that reasoning, isn't it time for you to name your successor?
There is a big difference. In that case, somebody is leaving, and the other one is coming. In my case, I'm not leaving. I'm still the president and CEO and responsible for the performance of Nissan for the foreseeable future. I'll be nominating a chief operating officer, who'll be in charge of the execution of the strategy. In 2005, I won't be out of the picture. I'll still be the president and CEO of Nissan.
Will you be announcing a chief operating officer during 2003?