How a billion-dollar deal is frustrating Nissan in New York

NEW YORK -- Stand on any busy Manhattan street, and the yellow river of taxis flowing by will carry Toyotas, Fords, Hyundais and the occasional Mercedes-Benz.

But rare is the sighting of an NV200 taxi cab, the vehicle that Nissan Motor Corp. designed specifically at the request of New York City taxi authorities.

It has been more than three years since New York awarded Nissan the exclusive contract to supply 100 percent of all taxis that would be sold there for 10 years. Then-Mayor Michael Bloomberg's remarkable "Taxi of Tomorrow" contract was hailed by Nissan as a $1 billion business deal. It was a rare government-sanctioned monopoly for the big kahuna of North American taxi vehicle business -- New York, where upward of 14,000 cabs circulate the city day and night.

But so far, the high-profile contract has given Nissan little to celebrate since it took effect last year. Now, after several setbacks, Nissan is preparing to relaunch the New York taxi, part of a larger effort to become a player in the American commercial vehicle segment.

City political quarrels and lawsuits virtually ruined the NV200's rollout late last year. A year after the yellow NV200s' debut, there are no more than 500 of them working the streets here. Subsequent rulings and official pronouncements have confused the market about what taxi companies are required to do and whether the NV200 remains the official Taxi of Tomorrow -- or ever will be.

"It's been crazy," says Alex Chaoush, taxi sales manager for one of the stars of the automaker's new business segment, Koeppel Nissan in the Jackson Heights neighborhood of Queens. "The vehicle is great. But it's been mired in politics. We've sold hundreds of them this year. But we'd be selling thousands of them by now if things had gone like they were supposed to."

Nissan indicates that it is now preparing to reboot the launch in the next few weeks, reclaiming what is Nissan's by legal contract -- exclusivity for New York.

But even that plan is looking dicey.

New York state's Court of Appeals agreed in October to hear a lawsuit filed two years ago by Greater New York Taxi Association, a group that claims to represent about one-third of all the city's taxi owners.

The trade group has mounted various legal arguments to block the Nissan deal. Its suits have charged that:

• Taxi owners will be hurt financially by not being able to seek competitive pricing from multiple automakers.
• The city did not have the legal right to execute the contract.
• The NV200 is an unproven vehicle.
• The van's distinctive panoramic, tourist-friendly moonroof is unsafe.
• As a Japanese automaker, Nissan's North American manufacturing supply is too limited to support New York's taxi trade.

The group also contends that awarding the contract to Nissan violated the city's own Taxi of Tomorrow guidelines: Bloom-berg's vision called for a taxi that would be available with a hybrid powertrain. The NV200 is not -- at least, not yet.

"We questioned this whole plan from the beginning, and they didn't listen to us," says Ethan Gerber, a Brooklyn attorney who represents the taxi association. "Look, Nissan is a good company. And the NV200 is not a bad car. If it turns out that people like it, then great -- they should be able to sell them here.

"But why can't we have competition?" he asks. "Why did the city think there had to be exclusivity? It stifles competition and stops innovation. Why couldn't we just have standards for the taxi, and if Toyota and Ford wanted to offer an identical vehicle that might be somehow better or more competitive, why can't they?"

The appeals court likely will take up the lawsuit in the spring. By next fall, two years of Nissan's 10-year contract will have elapsed in uncertainty. A Nissan spokesman said it's not clear whether finally resolving the legal challenges might allow Nissan to reset the clock to reap the full benefits of the intended 10-year period.

In the big scheme of U.S. auto sales, a few thousand yellow vehicles would not seem so important. That's particularly true for Nissan, where growing U.S. sales demand is beginning to translate into factory capacity strains. But Nissan has bigger aspirations.

Taxis are one piece of an initiative by Nissan Motor Corp. CEO Carlos Ghosn to increase the automaker's commercial truck business in the United States. Nissan is a significant player in commercial vehicles around the world -- but not so in North America.

Ghosn and his U.S. executive team have pinpointed commercial trucks as an obvious growth opportunity here. The compact Sentra-sized NV200 van -- apart from its taxi version -- has been gaining sales. More than 10,000 have been sold so far this year, and they have just begun selling through General Motors badged as the Chevrolet City Express.

Ghosn traveled to New York in April 2012 to unveil the NV200 taxi and appear at press conferences with Bloomberg and other city officials. The CEO made clear that the taxi would be offered in other cities. It would be a sort of reward for Nissan dealers who had invested to become "LCV" dealers -- offering Nissan's light commercial vehicle line, with dedicated fleet sales staff and commercial-truck service facilities. About 300 of Nissan's 1,100 U.S. dealers have become LCV dealers.

Last month, Ghosn sized up the bogged-down taxi business optimistically.

"Finally, I'm seeing more Nissan taxis in New York," he said from the newly opened Renault-Nissan Alliance office in Manhattan. "At one time, I was wondering if it would ever start."

Ghosn said he is not angry over the delays and confusion.

"Obviously, there is always disappointment, but I trust that there is fairness," he said. "There was an attempt to derail the project. You know, there has been this legal battle. But the latest decision is that we're right. We've done what we have been asked."

The taxi venture came about through a highly publicized competition starting in 2007 as city planners considered new design requirements for cabs. The Bloomberg administration called for a 21st century vehicle to replace the hodgepodge of retrofitted models that worked the city's streets. Typically, vehicles such as the Toyota Camry and Prius, Ford Escape and Hyundai Santa Fe are sold to local cab operators by New York car dealers. They are then retrofitted in the aftermarket with fare meters and Plexiglas partitions.

Bloomberg wanted a homogenous street look that would showcase New York to its annual millions of tourists and business visitors. The Taxi of Tomorrow would have to be roomier and more ergonomic and come ready-made from the factory. And there would be a hybrid version.

The New York City Taxi & Limousine Commission, the municipal department that regulates the trade, publicly solicited entries in the competition in 2009. The auto market was changing. Chrysler and General Motors were in financial trouble. Ford had decided to stop making its Crown Victoria -- a mainstay of the American livery business.

By 2011, three finalists were under consideration. All proposed a roomy but fuel-efficient van. Ford Motor Co. proposed its Transit Connect, imported from Turkey at that time. Coincidentally, a separate and little-known Turkish company called Karsan offered its V1 model, which it proposed to manufacture in a factory it would construct in Brooklyn. Nissan offered the NV200, to be built in Cuernavaca, Mexico. Nissan vowed that it would go one step beyond the city's requirement of a hybrid option by creating an all-electric battery-powered version of the taxi during the life of the contract.

Nissan won the bid with its offer of a taxi with a number of premium features, not least of which is a panoramic moonroof that allows tourists to sit back and be dazzled by the city's famous skyline. (See box, above.) The NV200 comes ready-made from Nissan's assembly plant, so there are no signs of haphazard aftermarket fittings.

But the NV200 carries the price of a specially designed vehicle. City officials had reasoned that by acting on the entire taxi industry's behalf, the government would have muscle to negotiate a factory-designed taxi.

In fact, the resulting Nissan taxi retails for about $31,000, with shipping. By comparison, it has been possible for cab operators to acquire Toyota Camrys for about $22,000 to convert into taxis.

Critic and attorney Gerber, who is part owner of a New York taxi himself, commends the city on its desire to improve taxi standards.

"I've ridden in taxis that were just too small and uncomfortable," concedes Gerber, who is 6 feet, 3 inches tall. "I have no problem with setting some new standards. But did the government really think it could negotiate prices on my behalf better than me?"

Nissan's selection barely had been announced when the criticism began. Advocates for passengers with disabilities protested that the NV200 was not wheelchair-accessible. Nissan subsequently announced that it would offer a wheelchair-accessible version modified by BraunAbility.

However, the wheelchair issue continued to roil the plan. At one point in 2012, New York's then-comptroller, John Liu, said he would reject Nissan's contract on behalf of the city because, as he asserted at a press conference, it violated the civil rights of people with disabilities.

Bloomberg's office responded that the contract would go into effect anyway.

In May 2013, less than six months before Nissan's planned sales launch of the taxi, one of the complaints filed by the Greater New York Taxi Association led to a lower-court ruling that rendered Nissan's contract void. Justice Peter Moulton of the state's Supreme Court for New York County ruled that the deal with Nissan failed to allow cab operators to purchase a hybrid vehicle -- a provision of the original taxi contract. That ruling caused the city to temporarily revise the taxi deal, permitting cab owners to continue shopping for non-Nissan hybrid models for taxis. Nissan retained exclusive rights to gasoline-engine taxi sales.

If and when Nissan offered a hybrid NV200, according to the last-minute revision, Nissan would reclaim the exclusive rights to those taxi sales as well.

The situation then got worse for Nissan.

In October 2013, less than four weeks before the taxi was to go on sale, the court stripped Nissan of its contract altogether. Justice Shlomo Hagler ruled that the Nissan contract was not enforceable because the Taxi & Limousine Commission was not authorized to contract with a vendor.

Nissan vowed to press on, competing without a contract with all other manufacturers, despite bearing all the development and manufacturing costs of meeting New York's specs. Company officials cheerfully noted that Nissan's taxi would have an advantage in the market since it was designed specifically to make New Yorkers happy.

But Hagler's Supreme Court ruling was overturned by a higher New York appeals court. The new decision re-established Nissan's exclusive rights to all gasoline-powered taxi sales in New York. Nissan also revealed in testimony that it intends to introduce a hybrid version of the NV200. If so, the availability of that model would restore Nissan's complete taxi monopoly.

But there is still the test of the high-level appeal next spring.

And to make matters worse for Nissan, the company has seen one of its more outspoken political opponents rise to power.

Former New York City Councilman Bill de Blasio had served as the city's public advocate during the Taxi of Tomorrow campaign. De Blasio filed a legal brief in hopes of stopping the contract.

In 2013, he was elected mayor to replace Bloomberg.

As recently as June, the new mayor continued to express his displeasure with the contract and with Nissan itself. "I don't like a lot of things about this," de Blasio told reporters at a press conference then. "I think this was a broken process on many levels."

He said Nissan's exclusive contract left cab owners with no choice for shopping alternatives. He said the city missed an opportunity to sign a taxi deal that created New York manufacturing jobs -- an apparent nod to Karsan,the small Turkish automaker that proposed a factory in Brooklyn. And he criticized Nissan for doing business in Iran. In a comment published in Crain's New York Business, de Blasio vaguely indicated that his administration is exploring legal options to challenge the deal.

At Nissan, Ghosn remains upbeat.

"The city wanted a car manufacturer to fill the specification that they wanted," he says. "We came in an open competition. And we won the competition."

He believes there is no need for a "lesson learned" in this venture's rough startup because the company has persevered.

"If we would have lost it, then probably there is a lesson," he says. "But the project was re-established."