Title: The Man Who Vows To Change Japan Inc. Summary:   Carlos Ghosn wants to fix Nissan. Trouble is, that mean s challenging entrenched Japanese corporate customs. During a weeklong to ur of Nissan's facilities in North America in mid-November, chief operati ng officer Carlos Ghosn spent 4 1/2 hours under a hot Arizona sun driving a dozen cars, vans, and pickup trucks at the company's test facility. Gh osn piloted all the vehicles with zest, but he got a special kick at the wheel of a sports model, the Skyline GT-R, which he quickly accelerated t o its electronically limited top speed of 110 miles per hour. Ghosn's tes t session was closed to outsiders, but Nissan engineers in attendance des cribe him as a vigorous driver who knows how to extract performance from a car. And from subordinates too. "He put us through the wringer with his questions," said one, "but it is really exciting to have a senior execut ive who is truly interested in the product."
	Source:&nb sp; FORTUNE Date:  12/20/1999 Price:  Free Document Size:&n bsp; Medium (3 to 7 pages) Document ID:&nbs p; PN19991210040000457 Subject(s):  Automobiles; Business; Corporations Business & Investing; Cars Citation Information:  (ISSN 0015-8259) Vol. 140 No. 12/Investor's Guide 2000/ Sp ecial Year-End Double Issue page 189+ Features/Nissan Author(s):  Alex Taylor III

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The Man Who Vows To Change Japan Inc.

Carlos Ghosn wants to fix Nissan. Trouble is, that mean s challenging entrenched Japanese corporate customs.

During a weeklong tour of Nissan's facilities in North America in mid-November, chief opera ting officer Carlos Ghosn spent 4 1/2 hours under a hot Arizona sun drivi ng a dozen cars, vans, and pickup trucks at the company's test facility. Ghosn piloted all the vehicles with zest, but he got a special kick at th e wheel of a sports model, the Skyline GT-R, which he quickly accelerated to its electronically limited top speed of 110 miles per hour. Ghosn's t est session was closed to outsiders, but Nissan engineers in attendance d escribe him as a vigorous driver who knows how to extract performance fro m a car. And from subordinates too. "He put us through the wringer with h is questions," said one, "but it is really exciting to have a senior exec utive who is truly interested in the product."

So far, Ghosn (rhymes with "bone") has yet to win a reputation as a bo na fide "car guy." But this forthright, animated man did receive consider able acclaim as "le cost killer" for recently turning around the French c armaker Renault. Now that Renault has bought a controlling stake in Nissa n, he plans to drive the ailing company back to financial health--and the Japanese are worried. Ghosn's blunt statements about Nissan's weakened c ondition and its need for massive work force reductions have landed him o n the front pages of newspapers across the country.

There is a good reason the Japanese are wary of Ghosn. The changes he has proposed could permanently alter traditional business practices, such as lifetime employment, seniority-based promotion, and cross-shareholdin gs. If he succeeds, it is not an exaggeration to say that he could be the foreigner who has made the biggest impact on Japanese life since General Douglas MacArthur broke up the holding companies and democratized Japan' s economy after World War II.

That's a big "if," of course. Ghosn, 45, has received no endorsement f rom government officials, and he has been blistered by some business lead ers. Says Jay Woodworth, an independent Asia auto analyst based in New Je rsey: "Ghosn is pressing the outer limits of what is doable, both within the company and externally, with the government and Nissan's very tough l abor unions." Toyota Chairman Hiroshi Okuda, no stranger to Western busin ess practices, took note of the 21,000 workers (14% of the total) that Gh osn wants to remove from the Nissan payroll over the next three years, an d observed, "It will be difficult for Nissan to implement its plan, given that there are such a large number of people" to be let go. Okuda, who heads an organization of Japan's largest employers, sent a message to member comp anies on the same day that Ghosn revealed his plan, warning them against using large-scale layoffs to solve business problems.

Analytical and unsentimental, Ghosn is unmoved by the criticism. He be lieves he is on a mission, and he is determined not to let anyone stop hi m. "The situation at Nissan is bad, and some radical change has to be don e," he said in an interview with FORTUNE in Tokyo. "There are fundamental management problems. Nissan has to do things that make business sense, n ot because of habit or tradition."

While Ghosn's methods are controversial, almost no one disagrees with his premise. Nissan has lost money and market share throughout the 1990s, and it labors under a debt load that reached $19.4 billion at the end of 1998. Last year Nissan spent $1 billion on interest payments alone, mone y that should have been reinvested in modernizing its aging product line. To make things worse, the company has a stodgy, ineffectual management, a dysfunctional corporate culture, and a model lineup that ranges from me diocre to unacceptable. There is no sign that Nissan was making any impro vements under its old management. It lacks a clear profit focus, a strate gic vision, or any sense of urgency. "Nissan has never really done anythi ng well," says MIT professor Michael Cusumano, who has written several bo oks on the Japanese auto industry. "Their technology is average or below average. Their supplier network is average or below average. They have no distinctive competence." In Japan, where Honda is known for its engine t echnology and Mazda for it styling prowess, Nissan has always been though t of as second fiddle to Toyota--the Al Gore of the Japanese auto industr y.

Ghosn's plan to revive Nissan is direct, comprehensive--and bloody. Be sides the payroll reductions, he wants to close five plants and cut produ ction capacity by 30%. He wants to reduce the number of suppliers by half , and he's asking those that remain to cut prices by 20% over three years He plans to slash overhead by 20% by, among other things, eliminating one-fifth of Nissan's dealers in Japan. But it's not all cost cutting. T o restore growth, he plans to boost capital spending to 5% of sales, from 3.7%, and move new products into foreign markets like Europe and North A merica four times faster than before.

To ensure that there are no doubts about his determination, Ghosn has studded his plan with benchmarks and goals. He expects Nissan to break ev en by March 31, 2001, and to achieve operating profits of 4.5% two years later. He isn't leaving himself any safety net if he fails. "We will have to bear the consequences," he says. "It would not be, 'I'm sorry, we are going to come back with another plan.'" Analysts have applauded his auda city. J.P. Morgan Securities' Nick Snee, who follows Nissan from London, said, "There is no company whose middle managers can't be unfrozen by str ong and clear leadership from the top, and Carlos Ghosn is going to suppl y lots of that."

The thawing out may take a while: Ghosn still faces resistance within Nissan. "There is a certain amount of denial," says one insider. "There i s a group in the company who still think this will blow over, though thei r number grows smaller by the day." Many managers are upset by Ghosn's in tent to sell Nissan's shares in hundreds of affiliated companies. A numbe r of them have business relationships with these companies, and they will resist the loss of power and prestige that will come if the ties are dis solved.

But Ghosn is counting on the crisis atmosphere--as well as on his stat us as an outsider--to get results. Says he: "Everybody at least shares th is constant: There is no way we can continue to do what we used to in the past. It is certainly an advantage to be from outside Nissan. It frees y ou from any kind of responsibility for what has been done in the past. An d it allows you to challenge in a very decent way what has been done with out anybody's having a second thought about, 'Hey, where were you when we were doing this?'"

Ghosn will have help. He has recruited 17 Renault managers, including a chief financial officer and a head of product development, to go to Nis san with him. Typically impatient, he gave them 48 hours to decide whethe r they wanted to move from France to Japan. He's also created nine cross- functional teams to drive ref orms in areas like purchasing and manufacturing. Ni ssan President Yoshikazu Hanawa will stay on to serve as a liaison with g overnment and labor, but the restructuring has taken a personal toll. Dur ing public presentations of the plan in October, he betrayed a severe ner vous tic and uncharacteristically deferred all substantive questions to G hosn.

In background, perspective, and energy, Ghosn epitomizes a new breed o f borderless global managers, of whom Ford CEO Jacques Nasser is the most prominent example. These executives are multilingual, have worked around the world, and seem impervious to jet lag. Ghosn, who was born in Brazil of French and Lebanese parents, speaks five languages (he is still learn ing Japanese) and has held major jobs on four continents. He made his rep utation running the North American operations of Michelin tire in Greenvi lle, S.C., where he presided over a successful restructuring as well as t he acquisition and integration of Uniroyal Goodrich. It was a delicate jo b because he had to close plants and fire workers without antagonizing th e rubber workers' union, but he got through it without a strike.

Ghosn had just returned to Michelin headquarters in Paris in 1996 when Renault Chairman Louis Schweitzer recruited him to restructure the autom aker. Renault was riding a surge in European auto sales, but its costs we re high and its efforts to internationalize were moving slowly. Ghosn tri ed out the tactics he would later use at Nissan: close plants, reorganize manufacturing and purchasing, and trim the supply base. To prove he coul d create as well as cut, Ghosn championed the renewal of Renault's produc t line by introducing cleverly designed new vehicles like the Megane Scen ic, a minivan that looks tiny but somehow manages to carry seven people w ith an innovative two-three-two seating arrangement. But he still got tag ged with the "cost killer" nickname (which he detests) that French newspa pers hung on him.

Ghosn's restructuring put Renault back in the black after just one yea r of losses and is expected to produce annual savings of $3 billion a yea r. But Renault was still selling 85% of its cars in Western Europe--a thi rd of them in France alone--and it sorely needed a partner to help it go global. It had retreated from the U.S. in 1987 and failed to acquire Volv o in 1993. More than a year ago, Renault speeded up its search for a part ner. "When Daimler-Benz and Chrysler announced their merger," recalls Gho sn, "it created a lot of homework for executives at all the car manufactu rers, who were asked, 'Look, how are we going to compete with megacompani es like this?' The question at Renault was very simple: How are we going to survive? And the answer was, You are going to have to join forces with whoever complements you in the best way possible."

Nissan was also looking for a partner--or a savior. With its continued losses and high debt creating a combustible condition, Hanawa declared l ast January that the company would welcome an investment by a foreign aut omaker. Nissan had several suitors: both Ford and DaimlerChrysler activel y investigated a linkup, though both decided they had more urgent opportu nities elsewhere.

Where others saw a pile of debt and an intractable company culture, Re nault saw a promising opportunity to break out of its corner of southwest ern Europe and gain the size and heft it needed to join the ranks of the car giants. Renault had only a tiny auto presence in Asia and none in Ame rica, two areas where Nissan was a player. In addition, Renault could mak e use of Nissan's advanced technology and lend the Japanese automaker som e of its marketing and design expertise. Combined, Renault and Nissan wou ld rank as the fourth-largest auto producer in the world, behind GM, Ford , and Toyota and just ahead of Volkswagen.

In March, Renault agreed to invest $5.4 billion in Nissan in exchange for a 36.8% stake. It also got veto power over capital expenditures and a n agreement that Ghosn would become Nissan's chief operating officer. To be sure, Renault was buying a troubled company, but it went into the deal with its eyes open. "Nissan was an excellent opportunity," argues Ghosn. "We would never have done this if Nissan was not cash strapped. It helpe d them recognize that the best answer was an alliance." Note those words: an alliance, not a merger. Mindful of the rocky relationship between Dai mler and Chrysler, Ghosn didn't want to waste energy merging operations a nd answering awkward questions about who was in charge. He believes that the two companies are better off working together as partners without try ing to combine their businesses and create a common culture. Other automa kers have similar arrangements; GM, for instance, owns a stake in Isuzu, which gives it a window on the Japanese company's advanced diesel engine technology.

Success in the auto industry starts with good products, and Nissan's h istory of mistakes leaves Ghosn plenty of room to make improvements. For years Nissan tried to go model to model against Toyota, which is one-thir d larger. That meant Nissan's cars were late to market and cost more beca use Nissan didn't have Toyota's economies of scale. Engineers dominated t he company and tended to put more features into the cars than customers w ould pay for. In the 1990s, for instance, Nissan pioneered active suspens ion but eventually withdrew it from the market because of customer apathy The chief engineers also dictated styling decisions with predictable consequences. Conservative to a fault, Nissan became enamored of formal f our-door sedans like Cedric and Gloria in its home market and completely missed the trend to car-based sport-utility vehicles like the Honda CR-V.

Takahiro Fujimoto, an economics professor at the University of Tokyo a nd the author of several automotive books, attributes Nissan's design fai lures to its inability to learn from experience. "Nissan's weakness is bo th strategic and organizational," he says. "In strategy, Nissan tried to mimic the scope and scale of Toyota but never achieved sufficient sales. Organizationally it failed to convert its technological and manufacturing potential into attractive product concepts, styling, and brands. Toyota is also bureaucratic, but it learns faster."

Boring cars are only the beginning of Nissan's problems in the U.S.--i ts second-largest market after Japan--where sales have been depressed for more than a decade. Nissan sold just 621,528 cars and trucks last year, more than 209,000 fewer than in its peak year, 1985. Its market share has steadily declined from its high of 5.6% in 1980 to 3.5% through October of this year. The company has veered off the road numerous times, beginni ng in 1981, when it replaced the well-known Datsun brand on its products. "The hubris of Nissan management showed a total lack of understanding fo r marketing," asserts MIT's Cusumano. "That was the start of their massiv e decline." Nissan also turned a deaf ear to its U.S. managers. For years the Americans begged for cars and trucks that were more attuned to the US. market, with bigger engines and more contemporary styling. Instead they received boxy subcompacts, slow-selling coupes, and underpowered tru cks.

To make things worse, the U.S. became a dumping ground for Nissan's ex cess production. Nissan liked to run its plants at full capacity regardle ss of how well the cars were selling because, under its bookkeeping rules , the plants were generating a profit even if dealers were selling cars a t a loss. Nor did it help that managers got bonuses on the basis of produ ction, not profits. "We had a lot of excess production that we had to for ce on the market," says Jed Connelly, the top American executive at Nissa n North America in Los Angeles. At the same time that Nissan dealers were slashing prices and offering big rebates to move its cars, Nissan's Smyr na, Tenn., plant was running at top speed and winning awards for producti vity.

Years of discounting and distress sales seriously undercut the value o f the Nissan brand. While Toyota stood for quality, customers came to Nis san to get a better deal. Ghosn estimates that Nissan stuffs a $1,000 bil l in the trunk of every car it sells in the U.S.: That's the difference b etween the profit it makes and the profit on a comparable Toyota or Honda To improve its image, Nissan lavished $200 million on an unorthodox a dvertising campaign two years ago called "Enjoy the ride," featuring a sp ectacled Japanese actor and a Jack Russell terrier. The quirky campaign w on lots of awards, but potential customers were unmoved.

Infiniti, Nissan's money-losing U.S. luxury division, has fared even w orse. Another instance of Nissan's playing catch-up with Toyota, Infiniti reached the U.S. market a few months after Lexus in 1989 and has been be hind ever since. Today Lexus outsells Infiniti nearly three to one. Ghosn says the dealers are starving for products. Infiniti's skimpy model line seems to be composed of odds, ends, and afterthoughts. Its compact G20 s edan reached U.S. only after it had been on sale in Europe for two years, which meant that it was already out of date when it was launched. Infini ti's flagship, the chrome-bedecked Q45, looks more at home on Tokyo's Gin za than on Rodeo Drive and has been a sales disappointment for a decade.

Ghosn thinks he can boost Nissan's standing in the U.S. in a hurry. "I n the U.S., when you have strong products, marketing incentives disappear immediately," he says, snapping his fingers. "It takes longer in Europe and Japan because customers are more brand-conscious." First on his shopp ing list is a full-sized pickup truck that will give Ford and Chevy some competition, followed by a big sport utility along the lines of the Dodge Durango. Nissan is also developing a car-based sport-utility that would be sold at Infiniti dealers too, as well as a new minivan that would repl ace the existing Quest.

Nissan already has one certified hit on the U.S. market, the Xterra, a sport-utility vehicle for under-30 buyers that has copious amounts of st orage space for athletic gear. Ghosn hopes to get another winner after he chooses from among three competing designs for the successor to the icon ic Datsun 240Z sports car, which was originally introduced in 1969. A new Z-car would do little to boost sales volume--two-seaters aren't big sell ers--but it would raise the morale of Nissan dealers and give a lift to t he company's image.

In the past Nissan has blitzed the market with new models only to run out of gas, but Connelly is convinced it won't happen this time. "With th e focus Mr. Ghosn has given our company, I don't think we'll lose our way the way we have before," he says. One thing Connelly doesn't expect to s ee are any Renault cars on Nissan dealers' lots. Customers have long memo ries about the reliability of French cars.

Closing plants, reducing head count, and increasing purchasing efficie ncies are chapters out of the standard turnaround playbook, and Ghosn has been there, done that. More difficult will be executing some intangibles : creating the right products at the right price, and marketing them in a way that is consistent with an overall brand strategy. After all, what d oes Nissan really stand for? Getting designers out from under the thumb o f the chief engineers and giving them more room to be creative is a start

Ghosn has moved his family of six to Tokyo, and he is studying Japanes e. Weekends, he takes competitors' cars out onto the crowded highways aro und the city. He is expected to remain at Nissan for three to four years. If he fails to reach the targets he has set for himself, he might take a different position back at Renault or run another automotive supplier li ke Michelin. But if he returns Nissan to respectability, he will be able to get a job almost anywhere. Clearly he'd like to stay in autos. "Busine ss is tough; you need tough guys," he says. "It would be easier to make m oney in other sectors, but since I was a kid, I liked cars." Maybe "le co st killer" will turn out to be a car guy after all.

Nissan stuffs a $1,000 bill in the trunk of every car it sells: That's the difference between its profit and that of a comparable Toyota.

"The car business is tough," Ghosn says. "It's easier to make money in other sectors, but since I was a kid, I liked cars."

Copyright © 1999, Time Inc., all rights reserved.