The End of Detroit (19 page)

By 1999, Nissan was a mess, saddled with $22 billion in debt and a shaky future. Before World War II, it had been Japan’s premier auto company, beating Toyota to the market in 1933. It was faster to rebound after the war than Toyota, and it still held on to a sizable share of the Japanese market well into the 1990s. But Japan’s lingering economic downturn and Nissan’s own culture kept it mired in the past. As auto companies developed in prewar Japan, they, like other major business organizations, became involved in a system called
zaibatsu
that created extremely close-knit operations between the participants. Similar situations grew up in the shipping, banking and other industries. In essence, the
zaibatsu
were the result of Japan’s efforts to keep out foreign competition and to ensure that companies supported one another’s prosperity. When Japan came under American authority after World War II, the
zaibatsu
were officially abolished, but the Japanese companies got around that by establishing a similar method of doing business called
keiretsu
. On paper, these were merely long-term business relationships, the result of an effort to ensure the famous quality standards that Japanese auto companies were known for. The
keiretsu
were framed as the equivalent of family members.

But the system evolved to include cross-ownership ties in which the companies bought stock in one another and had a vested interest in one another’s success. It worked beautifully in the case of Toyota, which drove its suppliers to achieve the same cost savings and quality measurements that it expected of itself. But when discipline faltered, the arrangement could be a stranglehold. As auto companies poured money into their suppliers to ensure that they used the best technology, or subsequently propped them up in poor economic times, the
keiretsu
became as enmeshed as the
zaibatsu
had been. Where an American auto company might simply walk away and look for a cheaper source of parts, Japanese auto companies felt beholden to their suppliers, especially because of the emphasis placed in Japan on purchasing locally made parts. But this could backfire, because the auto companies sometimes were forced to pay whatever prices the suppliers demanded, rather than searching out cheaper sources elsewhere. Thus, a system that was supposed to be beneficial could in fact greatly hinder a parent company lacking the chutzpah to challenge the arrangement. And indeed, this was the case at Nissan.

By 1999, Nissan held an interest in 1,394 different companies, including an ownership stake in one of its competitors, Fuji Heavy Industries, the owner of Isuzu. Further, Nissan owned 50 percent of its car dealerships and was burdened with their costs in a slipping market. Not surprisingly, in the 10 years leading up to Ghosn’s arrival, Nissan had been profitable in just one year. Its Japanese market share, which had been one-quarter of the market at the start of the 1990s, slipped to just 17 percent by 1999. In the United States, it had dropped from its perennial place as the second-best seller of Japanese vehicles to third, behind Toyota and Honda, and for a time it was even in danger of slipping to fourth place behind Mazda. The company had tried several times to right its sagging operations, most notably with a turnaround plan begun in 1997, but with little success. “Morale was very uncertain,” said Jed Connelly, Nissan’s senior vice president for sales and marketing. The hurdles were enormous, and the stakes for Renault were equally high, because the $5.4 billion that it had invested in Nissan was about all the money it had to spend on any kind of acquisition. Should Nissan fail to improve and pay back the investment, both auto companies could find themselves in a downward spiral.

Looking back now, the swiftness with which Ghosn moved seems incredible. Within five months of his arrival in June 1999, Ghosn had outlined the tenets of the Nissan Recovery Plan. Within a year, Nissan was profitable again. And within two years after that, Ghosn had achieved all the goals he had set for the company, a year ahead of schedule, and had moved on to the second phase of his turnaround plan, which he dubbed Nissan 180. None of it appeared easy at the time, and certainly Ghosn arrived under a microscope. Although Japanese companies had headed out around the world during the previous two decades on an international buying spree, that rarely happened in reverse. In the auto industry, only Ford, which had management control of Mazda, had sent a foreign executive to run the place. At the same time, there were basic operational questions: Ghosn spoke French, English, Portuguese and Arabic, but he did not speak Japanese, and cross-cultural management teams in Japan were an unknown quantity. How would he manage—literally and figuratively? And even more important, how would he sweep away the stupor that had settled over Nissan’s operations? Over the years, its executives had become used to their dire situation, he discovered. There was a sluggishness around the place that he found disheartening and that had to be immediately addressed. “You’re in a company that has been through a decline for 10 years. So the sense of urgency’s been lost,” Ghosn said. He woke them up with a bang.

In contrast to the Japanese management style in which executives spoke to executives, managers to managers, and so on down the hierarchy, Ghosn showed up everywhere in Nissan’s operations worldwide. He would take 12-hour trips to facilities in the United States or Europe, spend a few hours in conference rooms with employees of all levels, then get on a plane for another trip. He encouraged everyone in the organization to speak up; he asked some questions, but mostly he listened. At his first meeting at Nissan’s sales operations in Carson, California, Ghosn arrived alone, without an entourage, to find that the organization had no five-year sales plan. Instead of asking the managers to prepare one for him to review on a future trip, or telling them to hire a consultant to help them draft a proposal, Ghosn sent out for pizza and legal pads. He paid for the pizza and spent the next hours in the room with the executives, kicking ideas around until the plan was sketched out. “He was no-nonsense. He was probing. He wanted answers. He drilled down,” Connelly said. “He had so much know-how and insight. It was one-on-five, and it was not a fair fight.”

In another instance, when a manager at the Nissan Technical Center in Farmington Hills, Michigan, told him that he had wanted to make a change that could save the company thousands of dollars but did not have the authority, Ghosn replied, “There! You have the authority! I give you the authority!” Connelly said the executives were shell-shocked, at first, by Ghosn’s direct approach, which was such a sharp contrast with the polite but noncommittal answers they had always received from Nissan’s Japanese executives. Connelly’s anxiety must have showed, because at the end of his first visit Ghosn took him aside. “Don’t worry,” Ghosn told him soothingly. “It will be easier than you think.”

By the end of his global listening tour, Ghosn had come up with a series of elegantly simple, although incredibly challenging, goals. The first, and seemingly the most difficult, was his vow to return Nissan to profitability within one year. And to demonstrate his seriousness, Ghosn said he and the management team would quit if they failed to achieve an operating profit. “This was the most important objective, and the most difficult one, but it was the cornerstone,” Ghosn said. “If the NRP was to have any chance to succeed, we had to do it.” Behind that, Ghosn issued another directive that sent shock waves through Japanese society: He would break up Nissan’s
keiretsu
and cut by half the 1,000 parts suppliers with which Nissan did business, eventually dropping the figure to just 400. On top of that, another shock: Nissan would eliminate 21,000 jobs worldwide, 16,000 of them in Japan.

A few years before, the company had rattled Japan when it had closed a single assembly plant. Ghosn planned to close three, leaving Nissan with just four plants in Japan, half the number it had at the beginning of the 1990s. The reasoning was simple: Nissan’s capacity utilization rate, which measured its plants’ productivity, was only 50 percent. By contrast, when factories in the United States were running on constant overtime during the 1990s, there were months when Ford achieved a capacity utilization rate of 110 percent. Auto companies, to achieve minimal profitability, had to run their plants at least at a 75 percent rate, and higher if they had high overhead. Ghosn could see no alternative to the plant closings.

As part of the plan, Ghosn also said that Nissan would combine its product development operations with those of Renault—no surprise, since the idea had been talked about from the first day of the merger. He said the company would reduce the number of car platforms from 22 to 15, greatly simplifying the tasks that its engineers would face in developing new vehicles, but also stretching their ability to share underpinnings while making the vehicles on which they were set distinctive. The most ambitious directive from Ghosn, however, was not the series of cutbacks, which he hoped would save the company ¥1 trillion. It was his vow to roll out a wave of new vehicles for Japan, the United States, Europe and elsewhere that would establish a new image for Nissan as a company that was focused on styling and performance, as well as match the quality of the best global companies. As Nissan was cutting back, Ghosn wanted to aggressively grow. And the United States, the world’s most ruthlessly competitive market, would be the most important component of this attack.

Nissan’s image in the United States had always been one of a company that stressed design but also seemed to hedge its bets. Nissan boasted one of the most colorful and quirky designers in the car business, Gerald Hirshberg, who for a time in the 1990s was featured in the company’s ads talking about the importance of smart car design. And the company had seemed to be trying to make its vehicles stand out. Its mid-sized Altima sedan, introduced in 1993, certainly had a more interesting appearance than both the Toyota Camry and the Honda Accord, but it had never really broken through to their level of quality. The Maxima was a cult car, a performance sedan of near-luxury quality for a decent price, with a fast engine and good handling.

And, of course, there was the legendary Z sports car, which Nissan had retired in 1996 when the price climbed above $45,000. But there had never been a coherent approach to pulling it all together. The same was true for Nissan’s luxury division, Infiniti. It had started out in 1989 on the same footing as Lexus, offering affordable luxury vehicles with high quality, but while Lexus kept growing and adding to its lineup, Infiniti never seemed to really carve out a niche. Models came and went, with little impact on the market—“committee cars,” Womack called them, which bore little of the stamp of the brand or the personality of their designers. Infiniti, more than its competitors, was forced to resort to discount lease deals and other incentives to lure customers, many of whom chose Infiniti for the deals rather than the vehicles themselves. By the time Ghosn got there, Infiniti was somehow forgotten—a situation that he vowed to fix as he overhauled Nissan’s product lineup. For to Ghosn, the financial success story was only a part of Nissan’s recovery plan. It had to be based on new vehicles. So, he declared, Nissan would roll out 22 new or overhauled vehicles by 2004—with more planned for later in the decade. They would speak for Nissan in a better way than he could.

The first of the new models was announced literally as Renault and Nissan were cutting their deal: the return of the Z sports car. But when Nissan originally decided to revive the Z, its designers had thoughts of a retro-designed vehicle whose appearance echoed the lines of the trademark Z cars, with a long, low hood and rounded passenger compartment. Ghosn, seeing the design, feared that it would appeal only to the aging fans of the first generations of the Z. As a father of four, he was attuned to the fact that his children had tastes far different from his and Rita’s. And he felt that the next Z needed to be a car that Generation X and Generation Y buyers after them would find appealing, even if the car sold primarily to baby boomers. He also wanted it to be affordable, and he pressed the designers to keep the car’s price tag close to $25,000, rather than drift higher, as the old Z had done.

By the time Nissan’s design team had finished with the 350 Z, as it was called, it looked significantly different from the first concept cars Nissan had put on display at various auto shows. It was small and low-slung, and it looked fast. Elements of the old Z were there—in its long hood and sloping rear roof—but even without knowing the car’s legacy, a buyer who had never seen the old Z might still be intrigued. The Z was an instant hit, outselling the venerable Chevrolet Corvette in its first months on the market in 2003, and it began to pop up on roads in wealthy parts of California and the South, where buyers were most attuned to the newest thing on the market. Nissan didn’t stop with the Z, either. It used the car as the platform for its Infiniti FX sport utility, a fast, powerful vehicle that stunned the luxury car market when it appeared in early 2003 and threatened to overshadow the Porsche Cayenne SUV, which had been years in development and had received an inordinate amount of hype.

But while Nissan thrived on the attention that the Z generated, no company could stake its future on a niche model such as a sports car. Luckily for Ghosn, work had already begun before he arrived on a new version of the Altima sedan. Introduced in fall 2002, the Altima typified exactly what Ghosn was looking for: a distinct personality in a car that was aimed at a multitude of customers. It was peppier than either the Camry or the Accord, although not as quiet or smooth. The Altima was definitely something to get used to for drivers more accustomed to the Accord’s ease of acceleration or the Camry’s solid feel. Punch the accelerator, and the Altima instantly responded, occasionally to the driver’s surprise. Its exterior design boasted the bold, chiseled front grille with the round Nissan emblem that was becoming the identifiable Nissan look. Its interior was more like a sports car than a family sedan, although there was plenty of space and it boasted a huge trunk. Nissan had planned to sell only about 125,000 a year, but by early 2003 the Altima was selling more strongly than Nissan had anticipated and the company was scrambling to find ways to build more. The solution came as Nissan took on the biggest challenge that the company had ever faced in the United States—the full-sized Titan pickup truck.