Since his now-legendary feat of turning around a near-bankrupt Nissan (NSANY), Carlos Ghosn has taken on the halo of a miracle worker in a global auto industry. So when the talented, Lebanese-born manager, now chief executive at France's Renault, promised on Feb. 9 to transform the company into Europe's most profitable mass-market auto maker by 2009 with an operating margin of 6%, financial analysts huffed with frustration, expecting him to promise more aggressive cost-cutting targets to get there. According to Adam Jones, auto analyst at Morgan Stanley in London, "[Ghosn's] saying, 'Trust me. We're going to try to grow our way out of our problems.'" (For a Q&A with Ghosn, see "Renault's Plan for a Fast U-Turn".)
But even if Ghosn's three-year-plan failed to electrify investors, it would be risky to underestimate the 51-year-old multicultural executive. Known for his devotion to the bottom line, Ghosn insists Renault's key challenges are growth and hot new products -- not emergency restructuring.
Ghosn's game is about far more than slashing costs. For starters, he aims to sell 800,000 more cars a year, 250,000 of them in Europe. Above all, the global turnaround ace, who also did a stint for Michelin in the U.S. and Latin America, is bent on transforming Renault into a quality and service leader in the European market, giving it the same kind of preeminence that Toyota (TM) enjoys in the U.S.
SPEEDY PACE. If Ghosn delivers once more, he's sure to raise the bar for other mass-market contenders on the Continent such as Fiat (FIA), Ford of Europe (F), and GM (GM). And in Europe, it could help blunt the onslaught of Asian auto makers, which have been honing their styling and expanding their market share at an alarming pace over the past five years.
"If he does it right, Ghosn can push back Toyota and the Koreans," says Christoph Stuermer, analyst at market researcher Global Insight in Frankfurt.
Ghosn's planned pace of change isn't exactly sluggish. Renault will expand its lineup with 26 new models, including eight per year over three years starting in 2007 and including 12 completely new cars. That product sprint, which will require Renault to hire 3,000 engineers, will help reduce the company's heavy dependence on its compact Megane, which now delivers an estimated 80% of profits. The rollouts will also lower the average age of Renault's model lineup from to 2.2 years in 2009, from 3.8 years today.
CRAWLING UPMARKET. In his brashest bet, Ghosn says he'll repair Renault's dented image in the luxury sector, clawing back customers lost in the upper range, where the company has failed miserably in recent years. For starters, he aims to double the sales of cars costing more than $32,000 to 200,000 units a year. "We're starting from a small base. It's feasible. If we bring attractive product to market, we can probably do even better."
If Ghosn can add enough luster to Renault's brand to pump up sales of higher-priced cars, he will have earned his reputation for working miracles in the auto industry yet again. Even Volkswagen stumbled badly trying to stretch its plebeian brand enough to sell the $70,000 Phaeton, an unpopular executive sedan which has cost VW millions of dollars in losses.
Ghosn acknowledges the challenge, but says Renault will limit the risk by moving upmarket cautiously and step by step -- starting with the Laguna sedan. "If the Laguna is successful, we'll go up from there," he says. High-end SUVs, which share a platform with Nissan, are likely to help Ghosn kickstart sales of more expensive cars at Renault.
BLUNT TALK. What does the rank and file think? As the trim executive raced through his presentation in a stylish, modern red-brick building on the outskirts of Paris, several hundred Renault workers demonstrated outside headquarters for higher wages. Boosting profits in Europe, where wages are high and working hours the shortest in the world, will be a challenge, no question. Morgan Stanley's Jones also notes that Ghosn's plan to cut purchasing costs 14% and manufacturing costs by 12% over three years is the rate at which "everyone in the industry is cutting."
But Ghosn may be betting he can wrest faster gains by avoiding the knife in strike-prone France. And Renault is hardly in crisis. In 2005, it earned a record $4 billion net profit on sales of $49.6 billion. Ghosn, who appeared fit and even impatient as he ran through the yearend figures, forecasts, and targets so fast that translators could hardly keep pace, isn't even considering the options if he fails to meet his targets. "I don't have a pattern of not meeting my objectives," he said bluntly.
Ghosn's overhaul at Renault may yet prove a game changer for Europe's auto industry.
Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau
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