Ghosn: 'The U.S. Auto Market Is Not Going to Be Great Again'

In a candid interview, the Nissan-Renault CEO discusses smaller, greener cars and the U.S. market

by David Kiley

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Carlos Ghosn, who occupies a unique position as the chief executive of two of the world's biggest automakers, Nissan (NSANY) and Renault (RENA), has been looking for some three years for an opportunity to tie up with a North American carmaker. He has had phone calls with Ford Motor (F), and even had a series of well-publicized meetings with General Motors (GM). But no alliance. Now, it's Chrysler with which he is doing some actual deals, and analysts are pushing him to formalize an alliance with the now privately held automaker.

But Ghosn is in no hurry. Having just inked agreements to supply a small car to Chrysler and to let the U.S. automaker build Nissan's pickup trucks, he says the timing isn't right for a bigger partnership. "With raw material markets going through the roof, the credit crunch, energy prices…I don't think the markets are so interested in absorbing grandiose deals in our sector. I think the markets are much happier when you do the things that make sense and when you are playing to your strengths."

Besides, Ghosn is looking for redemption for the companies he already runs. In a few weeks, he will report the 2007 yearend earnings for Nissan. In 2006, Nissan earned more than $4 billion, but it was the first year the CEO hadn't hit his target. Operations in Japan and Europe were below expectations. Ghosn's reponse was to assume personal responsibility for the Treasurer's office. He admits that when one of the companies is out of step or underperforming, he risks having analysts and investors automatically charge that he is spread too thin.

In the U.S., Nissan is nearly tied with Toyota Motor (TM) for productivity and, according to Harbour Consulting, still makes more money per vehicle than any of the high-volume automakers the research firm tracks. But it's a wobbly success. While Nissan's passenger cars look strong, its truck and SUV lineup is struggling as badly as Chrysler's and Ford's.

Ghosn is in New York this week, and he visited BusinessWeek's editorial board and answered a series of questions about the future of the U.S. auto industry, running two companies, the global economy, and the company's growth and participation in emerging markets such as China and India. Edited excerpts from their conversation appear here.

The U.S. economy is in a recession or headed for one. The auto industry is declining. How do you view this market in general and for Nissan?

This year in the U.S. is going to be down, between 15 million and 15.5 million units for total vehicles [including light commercial vehicles]. Next year I think will be down as well. I don't think auto sales will really stabilize until 2010. The U.S. auto market is not going to be great again. It has all the characteristics of a mature market. The metric I look at carefully is vehicles per 1,000 licensed drivers. In the U.S. it is about 800. In most countries it's more like 600. In China and India, it is less than 50. In Brazil, it is about 200. In Russia, it's about 250. There is a lot more opportunity for growth, but not where the big global automakers are based.

You see big changes happening in the U.S. as far as what people want to buy?

There is a very rich mix of vehicles in the U.S. But we are going to see, I believe, more of a move to cheaper cars, smaller engines. The trend has been to make a lot of profit on luxury and premium vehicles. The real battle going forward is to make profit on these smaller vehicles. If you can do that, you will do well.