Magazine

Nissan's Boss


Carlos Ghosn is flat out the hottest automotive talent on the planet right now, and he enjoys the kind of street cred that execs from Detroit to Stuttgart can only dream about. In Japan, a full five years after arriving from France's Renault to run Nissan Motor Co. (NSANY), CEO Ghosn is still feted in manga comic books, mobbed for autographs during plant tours, and generally heaped with national adulation for saving a car company once given up for dead. At glitzy auto shows from Paris to Beijing, his cosmopolitan air -- Ghosn speaks five languages -- and sterling track record for turnarounds make him a star attraction. He's as smooth as Thai silk in public, and his colleagues marvel at his personal magnetism, his 24/7 work ethic, and his rigorous attachment to benchmarks and targets. Heck, in Lebanon, where he is a citizen, Ghosn's name was floated a few weeks back as a potential candidate for President.

But Nissan insiders will also tell you there is another side to the 50-year-old car exec: If you miss a number or blindside the boss with a nasty development, watch out. "To people who don't accept that performance is what is at stake, he can be ruthless," says Dominique Thormann, a senior vice-president with Nissan Europe. Just ask managers at Nissan's 16-month-old, $1.4 billion assembly plant in Canton, Miss., where sloppy craftsmanship marred the launch of the 2004 Quest minivan, the Titan full-sized pickup, and the Armada sport-utility vehicle. Car enthusiast Web sites are full of rants about loose moldings, water leaks, and noisy cabins. This spring, Nissan dropped from 6th to 11th in an annual quality survey by J.D. Power & Associates Inc. that tracks complaints in the first 90 days of ownership. Consumers quickly got wind of the troubles, and Nissan will have a tough time meeting its sales target of 80,000 Quests this year. In the first half, fewer than 26,000 moved off dealer lots. In July the company mailed recall letters offering to fix any defects for free. "We've been surprised by the level of degradation," concedes Ghosn, whose own stress on speedy execution contributed to the quality woes. "We recognize it is a problem, and we will fix it."

Ghosn is fixing the Canton debacle in his characteristic fashion -- that is, with the subtlety of a chain saw. In May, he flew in 220 engineers from Japan and Nissan's older Smyrna (Tenn.) plant. The damage-control team searched every inch of the assembly line for flaws. Some were obvious: Factory hands, many of them newcomers to carmaking, wore rings and studded jeans that scratched freshly painted trucks. Other glitches were maddening: Power window switches and reading lights on the Quest often seemed possessed by gremlins, and its sliding doors didn't close quite right. So the team worked with suppliers to reengineer parts, while robots were reprogrammed to weld car bodies more tightly, and better insulation was added to the roof of the Armada. Then Ghosn shook up management, even raiding archrival Toyota to hire troubleshooter Douglas G. Betts as his new vice-president for assembly quality. As the 2005 Nissans enter dealerships this fall, buyers will learn firsthand whether Ghosn's personal intervention has paid off.

LOFTY TARGETS

It's the Ghosn way: detailed planning, speedy execution, and a laser focus on what needs fixing. Since 1999, when Renault paid $5.4 billion for a controlling stake in Nissan and dispatched Ghosn to Tokyo to run it, he has set -- and met -- sales and profit targets that have stretched the auto maker to the limit. That pattern appeared in 1990, when Ghosn turned around Michelin's North American division, and in 1996, when as chief operating officer of Renault he kicked off a program to cut $3.6 billion in annual expenses. Such acts earned Ghosn the overused sobriquet le cost killer. It is a name he loathes and hopes to banish for good by building an enduring car company based on product excellence, not painful restructuring.

The question is whether Ghosn is going too far, too fast. Today, he runs Nissan in Japan, where executives are battling for share in a soft market by launching six new models, and where preparations for a major expansion into China are under way. Since last spring, Ghosn has also taken charge of North America. And in April he starts his new job -- replacing his mentor Louis Schweitzer as CEO of Renault, a $46 billion giant in its own right and the controlling shareholder in Nissan, with a 44% stake. Incredibly, Ghosn will continue to run Nissan from Tokyo headquarters even as he maintains oversight of U.S. operations.

Will this guy have to clone himself? Running two such complex organizations is a fiendishly difficult task, but Ghosn insists that he's ready -- and that he needs to stay on at Nissan to keep the company headed in the right direction. "I won't be a part-timer, but one CEO with two hats," he says.

One CEO, as well, with an audacious plan to create what Daimler Benz and Chrysler Corp. could not -- a successful global auto group from two very distinct companies. Renault and Nissan have been quietly cooperating on technology and parts buying for years. But this Franco-Japanese collaboration is set to expand significantly shortly after Ghosn arrives in Paris, in everything from parts purchasing to wholesale platform-sharing to engine design. Already, Nissan and Renault sell a combined 5.4 million vehicles a year and control 9.3% of the global market. If they were one company, it would be the fourth-largest auto maker on earth, ahead of DaimlerChrysler (DCX) and right behind Ford (F). Ghosn says no full-fledged merger is coming -- but his accession to the double thrones of Renault and Nissan signals that far deeper ties lie ahead.

TOP SPEED

At this crucial moment, when Ghosn can't afford a slipup, the Canton problems highlight the perils of his turbocharged management style. Carmakers know that doing too many new things at once is risky, so new plants typically make tried-and-true models, while fresh designs are usually built by seasoned workers at established factories. In Canton, though, Nissan launched five new models in less than eight months. "There was a need to get the products to market as soon as possible," says Dave Boyer, vice-president in charge of Nissan's U.S. manufacturing operations and head of the Canton plant. Ghosn today acknowledges that he may have stretched too far. And one Nissan executive, who asked not to be named, grouses that the company's cost crackdown on suppliers may have aggravated the problems. "So much effort was spent getting costs down that the quality issue went unnoticed -- until it was too late," this manager says.

Ghosn says he's starting to get a handle on the quality woes. Yet at the same time he's upping the ante for Nissan's U.S. operations, which continue to grow thanks to the revamped Altima sedan and Pathfinder SUV. "I can already commit that our [quality] scores will be much better," he says. On Sept. 2, he boosted his 2004 sales target for the U.S. to make up for soft results in Japan and Europe. Ambitious, yes, but necessary if Ghosn is to reach a goal he set two years ago of annually selling 1 million more cars -- an increase of 38% over three years -- by September, 2005. And forget about goosing sales with rebates. "We spent five years reining in incentives, and we're not going to give it back in five months," says Jed Connelly, chief of U.S. sales. Indeed, Nissan incentives in August averaged $1,559 a vehicle, compared with nearly $4,000 at Ford and General Motors Corp. (GM), according to auto data Web site Edmunds.com.

Can even a superstar such as Ghosn stay on top of industrial operations as vast as Nissan and Renault? Plenty in the industry would love to see the brash Ghosn stumble. The truth is, though, Ghosn has built a powerful machine. "It's tough to keep" a turnaround going, says GM boss G. Richard Wagoner Jr. "But it would be foolhardy to underestimate Nissan."

As turnarounds go, the Nissan saga is in a class by itself. In 1999 the company was straining under $19 billion in debt and shedding market share in both Japan and the U.S. Ghosn was also being undermined by Nissan insiders who wanted his reforms to fail. So when he was about to announce the closing of five factories, he didn't tell his own board of directors until the night before, recalls Jason Vines, who served as Nissan's North American public-relations chief early in Ghosn's tenure and now heads PR for Chrysler Group. And to ensure those in the know wouldn't spill the beans, Ghosn threatened: "'If this leaks out, I'll close seven plants, not five,"' Vines says. That boldness -- and the factory shutdowns -- led to menacing hate mail, and Ghosn began to travel with a bodyguard.

These days, though, Ghosn is more hero than target. Last year, Nissan reported profits of $4.6 billion on $68 billion in revenues, up 8%. It looks set to boost earnings by another 6% and sales by 9% this year, brokerage Morgan Stanley (MWD) says. Nissan's $49.7 billion market capitalization is the second biggest in the industry, after Toyota's (TM). It has overtaken Honda as No. 2 inside Japan. And Nissan leads the global pack in operating margins (11.1%).

Despite the problems with Canton, the brand is hot again. Nissan is turning out daring designs such as its sleek-but-muscular 350Z sports coupe, the curvaceous Altima sedan, and the round-backed Murano crossover. And in Japan, stylish numbers such as the March subcompact and the boxy Cube micro-van are driving sales. That's part of Ghosn's push to create what he calls "segment-defining" models. "Consumers either like a car or they don't, but that is O.K.," says Nissan design chief Shiro Nakamura. As long as a model isn't a bore and hits profit goals along the way, Ghosn gives his designers pretty free rein.

Yet the detail work needs to come up. The quality problems at Canton aren't the only difficulties the company has faced. Take the Quest minivan. First, Nissan underestimated demand for popular features such as snazzy skylights. What's more, the beige interior on the entry model turned off family buyers fearing spills from toddlers. Now, the Quest is getting big design changes, including darker interiors and sunroofs even in the cheapest versions. "You will see incredibly different results this fall," says Walt Niziolek, manager of Visteon's Mississippi plant, which makes many Quest cockpit parts.

Nissan still has some gaps in its lineup, too. It won't have a sub-$15,000 compact -- a growing segment critical to brand loyalty that Toyota has exploited with its Gen Y Scion brand -- until 2007. Ghosn continues to be skeptical of environment-friendly hybrid cars. So Nissan's first hybrid, a gasoline-electric Altima, won't hit showrooms until 2006. And even where it's filling gaps, Nissan needs to work out some kinks: The Titan, the first full-size pickup truck out of Japan, has been a disappointment. Consumers haven't been flocking to this monster as Detroit's Big Three kick in incentives on their models that are worth roughly twice the $1,500 Nissan offers on the Titan.

Ghosn, though, isn't postponing his return to the CEO's job in Paris. One factor in his favor is that Schweitzer -- who will remain chairman of Renault -- has done a good job spiffing up the French auto maker. Renault is now the top-selling brand in Europe and, after tough restructuring, is light years away from its days as an industrial basket case. Quality still needs to come up. But thanks to rising profits and a deserved reputation for inspired design, Renault is on the offensive. It plans to hire 10,000 workers in 2005 to raise production in emerging markets such as Turkey, Slovenia, Russia, and Romania, where it has opened a plant to build a $6,000 sedan called the Dacia Logan. Renault has profited handsomely from Nissan, too: Its initial $5 billion stake has more than tripled in value.

More important for the company's global ambitions, Schweitzer and Ghosn have a stealth vehicle to drive integration. Early on, Schweitzer set up an Amsterdam-based company, Renault-Nissan BV, as a neutral forum where both sides could map out a common strategy for product engineering, model development, and computer systems, and leverage their combined size to squeeze suppliers for better deals. Once a month, Renault-Nissan's eight board members -- four from each side -- meet to make medium- and long-term decisions based on proposals by a dozen cross-company teams. Already, about 70% of the parts used by the two auto makers are jointly purchased by the alliance.

The integration has been surprisingly smooth -- in sharp contrast to the tumultuous marriage of Daimler and Chrysler. Renault today builds its Clio compact and Scenic minivan at Nissan plants in Mexico, while Nissan makes its Frontier pickup at a Renault factory in Brazil. The ultimate goal is to reduce the number of platforms, or chassis, the group uses to 10 in 2010 from the 34 it had in 2000. The goal is in sight: Nissan had 24 individual platforms in 1999, but uses only 15 today. That's important, because every shared platform can add $500 million-plus in annual savings for each carmaker, estimates Commerzbank. Renault will also share eight engine designs with Nissan.

When conflicts do arise, Schweitzer and Ghosn usually hash things out before alliance board meetings. After Renault acquired South Korea's Samsung Motors in 2001, the French company wanted Nissan to design the next large 4x4 sport utility for the Korean company. Ghosn resisted, but was finally swayed by Schweitzer's logic: Nissan had the best know-how in SUVs, so it should take the lead. It wasn't altruism on Ghosn's part, mind you: Nissan will get a royalty from Renault on each of the SUVs that is sold when it launches in 2007. "Every time there was a difficult decision," says Renault CFO Thierry Moulonguet, "Schweitzer and Ghosn worked out the right balance."

That's remarkable, given how different the two men are. Schweitzer, an intellectual who persuades with logic and nuance, prefers to lead from above. Ghosn, on the other hand, is in-your-face and reaches deep into an organization by constant -- and often unannounced -- visits to dealerships, test tracks, assembly plants, and parts suppliers. And he isn't shy about setting sky-high targets. Toshiyuki Shiga, a senior vice-president in charge of emerging markets for Nissan, recalls getting a call from Ghosn in early 2000. First the good news: Shiga had been promoted. Then the zinger: "He told me to make a clear strategy for Nissan in China, and he gave me two months to do it," laughs Shiga. Back then, Nissan sold just a few thousand vehicles in China annually, mostly imported from Japan. Shiga, though, jumped into motion and hatched a plan that led to a 50-50 joint venture with China's Dongfeng Motors. The duo just opened a plant in Guangzhou that will roll out six new models next year. Although Nissan is far behind market leaders Volkswagen and GM, the venture hopes to sell some 620,000 cars and trucks in China by 2007, double last year's level.

It's those surprise visits that really seem to energize Ghosn. On a recent swing through Nissan's Iwaki engine plant, 110 miles north of Tokyo, he was mobbed by eager factory hands. He doubtless enjoyed the attention, but at each stop it was evident he was looking for nuggets that would help him squeeze yet another ounce of productivity from the plant, which cranks out V-6 engines for such models as the 350Z and the upscale Infinity G35 luxury sedan. He worked the floor, chatting up assembly workers, drilling foremen, all to get that extra fact that would edge the company forward. Even if he got no cost-killing tips from line workers on this particular day, the visit clearly paid off for Ghosn, who knows he is nothing without an inspired workforce. "The only power that a CEO has is to motivate. The rest is nonsense," he says. As his next act begins, Ghosn's motivational powers must be stronger than ever.

By Brian Bremner in Tokyo, Gail Edmondson in Paris, and Chester Dawson in Los Angeles, with David Welch and Kathleen Kerwin in Detroit


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