How an outsider rescued crisis-hit Nissan from the brink of collapse

How an outsider rescued crisis-hit Nissan from the brink of collapse

Struggling under US$20b worth of debt, the Japanese carmaker was practically bankrupt until a foreigner and a gutsy French car company stepped in to bail them out. Inside the Storm gets unprecedented access.

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On the verge of collapse and desperate for a save, Nissan did the unthinkable - the iconic Japanese carmaker ceded the reins to a foreigner. The rest is the stuff of manga legend. Read more here.

YOKOHAMA: Japanese carmaker Nissan was once famed for making some of the sexiest, most sought after sports cars on the planet - such as the legendary 240Z, endorsed by Hollywood superstar Paul Newman. 

From the 1950s to the 1970s, the company expanded phenomenally as sales in the US topped 500,000 cars a year. But by the 1990s, Nissan was veering off course. 

The carmaker started churning out boring, uninspiring family sedans that were more about engineering than design that catered to what its customers wanted. Sales plummeted as Nissan fans turned away, and by 1999, it was reeling under US$20 billion (S$27 billion) in debt.

Brought to the brink of bankruptcy, this 84-year-old quintessential Japanese company – whose name means ‘made in Japan’ – did the unthinkable: It ceded the reins to a foreigner, Mr Carlos Ghosn, then president of French carmaker Renault.

And the rest is now industry legend.

The story of how one of the world’s largest car exporters found top gear again is told in Inside the Storm: Back from the Brink. The series – about legacy companies like Olympus and Marvel that have rebuilt themselves from near collapse - gained unprecedented access inside Nissan. (Watch the episode here.)

WHEN THE WHEELS CAME OFF

Nissan’s story began in Yokohama in 1933, when its cars were made by hand and only 500 vehicles were produced a year. Over the decades, it became an industry powerhouse, exporting models like the Datsun Sunny round the world.


But then it allowed its reputation to fall into decline. 

“The first signs of Nissan's flagging energy … came from its design,” said associate professor of management and organisation Audrey Chia from the National University of Singapore.

Around the late 1970s and 80s, Nissan cars became very commonplace. But they also started to become very common and bland-looking.

The company grew disconnected from its customers, noted Waseda University professor of business and governance Christopher Pokarier. 

As sales dropped, the company panicked and in an attempt to increase productivity and profits, it flooded the market with a series of boxy, practical family sedans a world away from the sleek designs that had given Nissan its good name.

It also began offering consumers their cars a la carte. “Customers had this astonishing plethora of options: A dozen different steering wheel options combined with so many different interior options and whatnot,” said Prof Pokarier.

“This idea that if you simply put almost an infinite variety of options out there, you're going to hit everyone in the market … was a failure.”


What Nissan should have done was to streamline production. But with manufacturing costs driven up instead, the company lost an estimated US$1,000 for every car sold in the US for most of the 1990s.

THE FRENCH CONNECTION

In 1993, Nissan posted a US$1 billion loss; the first time the company hadn't turned a profit in 50 years, and it soon found itself US$20 billion in debt.

In 1999, it became desperate and started shopping around for a foreign buyer to save itself.

Nissan senior vice president for global design Alfonso Albaisa recalled how painful it was for staff to hear companies denying that they were interested in bailing the Japanese firm out. 

Some companies were saying … (they) would be better off just putting millions of dollars in a trunk and sinking it in the Pacific.

Renault, however, was in pole position to save this sinking ship. And in March 1999, the French carmaker bought 36.8 per cent of Nissan, giving birth to the Renault-Nissan alliance.

It did not ease the pain felt by employees. Said Mr Albaisa: “For somebody who considers himself a Nissan man – not nice. We were no longer Nissan. We were now needing help, which of course during the initial days didn't feel that great.”


Prof Pokarier gives credit to the then Nissan president, Mr Yoshikazu Hanawa, for being prepared to “come out and say, ‘this is our first best option, and anything else is just delusional’.”

The company was that close to bankruptcy, as the banks had stopped lending it money.
Not only was it saved by Renault’s money, but Nissan also found a savior, Mr Ghosn, who would transform it for the 21st century.

LE COST KILLER 

In Mr Ghosn, Nissan had hired a man with vast experience in the car industry. He had worked his way up the ranks at tire company Michelin to become its South American chief operating officer at the age of just 30.

He then joined Renault as vice-president in 1996, where he masterminded its revival, earning himself the nickname Le Cost Killer in the French press because of his cost-cutting approach.

Recalling how he felt about joining Nissan, he told Inside The Storm: “The first reaction is always a reaction of curiosity about the company, about how (it) got into the situation (and) what the loopholes were about the decline of the company.

“(This) was also mixed with a high level of curiosity about Japan. I’d say it was a lot of excitement because the challenge was big.”

In Japan, he was seen as an outsider, given the rarity of international chief executive officers in the country. And they did not come as international as him: Born in Brazil, raised in Lebanon and educated later in France. 

As Assoc Prof Chia put it,“There had been a whole series of Japanese CEOs (in Nissan), and here was this foreigner – what could he do for the company?” 

The big question was how a “hard-driving, high-performing” business leader was going to fit in with Japanese culture, which was a minefield to navigate, besides managing the language difference.

But Mr Ghosn used that to his advantage instead. As he put it, “Nobody could suspect that (as an outsider), I had been an accomplice in any way of what had happened before.”

WATCH: The great turnaround (3:22)


A TIME OF CHANGE

So he went ahead and, staying true to his nickname, cut costs by closing down five loss-making factories, slashing Nissan’s wage bill in the process by cutting 20,000 jobs from a workforce of around 150,000.

In his first major press conference, he was asked what problems he expected from workers in getting them to go along with these cuts made by an outsider. He replied that people at Nissan had "had enough of struggles with an unprofitable company, a company losing market share". He later recalled: 

We had a lot of plants that were empty. We had a lot of headcount that wasn’t needed. And these decisions should have been made a long time ago.

He was prepared to ruffle more feathers by scrapping one of Japan's most traditional business principles: The seniority rule, which prioritises an employee's age as a reason for promotion.

“I didn't want age to be a discriminatory factor. I wanted age … to become a factor of respect for senior people, a factor of experience, but certainly not something that forbade great young potential to be promoted,” he explained.


To galvanise demoralised staff, he visited all of Nissan's sites round the world. “He was so curious about what our vision was, what our understanding of Nissan was,” said Mr Albaisa. "He allowed us to join in the voices that helped steer the company. This immediately triggered volunteerism in the teams.”

The new outsider chief unmuzzled employees from giving critical feedback that could be crucial to turning around the company. 

Prof Pokarier said: "People knew that they had too many plans. That they had too many suppliers, that they had too many models... 

But in (that) particular cultural context, you just couldn't have that conversation. He just empowered people to speak really frankly.

WHAT A REVIVAL

Mr Ghosn soon earned the nickname 7-11 because he arrived in the office at 7am and left at about 10pm or 11pm in the first few years.

After sparking Nissan's staff back to life and getting its teams talking with each other again – having discovered a disconnect between the various operations – he made them work in what he called cross-functional teams, which he had implemented at Michelin.

This technique forced people with different functions - such as engineers and designers - and from different age groups and genders to work together on company problems. It was essential to Nissan’s revival, he said.


And the company did not just revive – it soared. In 2001, less than two years after he had joined Nissan, Mr Ghosn announced a profit of nearly US$3 billion, the most it had ever earned in a year.

That year, he became its CEO. He knew, however, that he could not rest on his laurels. The next step was to modernise Nissan's new cars, which he did together with Mr Albaisa.

Designers were encouraged to experiment with new ideas about all aspects of its cars, from the interface of the global positioning system to the shape of the cars.

Customers who used to turn away from its models were consulted, and they helped to solve problems, down to the design of its steering wheels. This practice allowed Nissan to follow consumer trends more closely.


In Singapore, that made the company a leader in crossover cars – those that combine the style of a sport utility vehicle and the practicality of a hatchback.

Mr Ron Lim, the head of sales in Nissan’s flagship dealership here, attests to this trend.
“Crossover sales now make up almost 70 per cent of our total sales. So we can see a very strong sign here that consumer preferences have changed a lot, and crossovers have overtaken the sedan,” he said.

Certainly, the company’s designs today are a far cry from its box-shaped sedans of the 1990s.


ELECTRIC COMPANY

That is not all Nissan is proud to have achieved. In 2010, it released a fully electric-powered vehicle, the Nissan Leaf, which symbolised a return to its position as an industry pioneer.

As the car was ahead of the curve when it was first released, the carmaker got a jump on its rivals in this area. “It was absolutely a game changer,” said Prof Pokarier.

“Honda would never admit this, but in response to that, Honda went and created a new electric vehicle programme, and Toyota too. And both now look like laggards.”

Nissan has now sold almost 300,000 Leafs, making the car the world's best-selling all-electric vehicle – another feather in Mr Ghosn’s cap in his 18 years with the carmaker.

Nissan's new Leaf, the latest version of the world's top selling EV, at its world premiere in Chiba, Japan in September (REUTERS)

The company is one of Asia's top car brands again, and its latest annual operating profit is close to US$7 billion. 

In April, Mr Ghosn stood down as Nissan’s chief executive and president, while remaining its chairman. He has gone from being an outsider to the most celebrated foreign CEO in Japan’s history because of his success and charisma.

His adventures as a “corporate superhero” have even been documented in manga, noted Assoc Prof Chia. 

Mr Ghosn, who is also Renault’s chairman and CEO, played down his achievements, saying: “This wasn’t about the political gains. This was about (working) together and figuring out what we could do.

“And every time we were working together, it had only one objective, (which) was better performance for each company.”

This season of Inside the Storm: Back from the Brink tells the stories of how industry giants Marvel, Olympus, Nissan and Philips rebuilt themselves from near collapse. Watch the series online at this link, or catch it on Channel NewsAsia on Wednesday at 8pm SG/HK.


Source: CNA/yv

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