| Nissan:
Restructuring for the Future
Rolling their first car off the assembly line on April 12, 1935, Nissan Motor Company, Ltd., entered into the automotive industry. (1) This first Datsun was the predecessor to many well known automobiles, including the innovative Datsun 240Z. Ranked among the top three Japanese auto makers, Nissan has lost a major share of the market. How does Nissan plan to recapture the lost market? Nissan Motor Company, Ltd. Tobata Casting Co., Ltd. changed it's name on June 1, 1934 to Nissan Motor Company, Ltd. . The history of the company actually begins in 1911. "In 1914, a box-type small passenger car was completed based on his own design, and in the following year the car made its debut on the market under the name of Dat Car. It is a well known story that the name Dat represents the first letters of the family names of Hashimoto's three principal backers: Kenjiro Den, Rokuro Aoyama and Meitaro Takeuchi." From this simple name, the Datsun automobile was developed and become well known through cars such as the 200SX and the 240Z. Following World War II, Nissan was mired with trouble and difficulty. They had many challenges to overcome including requisitioning of half of their plants by Occupation Forces and also the switching of many leading dealerships to Toyota. Undaunted, they rolled the first Nissan truck off the assembly line in 1945 followed by the first Datsun car in 1947. Another setback occurred in 1953 when the company was hit with a 100 day labor strike. (3) Nissan continued to rise above adversity and in 1960 became the first Japanese auto maker to receive the coveted Deming Prize. (4) Through the remainder of the 60's, Nissan continued to grow and develop better vehicles. In the early 1970's during the energy crisis, Datsun vehicles became highly regarded as the vehicle of choice for fuel consumption and energy efficiency. American auto makers were threatened by the increased popularity and acceptance of the "small" car. Quotas were placed on imports limiting the number of autos entering the United States. As a result, Nissan was pressured into opening plants in the US. However, this did not stop the growth of Nissan. They continued to be recognized as a leader in the advancement of automotive engineering and design. This reputation grew as Nissan designed more fuel efficient vehicles, engineered lighter body panels, excelled in the use of CAD/CAM design techniques, and utilized industrial robots in their manufacturing facilities. Nissan continued expansion worldwide by opening plants in Taiwan and Mexico in 1959 and 1961, respectively. This was followed in the early 1980's with the establishment of two strategic manufacturing bases overseas; Nissan Motor Manufacturing Corp., U.S.A. in 1980, and Nissan Motor Manufacturing (UK) Limited in 1984. This overseas expansion has advanced to the level where decision making for North America and the UK is done at regional offices. At the peak of growth, Nissan operated manufacturing and assembly plants in 17 countries around the world. Nissan North America is diversified
across many industries. They have interests in the distribution and
sale of Nissan's commercial diesel trucks, electric- and gasoline powered
forklifts, marine motors, and textile manufacturing equipment. Nissan
North America is also involved with trading interests in cars, auto parts,
raw
As the 80's moved into the 90's, Nissan began to lose it's share of the market. Once a powerful Japanese auto maker that sat in the number 1 position, it now was 3rd behind Toyota and Honda. Nissan previously commanded 35% of Japan's auto market. But sales hit rock bottom and the company was operating in red ink. To combat this, Nissan sold 37% of it's stock to French auto maker Renault. Renualt was known for cost cutting prowess and Nissan hoped this would bring the troubled auto maker back to the top of the market. (6) Nissan Revival Plan With the purchase of Nissan by Renualt for $5.4 billion, the world's fourth largest auto maker was created. Renault obtained 36.8 percent of Nissan Motor, 22.5 percent of its truck affiliate Nissan Diesel Motor Co and the European finance subsidiaries in return for its cash infusion. Through warrant bonds, Renault could boost it's stock in Nissan to 44%. However chairman Louis Schweitzer stated that he did not intend take a majority stake in Nissan. (7) Can two companies with their respective histories join forces to help Nissan regain it's share of the Japanese market? Only time will provide the answer to this question but there are some cautious outlooks (8) on the future of Nissan. Certain investors and analysts are concerned about the deal, referencing the failed discussions with DaimlerChrysler. Much of the concern lies in the companies themselves. Renault has recently become profitable again and Nissan on a downward spiral of profitability. At the helm of the revival plan is Carlos Ghosn, the former Renault executive vice-president who took the steering wheel of Nissan as its new chief operating officer on June 25. (9) His goal is to shed Nissan of assets and streamline the decision making process while bringing the company back to profitability by 2001. This is compared to a loss last year of $261 million. As part of the assets reduction, it is believed that plans are in the works to sell the aviation and aerospace division. Many feel that this is make-it or break-it time for Nissan. Analysts have estimated that Nissan is operating at only 60% capacity. It is accepted that an auto maker needs to run at 70% capacity to break even. Many have therefore guessed that Ghosn's plan will include massive cuts in the work force both in Japan and around the world. It will more than likely include the closing of several plants in Japan. 'They have no choice but to close more than one plant in Japan,'' says Koji Endo, automotive analyst at Schroders Japan Limited. (10) On October 18, 1999, Nissan Motor Company announced the Nissan Revival Plan. (11) This growth plan is designed to achieve lasting and profitable growth for Nissan worldwide. "While cost cutting will be the most dramatic and visible part of the plan, we cannot save our way to success," said Carlos Ghosn, Nissan's chief operating officer, emphasizing the importance of product development and sales growth. Growth and expansion was outlined by the discussing a plan that introduces 4 new models in the US by 2002, including a new Z sports car. Ghosn noted the first goal of the Revival
Plan is to return Nissan to profitability for the FY2000. This goal
will be reached in part by massive employee reductions and plant closings.
Employee reductions will take place through natural attrition, an increase
in part-time employment, spin-off of non-core businesses, and
Another key component to the Revival Plan is the reduction of purchasing costs. Ghosn wants to get away from regional buying and implement a centralized global purchasing system. 'Purchasing costs, which represent 60 percent of the company's total costs, will be reduced by 20 percent over three years and the number of parts and materials suppliers will be 600 by 2002 compared with 1145 groups currently.' (12) Under a program called "3,3,3"* Nissan purchasing and engineering will work more closely with suppliers, sharing worldwide best practice and performance in technology, quality, cost and delivery. The 3,3,3" program means: 3 partners (suppliers, purchasing and engineering), over 3 years, working in 3 regions( Asia, Americas, Europe/Middle East/Africa). This will build on Nissans long standing reputation of solid and innovative engineering and development. Will It Work? Will the Revival Plan work? Only time will provide the answer. But it was inevitable that Nissan had to take drastic measures to ensure the future of the company. Although many feel that the alignment with Renault may make this turn around challenging, it provides some direction for Nissan. And most of this direction comes through the leadership of Carlos Ghosn. Mr. Ghosn's reputation is one of cost saving. In fact, his work at Renault has earned him the nickname "Le Cost Cutter." Although the Revival Plan will require plant closings and workforce reductions, one thing is certain: the employees will be given the opportunity to turn the company. Employee involvement will be fostered through incentive programs and a worldwide performance-oriented compensation system for management. After all, the plan was created by the work of 200 international Nissan managers. (13) While the Revival Plan calls for aggressive cost saving measures, it also stresses that Nissan experience growth. This growth comes through combining of resources with Renault and approaching the business on a global level. This includes centralized purchasing, R&D, and streamlining of dealership networks across the globe. Ghosn states "The combination of growth and cost reduction will allow Nissan to achieve a consolidated operating profit of 4.5 percent of sales by FY2002," As competition continues
to mount and companies merge, Nissan faces obstacles that may seem insurmountable.
But with the leadership of Ghosn and the financial resources of Renault,
Nissan will likely climb out of debt and once again become a global leader
in the auto industry.
Additional Sites Hoover's on Nissan Motor Company, Ltd. Hoovers on the Automotive Industry Review Questions
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