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Are Nissan chief’s methods built to last?

After five stellar years, Nissan's performance has begun to slide, leading analysts and some of Nissan's business partners to conclude that Carlos Ghosn may have focused on short-term cost-cutting at the expense of long-term vision.
Carlos Ghosn, head of Nissan Motor and Renault SA, speaks at Nissan HQ in Tokyo
Carlos Ghosn, head of Nissan Motor Co. and Renault SA, speaks during a news conference at the Nissan headquarters in Tokyo on July 21.Toshiyuki Aizawa / Reuters file
/ Source: a href="http://www.washingtonpost.com/wp-srv/front.htm" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

Six months after the rainy March morning in 1999 when Carlos Ghosn first stepped through the glass doors of Nissan Motor Co., the man who would become known in Japan as "the destroyer" was bringing out the big guns.

His first target: keiretsu -- the traditional relationships of fixed pricing and co-ownership between Japan's major manufacturers and their chief suppliers, a system that Ghosn blamed in large part for bringing Nissan to the brink of bankruptcy. In a speech still talked about in hushed tones inside Japanese corporate circles, Ghosn shocked a gaggle of gray-haired directors of Nissan suppliers by declaring his intention to sell off stakes in their companies. On top of that, he demanded they slash prices by 20 percent or risk being cut off, according to sources familiar with the meeting.

The strategy at Nissan marked the quadrilingual, French-educated Brazilian of Lebanese decent as a forerunner in the globalization of management styles. The idea: that fierce cost-cutting, consolidation and integration can prove as quick a fix in Japan as in Brazil, France or the United States -- all sites of Ghosn corporate successes.

Ghosn -- now head of both Nissan and Renault SA -- launched talks last month with General Motors Corp. over the possible creation of the world's largest automotive alliance. Last week, he told reporters in Paris that the companies were discussing billions of dollars of potential savings ahead of an Oct. 15 deadline to conclude the talks.

But as the talks proceed and Ghosn is being hailed for his past performance, questions are also surfacing about whether his one-size-fits-all management style is built to last.

Ghosn ultimately broke through Japan's corporate ethos, shattering virtually every taboo in a country with the world's most rigidly structured business culture. Dispatched to save Nissan by Renault -- the Paris-based automaker that bought into Nissan in 1999 during a crisis as acute as the one now confronting GM -- Ghosn orchestrated what would become his fourth corporate turnaround on four continents.

"When I sat in my chair [at Nissan], I thought, 'I was here before,' " Ghosn wrote in his autobiography, "Renaissance." " 'Here' was not a place but a situation. Lack of profitability, market share problems, unclear responsibility. . . . Revival of a company means changing the way employees think and act, blending different management cultures into one."

Long-term vision?
But after five stellar years, Nissan's performance has begun to slide, leading analysts and some of Nissan's business partners to conclude that Ghosn may have focused on short-term cost-cutting at the expense of long-term vision.

To be sure, Ghosn trimmed the fat from Nissan -- slashing 21,000 jobs worldwide and closing five plants in high-cost Japan. But that overwhelming focus on bottom lines, analysts say, appears to have contributed to a rash of quality problems and delays in new-model rollouts that sparked a 25.6 percent plunge in Nissan's operating profits for the three months ending in June compared with the same period last year.

Meanwhile, Toyota and Honda, Nissan's two largest domestic rivals, are both on track for record annual profits.

"Nissan and Ghosn talk about having the highest profit margins in the industry; higher than Toyota's or Honda's," said Endo Koji, director of equity research at Credit Suisse in Tokyo. "That is true, but it is partly because [Ghosn] cut back on R&D at Nissan, something Toyota and Honda haven't done. As a result, you now see [Toyota and Honda] with great sales while Nissan is falling behind."

Both Ghosn and his supporters insist Nissan's current problems are cyclical, nicks and cuts to be mended later this year when the company roles out eight new models. They point instead to the broader turnaround at Nissan, one of Japan's Big Three, founded in 1933 but sinking just before Ghosn arrived.

Ghosn and other Nissan officials declined to be interviewed for this article, citing sensitivity surrounding the talks with GM. But interviews with company insiders, Ghosn confidants and analysts paint a picture of the 52-year old executive as a corporate -- and cultural -- chameleon.

The son of a Brazilian businessman who opened the Amazon region to air traffic, Ghosn (pronounced like "cone" with a g) was educated in Lebanon and France, taking his first starring role as the head of Michelin's Brazilian operations in the 1980s. After bringing the loss-making venture into the black, he boosted the French tiremaker's U.S. operation before landing at Renault.

There, he earned the nickname "Le Cost Killer" -- boosting Renault's results and eliminating excess capacity by closing a factory in Belgium. By the time the French automaker took the plunge into Nissan, Ghosn had risen to the No. 2 job in Paris. He was then tapped by Renault's board as Nissan's turnaround man.

The task was formidable -- by 1999, Nissan had record losses of $6.8 billion and was desperate for outside cash. Most foreign investors saw Nissan as too encumbered by Japanese corporate customs to change. Ghosn started his makeover with the basics, giving Nissan executives a crash course, in English 101.

"Ghosn issued the order that employees at corporate headquarters had to be able to speak English," said David Magee, author of "Turnaround: How Carlos Ghosn Rescued Nissan." "At times it was comical. You had the Japanese trying to communicate in bad English with the French executives who had come in from Renault. Someone would try to tell a joke and no one would laugh. At first, they couldn't even manage to make lunch plans."

But Ghosn has proven to be nothing if not pragmatic. He issued his own company English phrase book containing words like "commitment" and "targets." But he also installed simultaneous translation booths in board and conference rooms. "He wanted top management to understand his message -- every word of it," Magee said.

That message was simple: change. After emerging as one of the juggernauts of Japan's post-World War II economic transformation, the 1990s found Nissan buckling under a combination of weak management and slavish devotion to old corporate models. The cornerstone of those models was Nissan's "keiretsu" relationships with its 1,145 suppliers, including many that were majority-owned by Nissan.

Overcharged by subsidiaries
For decades, those relationships had fostered an uncanny cooperation between Nissan and its partsmakers, particularly in product design and research and development. But unlike Toyota and Honda, where the keiretsu tradition successfully merged with cultures of extreme efficiency, Nissan was dolling out fixed chunks of business to its own subsidiaries that were grossly overcharging them. Ghosn's now famous war on keiretsu -- more than halving the number of Nissan suppliers -- was an assault that many say only a foreigner could have pulled off in tradition-bound Japan.

"We were shocked -- absolutely shocked," said Kiyoshi Kawahara, chief financial officer for Yorozu Corp., long one of Nissan's main suppliers of car suspensions. "Here was Ghosn telling us that he was going to sell off Nissan's ownership in our company and at the same time, he was demanding that we lower our prices or be shut out. No one had done anything like that in Japan before."

Ghosn's approach sparked a chain reaction of cost cutting. While several of Nissan's suppliers fell into bankruptcy, others, like Yorozu, thrived by adopting Ghosn's own model of closing plants in Japan and expanding overseas. Seven years later, Yorozu is posting record profits and has broadened its customer base to include every major Japanese automaker as well as many of their foreign rivals, among them General Motors. "What was a crisis for us became an opportunity for change," Kawahara said.

Ghosn imposed a management style he had developed over two decades, forcing a company with global sales to start behaving like one. No single measure captured his style of integration and focus better than what he called his Cross Functional Teams.

In a culture where top executives tended to be CEO yes men, Ghosn identified rising stars from the ranks of middle managers, throwing members of radically different departments into one room to iron out problems. He mixed Japanese, Americans and Frenchmen on the same teams -- occasionally to dazzling effect. Such groupings helped Nissan to consolidate its banking relationships from 200 financial institutions into just 15. Within a year, Ghosn had returned Nissan to profitability.

Unlikely corporate hero
Ghosn had his detractors -- many saw him as a ruthless foreigner seeking to export Japanese jobs. But in a country then floundering in a prolonged recession and searching for new ideas, Ghosn also became Japan's unlikely corporate hero. The first foreigner to top the list of admired business leaders by Nihon Keizai Shinbum, Japan's leading business daily, Ghosn also become the subject of a popular Japanese manga comic celebrating his corporate exploits.

Yet many say Ghosn's accomplishments in Japan may not be so easy for GM to emulate if an alliance is eventually reached. GM faces staggering labor costs, something Ghosn was able to deal with at Nissan in part because unions in Japan tend to be far less confrontational that their U.S. counterparts. Ghosn managed, for instance, to slash 16,000 domestic jobs at Nissan without generating one labor strike.

"The company was trying to restructure itself and it did what it needed to do to survive," said Koichiro Nishihara, president of the Federation of All Nissan and General Workers Union. "Perhaps unions elsewhere would be less understanding."