CARLOS GHOSN, THE KING OF THE AUTOMOTIVE INDUSTRY
Ghosn is recognized as the most admired executive in the world thanks to his contribution to the automotive industry. With a wide diversity and Brazilian-Lebanese origins, as well as French studies at the Polytechnique University of Paris in Mining Engineering. The creation of the great Alliance Renault-Nissan-Mitsubishi. Nonetheless, in the last months, the creator of The Alliance is dealing with the new accusations from Renault & Nissan, like fraud to the Japanese Stock Market authorities and corruption, punishable with up to 15 years of imprisonment.
The book “From the Nissan Miracle to the Renault Relaunching” from Ana Montenegro and Sergio Piccione explains the reasons why Carlos Ghosn is known as the “Cost Killer” and the “King of the Automotive Industry”. We are going to get to those reasons here today.
Since the beginning of the book it is mentioned how weird it is for countries without a participation in the automotive industry to have a good industrial base. Basically, it has an impact in other sectors: it demands raw materials, fuel, components, design, logistics, distribution, insurance, financial services, marketing, etc.
Carlos Ghosn became the #2 in Renault, right after its President Louis Schweitzer. Carlos was able to exceed the saving and cost management goals Renault had set.
And then, a new goal was set: NISSAN!
The economic situation of the huge Japanese car maker was a disaster (out of the last 9 years, 8 of them were loss), with a 1 billion Euro debt, even though it had a great potential.
Nissan is a Japanese company, so the language, culture, management technique, and life and work philosophy would be different from Ghosn’s. Once the company was brought back on track, the next step would be establishing a strong and profitable alliance for both companies.
One month after the German-USA alliance was announced, Ghosn became CEO of Nissan so he could try to get an alliance with their closest competitors: Chrysler-Daimler Benz.
From the beginning, Ghosn was very interested and adapted to the Japanese culture. As an example, Ghosn gave his first official speech completely in Japanese language. Unlike the case of Mazda -directed by Ford Motor Company-, whose leader made his first public appearance in English.
To avoid cultural shock and foster a better work environment, Ghosn limited the number of Renault executives in Nissan.
THE ALLIANCE NISSAN-RENAULT
Ghosn saved Renault from its economic and management crisis and was able to completely restructure Nissan, making both companies profitable again.
Now the goal was establishing a long-term alliance between Nissan and Renault.
Logo Renault-Nissan Alliance
THE PLAN 20.000 TO SAVE RENAULT
October 1996: Carlos Ghosn becomes #2 in Renault. There is a lack of communication, pessimism among departments. He starts the Plan 2000, to save 20M Francos (3,067M euros) within the next 3 years. Even though this was a much more ambitious plan than the CEO of Renault Louis Schweitzer, Plan 3000, which was saving 3,000 francos (460Euros) per car made, Ghosn’s plan worked out.
Ghosn decided to close the Vilvoorde factory due to its inefficiency and overcapacity. 3,200 employees lost their job, who were given generous compensations and relocated in other jobs. After this, only around 200 people were unemployed. The closure of the company changed the mentality within the company, which turned out to be more positive, and they could talk about economies of scale.
March 1999: Renault takes 36,8% of Nissan’s capital, giving Renault the right to manage it.
April-June 1999: On April 1st Ghosn becomes Nissan CEO and after some internal research he realizes most employees are waiting for changes in the company. Employees were scared of losing their jobs due to a possible buy-out from Renault, but Ghosn was open to dialogue.
The main mistake Nissan made was related to management. They just copied competitors’ products, wasting Nissan’s abilities and creativity, losing their identity, traditional customers and market share, which led to bad economic results.
Other Japanese car makers such as Honda and Toyota had a defined direction method, strict shopping policy, just what Nissan was missing.
A key decision for the Alliance success was to establish English as the official language of the alliance, being neutral for all. The failure would have been to set one of the companies’ language as the official one for the alliance.
Another mistake Nissan made was being very oriented towards the Japanese market and not being focused internationally. Also, Nissan tried to surpass its competitors technologically, but due to its lack of appeal, sales results didn’t show much effort.
EL FIRST PLAN: THE NRP – NISSAN REVIVAL PLAN
October 1999: During the Motor Show in Tokyo, Ghosn introduced the Nissan Revival Plan (NRP), whose goal was to revamp Nissan. With the provision of funds 1.680M Euros – committing to resign if by March 2001 Nissan didn’t get benefits. This plan was based on 9 main guidelines:
1.- Profits by March 2001
2.- Reduction of debt
3.- Increase of operating margin
4.- Reduction of the labor force
5.- Reduction of the installed capacity in Japan
6.- Reduction of the purchasing budget
7.- Sale of non-basic assets and interests for Nissan
8.- Development and launching of new products
9.- Increase of annual investments from 210 Billion Japanese Yens (1.8B Euros) to 310 Billion JPY (2.6B Euros)
5 factories were closed in Japan due to overcapacity. There was a reduction of 21,000 job posts worldwide, and a simplification in the production process, going from 24 to 10 platforms. Transfers to other facilities, early retirements, incentive plans, and downsizing plans were offered.
To get the cost reduction, long-term contracts were signed with components manufacturers, which would grant 20% savings in 3 years. In addition to that, the number of manufacturers was cut by half.
A restructuring and renovation plan for its vehicle range was launched with the launch of up to 22 new models. It was decided that those models with low sales volumes would disappear.
The great Nissan 350z
Renault contributed 12M € to Nissan to reduce 1/3 of the debt. In addition, thanks to the sale of assets and stakes in other firms (1,369 firms), an extra 3,419M € of debt was reduced. After the first year, the debt had been reduced to less than half, as well as the financial costs.
March 2001: Carlos Ghosn proudly presents the best results in Nissan’s history. Global sales had risen by 4%, the operating margin increased from 1.4% to 4.75% and at last Nissan obtained a profit of 5.4%. The Nissan Revival Plan had been far exceeded.
Throughout 2001, Renault increased its stake in Nissan to 44%. Also, Nissan entered the capital of Renault with 15%. All this corresponds to cross representations of Nissan executives in Renault and vice versa.
May 2002: Ghosn announced the spectacular results of the 2001 exercise. Profit grew by 69%, the operating margin stood at 7.9% -becoming the best in the industry-, net profit increased by 12.4% that year and the debt was reduced substantially. That’s when Ghosn decides to launch a second plan: The plan called Nissan 180.
THE SECOND PLAN: NISSAN 180
(1): Increasing sales by 1M units.
(8): Obtaining an 8% operating margin.
(0): Reducing debt to 0.
At the end of the first year, he had been able to meet (8) and (0) of his goals, achieving an operating margin of 10.8% (the highest in the entire world industry) and turning Nissan into the company most profitable of the entire industry.
Also, by the end of the economic year 2002, Nissan had reduced the debt to 0 and had a positive cash balance of 73M €. In addition, sales grew by 10.2% and net profit represented 33%.
September 2002: Nissan signs with Dongfeng, a large Chinese manufacturer, to create a 50% joint venture to produce passenger cars and commercial vehicles. The results were great, with more than 550,000 vehicles produced.
Regarding Nissan’s results, they were spectacular once again, however, they closed with some debt due to the opening of a new factory and the improvement of another. Further, the new firm with Dongfeng. Luckily, the debt was amended the last year of Plan 180.
EL THIRD PLAN: VALUE UP
Spring 2004: Carlos Ghosn presents the Third Value Up Plan (revaluation with sustainable performance), planned for the next three years. This plan seeks to consolidate the results obtained so far and the search for new conquests:
- Sales volume of 4.2M vehicles, which is 600,000 more than by March 31, 2005.
- Maintain an operating margin among the highest in the industry (at least 10%). In the last year, it maintained 11.3%.
- Maintain a return on invested capital, at least 20%. It was currently 21.3%.
- Following the example of Toyota with Lexus, Nissan will introduce the Infinity brand worldwide as a manufacturer of luxury vehicles. Among both brands, the introduction of 28 new models.
- Boost Nissan sales in Europe. Likewise, take advantage of Renault infrastructures -factories and platforms- to reduce costs, improve capacity efficiency and thus grow together.
- Factories in Egypt (Nissan Pick-up), Russia and Thailand (Terrano II). In addition, a diesel engine factory in Madrid closes since within the alliance, Renault will supply the famous dci engines.
THE NEW ALLIANCE RENAULT-NISSAN-MITSUBISHI
It’s official! Mitsubishi is part of the famous Renault-Nissan Alliance, being Nissan the only buyer and administrator of Mitsubishi. Nissan has taken 34% of Mitsubishi’s shares for $ 2,290M, maintaining two clear objectives:
1.- Productivity improvement, as well as increased synergies and economies of scale in the industry, generating cost savings of more than 10 Billion € annually from 2022.
2.- Design, manufacture, and commercialization of electric vehicles, as well as the development of a powerful technology to promote autonomous driving.
According to Carlos Ghosn, “this plan will reinforce the growth and profitability of the Alliance member companies. We will make our synergies grow through cooperation between these three companies that are autonomous, but that act with the effectiveness of just one”. “This alliance has become the largest automobile group in the world in terms of sales volume.”
According to Ghosn, “this objective will be possible thanks to the acceleration of collaboration between Renault, Nissan and Mitsubishi Motors around platforms, engines and new technologies related to electric, autonomous and connected vehicles.”
CARLOS GHOSN´S RECIPE
- Simplicity: “People will do things that are explained clearly.”
- Motivate people, encourage them in their work to be proud.
- Listen to any of your collaborators. Dialogue with people shortens distances and increases motivation.
- Commitment to the work you accept, with the company and the workers.
- Objectives: they must be ambitious, but also clear and attainable.
- Speed: Decisions involve reflection, but also react quickly.
- Transversal work equipment (CFT): teams formed by workers from both Renault and Nissan to channel problems in the best possible way and avoid the tightness of the different departments.
- Keiretsu: destroy the tradition, selling the shares in the different companies and breaking the dependency with them. Reduce supply costs.
- Management style: listen, let act and not control. Performance.