Dysfunctional Darling

Nissan Motor Co. Ltd. became the darling of the automotive world when it not only achieved an extraordinary financial turnaround but did so with some head-turning new vehicles, including the 350Z and Murano.

But Carlos Ghosn, while not ignoring the accomplishments he orchestrated, doesn't believe the hype.

“Dysfunctions are everywhere,” says the Nissan president and CEO during a roundtable interview at the North American International Auto Show. “We're an 11.3% operating-margin company, and we've had a remarkable recovery. But I'm very frustrated this year at how bad we can be in certain areas — how much dysfunction we can see inside the company.”

When asked just where all that dysfunction lies, Ghosn quickly rattles off a list: marketing, sales, engineering, quality, manufacturing — everywhere, he concludes.

“Look at all these holes around us,” he says. “We need to take the opportunity of the momentum created now and solve the problems.”

Momentum certainly is on Nissan's side. The auto maker has trumpeted its myriad accomplishments ever since it declared itself financially solvent — with the help of Renault SA — at the successful culmination of its famed Nissan Revival Plan nearly two years ago.

Its most recent moves include storming the once-U.S.-only big-truck segment with the Titan fullsize pickup, getting its Infiniti luxury division back on the map and taking bold steps in high-risk foreign markets such as China.

Global achievements in 2003 speak for themselves: Nissan ended the year in the U.S. with sales of 794,784 vehicles, up 7.4% over prior-year tallies.

Infiniti, long-ago discounted as a sub-par player in the luxury market, largely fueled the recovery, with sales of 118,655 units, prompting a 35% rally over year-ago. Its G35 coupe and sedan, along with its new FX cross/utility vehicle, led the surge.

And for the Nissan brand, trucks meant growth, up 10.6% on the strength of new entries such as the Murano CUV, Quest minivan and new-in-October Pathfinder Armada.

In Japan, a robust performance in a weak market (8.2% year-on-year growth for a 17.5% market share) put Nissan back in the No.2 market position as plummeting sales dragged down Honda Motor Co. Ltd.

And in Europe, a pleasant surprise: Nissan racked up record growth in a volatile market.

“We said it was going to be the year of the United States, but the strongest performance was Europe,” Ghosn says.

In Western Europe, sales of 479,789 vehicles only amounted to a 2.9% market share, but the 12.6% year-on-year growth helped narrow the gap with Toyota Motor Corp., the only Japanese auto maker that outsells Nissan in that market.

And Ghosn says the auto maker will have no problem meeting the overall goal of Nissan 180, the company's second 3-year plan that serves as Act Two to the Nissan Revival Plan.

Nissan already has taken care of the “8” (at least 8% operating margins) and the “0” (zero debt). And Ghosn says the “1” (1 million units of additional sales globally) will be realized when Nissan 180 culminates in September 2005.

Sales then will have reached 3.6 million units globally, Ghosn says, up from an anticipated 3,040,000 in the fiscal year ending March 31.

Much of that volume growth will come from China, where a bold initiative with Dongfeng Motor Corp. designed to quickly turn Nissan into a full-line domestic manufacturer serves Ghosn's ultimate objective: a presence in every segment of every market.

In the face of boundless “dysfunctions,” Ghosn assures Nissan will embark on yet another 3-year plan — which he will announce in April and put into effect one year later.

Details of the plan, now simply dubbed Post-Nissan 180, remain a secret. But broad goals of optimizing and consolidating operations are nicely timed. In 2005, Ghosn takes over the top spot at parent company Renault SA while retaining his position at the helm of Nissan.

But while the CEO position, some platforms and internal operations such as purchasing will be consolidated between the auto makers, Nissan and Renault never will operate as one.

“I think obviously when you have the same CEO for both companies, somehow you're going to have better alignment,” Ghosn says. “But (the) two companies remain separate. You're not going to see one headquarters for the alliance, and you're not going to see people coordinating between the two companies. People belong to one or the other.”

Ghosn implies the extreme levels of separation may stem from lessons learned from other, less auspicious mergers.

“We're trying to work in a way that is very simple, very clear, where there is no blurring between the companies,” he says. “Because that's what happens when you have alliances and mergers — you don't know at the end who's responsible for what. You have everybody blaming everybody else.”

And Post-180 wouldn't be a Nissan 3-year plan without growth targets.

“We have major projects coming, major growth,” he says. “But growth is not an objective by itself. We have no objective for market share. We're just using growth as a pillar for profits and for creation of value. That's why we're not going into the incentives games.” Nissan's incentives trail the industry average, and Ghosn vows to contain them.

The plan will continue to target Nissan's trouble spots — chief among them is its engineering force. The auto maker can't expand and train engineers fast enough to satisfy demands mandated by Nissan's new, stepped-up pace.

“With engineers, you hire them and it takes a couple of years until they're really effective,” says Ghosn. “We're running after our tail. We keep adding projects, and we keep hiring engineers.”

Product is the backbone of any auto maker, and now that Nissan has achieved zero debt, cash flow isn't an obstacle. But engineering, says Ghosn, is the No.1 constraint to new products, more so than manufacturing capacity.

Ghosn points to the new Canton, MS, assembly plant, which went on stream earlier this year building the Quest, Titan, Pathfinder Armada, and Infiniti QX45 SUV — the first Infiniti built in the U.S.

The plant went from conception to production in 2½ years, whereas it will take the engineering force at least five years to meet Nissan's needs.

Ghosn quickly adds Nissan has a capacity problem for North America for the midterm but would not confirm rumored plans for a third phase at Canton.

“When we fill Canton and are approaching the bottleneck, we'll see about capacity,” he says.

Nissan also has wrangled with quality questions and some styling issues — particularly when it comes to its interior designs and choice of materials. While the auto maker now is enjoying a grace period from harsh judgment as it executes its turnaround, expect tolerance of quirks and flaws to end as soon as the vehicles enter their second generations.

The first post-Nissan Revival vehicle, the Xterra, is slated to enter its second generation in the '05 model year.

And even as Infiniti is bolstering Nissan in the U.S. and is inking plans for the European market, questions remain concerning the luxury marque's identity. While its newer vehicles are etching out the sporty, front-engine, rear- or all-wheel-drive niche, the brand still lacks a real flagship. Sales of the Q45 and M45 have been abysmal, and while the U.S. soon will see a new M45 — slated to bow at the Chicago Auto Show — officials say there are no concrete plans for a new Q flagship any time soon.

The biggest threat to Nissan, however, may come from the outside — with competitors such as Toyota aiming to capture a 15% market share to become industry leader by 2010 while simultaneously honing its already ultra-efficient production system.

Plus, Toyota and Honda hold a critical lead in alternative powertrains, leaving Nissan dependent on Renault for diesel technology and Toyota for hybrid-electric powertrains. Toyota currently supplies Nissan with its aging, first-generation hybrid technology, and the hybrid-powered Altima won't reach consumers until 2006.

Still, Ghosn remains undaunted. “I think no company is unbeatable. If you look only at what the competition is doing and not to the consumers, then you're going to make a lot of mistakes. Because you're going to repeat the mistakes of the competitors.”

Ghosn jokes: “We're seeing very good results with total dysfunction. The competition must be terrible.”