Tackling a Big TurnaroundNissan chief says automaker's suffering is solvable

TOKYO - Yoshikazu Han-awa is resolutely upbeat about the future of Nissan Motor Co. Ltd.

He has to be. As president, he leads the turnaround team now trying to steer Japan's second largest vehicle maker down the rough road to recovery.

Nissan is deep in trouble as a result of chronic losses, crippling debt and swollen inventories of hard-to-sell vehicles.

The immediate causes of misfortune are easy to identify.

"Our business in the United States is in bad shape and suffering heavy losses. And domestically all automakers are suffering because of the poor Japanese economy," says Mr. Hanawa, "but I am sure we will recover."

In May, acknowledging the deep roots and complex nature of the company's problems, his turnaround team announced a sweeping plan to reform operations worldwide.

The main result so far, says Mr. Hanawa, has been a sharp reduction in inventories on a global level, including a drop in U.S. inventories from 270,000 units to 170,000 in the six months ending Sept. 30.

Other measures include shrinking the time-to-market for new model development from an average 19 months to 12 months, reducing platforms from 25 to 10 by the year 2002, to five by 2005, and reducing models from 50 at present to 35 by 2005. The reductions will apply mainly to Japan, says Mr. Hanawa. "In the U.S., we'd rather increase the number of models."

He is enthusiastic about "modular-ization" as another source of savings and expects suppliers, who provide 70% of Nissan components, to help out by reducing their prices, amount unspecified.

Another part of the new strategy involves cutting dealer channels from four to two effective April 1999.

Consolidated debt is now 4.3 trillion ($37 billion), and in August Moody's Investors Service downgraded Nissan's debt rating to Baaa3, one notch above "junk."

The recovery plan calls for cutting 1 trillion ($8.7 billion) from this total in the next three years. How? A small start was made by cutting the annual dividend in half to 10 per share. Far more important will be projected savings of 250 billion ($2.2 billion) from lowering inventories. The balance is to come from more efficient, profitable operations and the sale of assets.

A trophy building in Tokyo's Ginza area, an auto financing business in Australia and a Japanese advertising subsidiary already have been sold.

DaimlerChrysler and Nissan Diesel, owned 40% by Nissan, have agreed to develop and build light commercial vehicles jointly, a venture that could lead to the sale of the Nissan Motor subsidiary.

Other sales are under study, but the stock market plunge has sharply reduced the value of Nissan's share holdings in banks and other Japanese corporations.

The weak yen has been a boon. "With every 1 increase in the value of the U.S. dollar, Nissan earns 6 billion," says Hanawa.

But what he is counting on most to restore Nissan's falling fortunes is "getting more profits from our core business with the introduction of attractive new models."

Skeptics are not convinced that the global reform plan will work.

They emphasize that restoring Japan's No.2 vehicle maker to health won't be easy and may not be possible.

"Even knocking 1 trillion off debt by the year 2000 will be a Herculean task," says Christopher Richter, an industry analyst with HSBC Securities Japan Ltd.

"A lot of automakers would like to own Nissan, but not its debt," says Mr. Richter. "Nissan is running out of money. Survival depends on attracting new financing," adds Kaoru Kurata, vice president, Goldman Sachs (Japan) Ltd.

Given the current state of Japan's banking industry in general and troubled Fuji Bank, the company's lead bank, finding financing is bound to be difficult.

"If no one pulls the plug, Nissan can keep on selling the family jewels and drift along for 20 years," says a competitor.

A contrarian view is offered by Steve Usher, senior analyst at Jardine Fleming Securities in Tokyo. Citing such things as Nissan's record for effective cost-cutting and the turnaround in Mexican operations between 1994 and 1997, he concludes that Nissan's problems are overrated.

While conceding that the target may be 20% too high, Mr. Usher believes "debt reduction is manageable, given how Nissan managers have been willing and able to make difficult decisions."

Mr. Hanawa does not minimize the problems but considers them solvable.

Although Nissan has had net losses in five of the past six years with cumulative red ink totaling 411.4 billion ($3.6 billion), he is aiming to break even in the current fiscal year ending next March and earn a 5% profit on sales in the fiscal year ending March 31, 2001.

Nor has the emphasis on profit-making dimmed his ambition for increased market share. By the year 2002, his target is 25% of Japan's domestic vehicle market, up from 20% at present, and 6% of the global vehicle market, up from 4% currently.

Wishful thinking? Time alone will tell. But Yoshikazu Hanawa is obviously a determined optimist.

He notes that Japan's auto industry is now operating at only 80% of capacity, and looking ahead says that "if the U.S. economy continues strong and if there is economic recovery in Japan and Asia, that excess 20% could be easily used up within the next four to five years."