Analysis: Automaker Nissan's miracle cure

By SHIHOKO GOTO, Senior Business Correspondent  |  Oct. 18, 2001 at 1:37 PM
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WASHINGTON, Oct. 18 (UPI) -- If Nissan can do it, there's definitely hope for others in spite of the bleak economic outlook both in Japan and across the globe.

The Japanese automaker was looking anemic at best only a few years ago, with sagging sales and rather unexciting car models to boot. But the company said Thursday that it expects its best performance yet for the first half of the current fiscal year ended Sept. 30, with group operating profit rising a whopping 39 percent from the same period a year ago to 187 billion yen ($1.54 billion).

Nissan is, however, expecting the going to get tougher in the latter half of the fiscal year, given the mounting uncertainties over the world economy as well as the continuing war against global terrorism. Indeed, the company anticipates group operating for the full year ending March 2002 rising 21 percent - as opposed to the 39 percent in the first six months of the year- to 350 billion yen ($2.89 billion).

That would nonetheless be an impressive performance from a company that had been in the red for a number of years, as the Japanese economy continues into its eleventh year of virtually no or negative growth. The company's success at such a challenging time can more or less be claimed as an achievement of one Frenchman.

"Since the beginning, we have aimed to improve our products and our image, invest in the future, cut costs, and sell off assets ... by aiming to obtain all those at once, we can achieve," said Nissan president Carlos Ghosn. He added that if the global political outlook stabilizes, then earnings for the full year is likely to be upwardly revised.

Since his appointment as chief financial officer in 1999, Ghosn has lived up to his nickname "le cost-cutter," earned when he was CFO for French car manufacturer Renault. The French company had taken over control of Japan's second-largest automaker in March 1999, and forced Ghosn upon the hemorrhaging Nissan, amid much controversy in a country that views its auto industry with national pride.

In taking his position at the helm of the ailing company, Ghosn said that he would retire if he could not make Nissan profitable within three years, and outlined his proposal to get away from the traditional Japanese style of management and corporate relationships.

The so-called "keiretsu" method of operation, whereby companies cross-held each others' shares, thereby preventing hostile takeovers by outside investors. In the auto industry, it also meant that long-term relations were established between the buyers and suppliers of parts and components, regardless of profitability. Nissan affiliates were also headed by former Nissan employees, resulting in loyalty superseding increased profits.

Ghosn went ahead and severed the unprofitable ties, and mercilessly shut down a number of factories, driving many affiliate companies into bankruptcy. Perhaps it was easier for Ghosn to move forward with such sweeping moves because he was an outsider, or because he was not Japanese.

But Ghosn's strategy has obviously paid off, making what was seen as impossible only a couple of years ago into reality. Whether Nissan's business plan will work for other Japanese manufacturers remains to be seen.

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