COMEBACKS STALL OVER LACK OF ACTION, NEW MODELS

Not all auto industry restructuring drives get same mileage

by Setsuko Kamiya

As Japanese companies in almost all sectors carry out large-scale restructuring, the auto industry can offer them a number of case studies that reflect varying measures of success.

Nissan Motor Co., Mitsubishi Motors Corp. and Mazda Motor Corp. have all been engaged in their own programs to cut costs by shutting down plants and eliminating thousands of jobs.

All three, having been left in the dust by Toyota Motor Corp. and Honda Motor Co., turned to foreign rivals for help. Their desperate efforts are now beginning to pay off.

Most conspicuously, Nissan made a spectacular comeback under the leadership of President and Chief Executive Officer Carlos Ghosn, former executive vice president of its French partner, Renault S.A.

Eighteen months after the launch of the “Nissan Revival Plan,” the company churned out a hefty 230.3 billion yen in consolidated net profits for the fiscal 2001 first half, the third consecutive six-month term in which record profits were logged.

Nissan’s liabilities, which totaled 2.1 trillion yen in March 1999 when Renault obtained a controlling 36.8 percent stake in the automaker, will be reduced to below 7.5 billion yen by the end of March, a year earlier than projected under the revival plan.

While giving credit to Ghosn, some observers also point to the favorable relationship between Nissan and Renault as another factor for the automaker’s quick recovery.

Turning things around

Indeed, thanks to the revival plan’s faster-than-expected progress, the two carmakers are set to reinforce their alliance, with Nissan acquiring a 15 percent stake in Renault and Renault increasing its current stake in Nissan to 44.4 percent by mid-2002.

The balance the two firms struck, in which Renault defines Nissan as an equal partner, provides for a unique model, said Kunihiko Shiohara, vice president and auto analyst at Goldman Sachs (Japan) Ltd.

“The way Nissan and Renault maintain their individual cultures while working together in selected areas where their abilities are strongest seems to be working effectively,” he said. “It’s impossible to integrate two different cultures and do everything in one way, because each firm holds very different values concerning marketing and manufacturing.”

MMC and Mazda are also making headway under their partnerships with foreign automakers.

Just like Ghosn came to Nissan from Renault, MMC’s new vice president, Rolf Eckrodt, was sent from DaimlerChrysler AG, which currently holds a 37.3 percent stake in MMC.

Under its “Turnaround Plan” launched in April, MMC has already slashed 6,400 jobs groupwide, achieving more than two-thirds of the 9,500 targeted for elimination by March 2004. It has also shut down the Oe plant in Nagoya, which accounted for 18 percent of its domestic production capacity, just shy of the planned 20 percent cut.

Mazda’s “Millennium Plan” has just entered its second year. Under the plan, the firm, which is allied with Ford Motor Co., aims to achieve 3 percent net return on sales and 6 percent net return on assets in fiscal 2004 by carrying out such measures as massive payroll reductions and plant closures.

By the end of September, it had eliminated 2,210 jobs, streamlined subsidiaries and closed its Ujina No. 2 factory in Hiroshima.

Though not to an extent comparable with Nissan, both MMC and Mazda improved their business performance in the latest half-year term, with MMC reducing losses and Mazda returning to profitability.

Nobuyoshi Yoshida, president of the Automotive Business Practice Institute Inc., said Mazda has firmed its position within the Ford group, winning high recognition for its technological and engineering capability.

The Ford group has many premier car lines, including Jaguar, Volvo and Land Rover, but Yoshida said, “Mazda is virtually the only line in the group that makes small cars.

“With the increase in small-car demand in the global market, Mazda’s presence will become even more important (for the group).”

Pace remains slow

Many agree that both MMC and Mazda are now moving in the right direction. Still, they said, the two automakers lag far behind Nissan, adding that the time delay between the launches of their restructuring programs alone cannot explain the gap.

Shiohara said Mazda’s pace of recovery has been slow due partly to Ford’s poor business performance and subsequent changes in management.

Following a spate of fatal accidents involving its Explorer sport utility vehicles and Firestone tires, Ford suffered huge losses in the July-September term, prompting the virtual ousting of Jacques Nasser from the the company’s top post in October.

Mazda President Mark Fields, who came from Ford, has been trying to strengthen the image of Mazda’s next-generation cars.

However, not a single car has been launched by the Japanese automaker this year due to a delay on the Ford side.

“If you really want to talk about brand, you need a new car to prove it, but Mazda is slow to launch new products,” Shiohara said.

Regarding MMC, Yoshida said, the company has so far acted wisely, but difficulties lie ahead.

“MMC is a two-horse carriage, and it can be difficult to make it run smoothly,” he said, referring to the company’s top management team of President and CEO Takashi Sonobe and Eckrodt.

DaimlerChrysler apparently wants MMC to play a role in line with its groupwide strategy for the Asian market, and possibly in its small-car strategy, Yoshida said.

However, with DaimlerChrysler itself being a product of a 1998 merger between Daimler-Benz AG of Germany and Chrysler Corp. of the United States, things can be complicated, he said.

For instance, MMC is to jointly develop platforms for new vehicles with the German and American divisions, but it may be a difficult task with so many parties involved, he said.

“In two years or so, things will ease up for them. And they will have to make that happen (if they want to be competitive),” he said.

With the global economy slumping and consumers tightening their purse strings, the business environment will probably get tougher for automakers.

Even Nissan, which is making fairly big strides, has yet to overcome the crucial challenge of how to produce cars that are big hits.

In the past six months, only Toyota and Honda cited car sales as a contributing factor to profit increases. Nissan’s record profits were generated as a result of its cost-cutting efforts and the yen’s weakness against the dollar and euro.

Nissan, MMC and Mazda all plan to launch new cars next year, but the outlook for their performance remains gloomy, Shiohara said.

“They are running at top speed, but demand is falling at a greater pace and leading players are moving faster to implement new strategies,” he said. “Without a major-hit car, they cannot move out from where they are now.”