That blunt comment says it all. At a press conference Monday, Mr. Carlos Ghosn, Nissan’s chief operating officer, ticked off the company’s failings: mismanagement, inefficient production, lack of vision, unappealing products. Their impact has been plain: Nissan, Japan’s second largest carmaker, has lost money for six of the last seven years. In 1998, the Nissan group’s net loss reached 27.71 billion yen. The company has forecast a net loss of 60 billion yen in this fiscal year. When the Brazilian-born Mr. Ghosn took the top slot at Nissan earlier this year after having turned Renault around, his reputation as “le cost killer” preceded him. This week, he finally got down to business.
The restructuring plan that he and Nissan President Yoshikazu Hanawa revealed on Monday will transform the company. It aims to cut the workforce by 14 percent, pare its 1.4 trillion yen debt in half and return the company to profitability by 2000. Mr. Ghosn forecasts a 4.5 percent profit by 2002.
Specifically, Nissan will close five plants in Japan, cut manufacturing capacity by 30 percent, reduce the number of platforms for making cars from 24 to 15, and overhaul its purchasing structure. That last item is Mr. Ghosn’s specialty: He expects it will cut costs by 20 percent, which will account for 60 percent of the savings effected by the reorganization.
The pain will be felt throughout the Nissan group. The number of suppliers will be cut in half, to fewer than 4,000, by 2002. Companies unable to trim prices by 20 percent to 30 percent, or unable to meet the new rigorous quality guidelines, will be dropped. The dealer network is going to be overhauled, as Nissan tries to get them to become more profit-oriented. Staff will have to be cut, dealerships consolidated and time-tested sales techniques updated. All will be resisted.
The plan also calls for the company to dispose of virtually all its shareholdings. Currently, Nissan has stakes in about 1,400 companies. Mr. Ghosn said that only four are “indispensable.” Unwinding all of them will have an impact on markets and company valuations — as well as on the cross-shareholding scheme that has dominated Japanese business since the 1960s.
The revitalization plan calls for a cut of about 21,000 jobs. Although five plants will be shuttered, Mr. Ghosn was careful to avoid the word “layoff” on Monday. Instead, he said the company will use “soft solutions,” such as early retirement or transfers, to minimize the impact on workers. Nissan union officials offered cautious support for the program, saying they would not strike and would cooperate with efforts to restructure. In fact, they have little choice: Nissan is in dire straits, and taking dire measures is the only option.
That is cold comfort for the communities where the plants will be closed. In localities such as Higashimurayama, outside Tokyo, and Uji, in Kyoto Prefecture, the Nissan facilities are the lifeblood of the area. While Nissan must focus on its bottom line, the social effects of restructuring will require a government response.
A response is also required from Nissan management. Workers must not be forced to bear the burden of executives’ mistakes. Nissan vehicles are well-made, even if they lack the pizzazz of their competitors. Yet Nissan now has only 4.9 percent of global auto sales, falling from 6.6 percent in 1991; in Japan, market share has dropped to under 20 percent — and this is despite considerable price discounts. According to Mr. Ghosn, Nissan’s plants are now running at just 53 percent of capacity, considerably below the break-even point. Total production has fallen by more than 600,000 units over the last 10 years.
Excess capacity, bad marketing and bloated costs are all signs of poor management. That is the element missing from the restructuring program announced this week: moves by management to take responsibility for its mistakes during the last decade. Resignations are appropriate, and will help bring a sense of fairness to the restructuring.
The Nissan plan is a bold one, but success depends on execution. Mr. Ghosn concedes that 95 percent of the work has yet to be done. He will face opposition from those hurt by the plan, as well as those who feel such measures are foreign to the way capitalism is practiced in Japan. That may have been true, but times are changing. The Nissan announcement was followed by news from NTT that it plans to cut 20,000 workers over the next three years. That comes on top of the wave of mergers and acquisitions in the finance and insurance industries. Business practices are changing; they have to. As Mr. Ghosn so pithily put it, “Nissan ” — and he could have been talking about many components of Japan Inc. — “is in bad shape.”
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