Business Case Studies, Leadership, Carlos Ghosn as CEO of Nissan and Renault: Can He Rework the ‘Nissan Magic’?

 

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Carlos Ghosn: The 'Nissan Magic' Cont...

The biweekly comic series, 'The true life of Carlos Ghosn' featured Nissan's CEO Carlos Ghosn, depicting his popularity in the industry as well as the country. Some others called him 'an ambassador of change', 'the troubleshooter' and considered him as a role model for all those business executives who were seeking solutions to the poor state of their companies in Japan.

After the implementation of the Nissan Revival Plan (NRP), within two years, the company recovered from the losses and reported a 10.2%increase in its revenues and nearly 84%increase in its operating profits . Though the sales had not considerably improved, the cost cuttings contributed towards improving the bottom line. In May 2001, the company reported its largest net profit of $2.7 billion. Carlos Ghosn was named the 'Businessman of the year' by Fortune magazine in 2002 and Auto mobile Magazine called him' man of the year' for his contributions to Nissan. Renault increased its stake in Nissan to 44.4%while Nissan owned 13.5%of Renault's share capital. However, by 2003,Nissan started experiencing a downward trend in its sales, as the volume of goods that passed out from dealers was dropping in size. Customers regularly complained of quality defects and Nissan’s rank in overall quality (as per a survey by J.D.PowerAssociates) dropped to 11th in 2004 from6th in 2003. It looked as the rigorous emphasis on the faster execution of the restructuring had resulted in these quality defects while Ghosn assured he would fix them. To counter the situation, in May 2004, he sent a quality control team of 220 engineers to the Nissan plant in Smyrna (Tennessee) and every part of the assembly line went through a detailed scrutiny. Subtle issues like the workers who wore studded jeans and rings causing scratches to the freshly painted cars, etc came to light. Ghosn was amazed at some very obvious ones, which could be rectified at the plant, like defective doors and reading lights etc. Carlos Ghosn had already achieved two of the three goals that were set for NRP, the debt was cleared and profitability was achieved.

The Nissan 180, an extension of NRP was launched and aimed at additional sales volume of one million annually from 2005, the third objective of NRP. US market was considered to play a key role in achieving the goal of additional one million sales. A new plant was set up in Canton, the first in North America where Nissan was facing challenges from other Japanese automakers, Toyota and Honda. Mean while, Nissan was planning an alliance with Mitsubishi after Daimler Chrysler gave up its plans of partnership with Mitsubishi. The partnership would help Nissan enter the mini car segment while Mitsubishi would be able to reduce cost burden of new product development.

The shortage of steel supplies forced Nissan to reduce its production in 2004, affecting production of 15,000 units amounting to $58.5million of loss in sales. Nissan closed its plants for five days following the shortage of supplies, as steel prices in creased with demand for steel increasing after the economic boom in China. While halting production was considered a sign of mismanagement many felt that Carlos Ghosn's attempt to bring down the number of suppliers as part of NRP, had resulted in over-reliance on few suppliers .However, Ghosn defended himself saying that the savings achieved during that phase were far more [$9.7 billion] than the losses incurred due to loss of sales.

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