Abstract This case covers the dramatic comeback of Nissan under the leadership of Carlos Ghosn. Once a star performer, Nissan started losing its way amidst rising competition in the early 1990s. Mounting debt burden and several internal problems choked all hopes of survival. While other carmakers would have nothing to do with Nissan, Renault saw a promising opportunity and took management control of the company in 1999 through a strategic alliance. Renault deputed Ghosn, a senior executive to spearhead the turnaround efforts. Ghosn made one of the most breathtaking business turnarounds of all time by taking Nissan from the brink of ruin back to profitability in just two years. This case covers the important operational, cultural and people issues involved while undertaking a major corporate restructuring exercise. | I will resign if these commitments are not met.
-Carlos Ghosn, President Nissan Motor Co, announcing Nissan Revival Plan, October 1999.
We have achieved the goals set in the Nissan Revival Plan a year ahead of schedule.
-Carlos Ghosn, announcing the record profit for two successive years, 31st March 2002.
INTRODUCTION
In January 2003, Carlos Ghosn, president and CEO Nissan Motor company opened the company's new design studio in London to lead the development of the next generation of Nissan cars in Europe. With eight new Nissan and Infiniti vehicles expected to arrive in showrooms in the 2003 model year and another four in the following year, Nissan seemed to be in an upbeat mood. In just two years, Ghosn and his team had accomplished the goals outlined in the three-year Nissan Revival Plan (NRP). Indeed, Nissan's turnaround had been remarkable for a company that had been at the brink of bankruptcy a mere four years earlier. Nissan's market capitalization had tripled in the past five years. The happiest stakeholder was the French company, Renault, which had a 44% stake in Nissan.
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Nissan before the alliance
Nissan was Japan's second largest carmaker after Toyota. The company was well known for its technological competence. Throughout the 1970s and early 1980s, Nissan along with Toyota led the Japanese foray into the US car market. By 1985, Nissan was exporting 830,000 vehicles to the US making it the second largest exporter after Toyota. Nissan's competitive position steadily weakened during the late 1980s. A highly bureaucratic organization, competition from rivals Toyota and Honda, and a sudden appreciation of the yen contributed to this state of affairs. When Japan's economy boomed in 1987, Nissan doubled the production capacity and strengthened its sales network. As a result, Nissan's debt burden rose to $22 bn by 1999. When the Japanese economy went into a recession, Nissan found itself in a debt trap.
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By the late 1990s, Nissan had reached the point of no return. Its margins were notoriously low. Nissan lost $1,000 for every car it sold in the US. The company (with the exception of 1996) had been making losses since 1992. Its total domestic market share had fallen from 17.2% in 1992 to 13.3% in mid-1999. Its global market share came down from 6.2% in 1992 to 4.9% in 1998 and its net indebtedness was more than ¥2.1 trillion ($17.5 bn) .
Several internal problems also plagued Nissan. The company had fostered a culture where people found fault with each other for problems. Managers did not have well defined areas of responsibility. Nissan had made heavy investments (more than $4 bn) in non-core financial and real estate businesses, particularly in Keiretsu affiliates. Over capacity, huge debt burden and lack of new models in the product line prompted the Nissan management to search for a potential partner.
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