Are Nissan chief’s methods built to last?

By Anthony Faiola

updated 12:25 a.m. ET Aug. 3, 2006

TOKYO - Six months after the rainy March morning in 1999 when Carlos Ghosn first stepped through the glass doors of Nissan Motor Co., the man who would become known in Japan as "the destroyer" was bringing out the big guns.

His first target: keiretsu -- the traditional relationships of fixed pricing and co-ownership between Japan's major manufacturers and their chief suppliers, a system that Ghosn blamed in large part for bringing Nissan to the brink of bankruptcy. In a speech still talked about in hushed tones inside Japanese corporate circles, Ghosn shocked a gaggle of gray-haired directors of Nissan suppliers by declaring his intention to sell off stakes in their companies. On top of that, he demanded they slash prices by 20 percent or risk being cut off, according to sources familiar with the meeting.

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The strategy at Nissan marked the quadrilingual, French-educated Brazilian of Lebanese decent as a forerunner in the globalization of management styles. The idea: that fierce cost-cutting, consolidation and integration can prove as quick a fix in Japan as in Brazil, France or the United States -- all sites of Ghosn corporate successes.

Ghosn -- now head of both Nissan and Renault SA -- launched talks last month with General Motors Corp. over the possible creation of the world's largest automotive alliance. Last week, he told reporters in Paris that the companies were discussing billions of dollars of potential savings ahead of an Oct. 15 deadline to conclude the talks.

But as the talks proceed and Ghosn is being hailed for his past performance, questions are also surfacing about whether his one-size-fits-all management style is built to last.

Ghosn ultimately broke through Japan's corporate ethos, shattering virtually every taboo in a country with the world's most rigidly structured business culture. Dispatched to save Nissan by Renault -- the Paris-based automaker that bought into Nissan in 1999 during a crisis as acute as the one now confronting GM -- Ghosn orchestrated what would become his fourth corporate turnaround on four continents.

"When I sat in my chair [at Nissan], I thought, 'I was here before,' " Ghosn wrote in his autobiography, "Renaissance." " 'Here' was not a place but a situation. Lack of profitability, market share problems, unclear responsibility. . . . Revival of a company means changing the way employees think and act, blending different management cultures into one."

Long-term vision?
But after five stellar years, Nissan's performance has begun to slide, leading analysts and some of Nissan's business partners to conclude that Ghosn may have focused on short-term cost-cutting at the expense of long-term vision.

To be sure, Ghosn trimmed the fat from Nissan -- slashing 21,000 jobs worldwide and closing five plants in high-cost Japan. But that overwhelming focus on bottom lines, analysts say, appears to have contributed to a rash of quality problems and delays in new-model rollouts that sparked a 25.6 percent plunge in Nissan's operating profits for the three months ending in June compared with the same period last year.

Meanwhile, Toyota and Honda, Nissan's two largest domestic rivals, are both on track for record annual profits.

"Nissan and Ghosn talk about having the highest profit margins in the industry; higher than Toyota's or Honda's," said Endo Koji, director of equity research at Credit Suisse in Tokyo. "That is true, but it is partly because [Ghosn] cut back on R&D at Nissan, something Toyota and Honda haven't done. As a result, you now see [Toyota and Honda] with great sales while Nissan is falling behind."

Both Ghosn and his supporters insist Nissan's current problems are cyclical, nicks and cuts to be mended later this year when the company roles out eight new models. They point instead to the broader turnaround at Nissan, one of Japan's Big Three, founded in 1933 but sinking just before Ghosn arrived.

Ghosn and other Nissan officials declined to be interviewed for this article, citing sensitivity surrounding the talks with GM. But interviews with company insiders, Ghosn confidants and analysts paint a picture of the 52-year old executive as a corporate -- and cultural -- chameleon.

The son of a Brazilian businessman who opened the Amazon region to air traffic, Ghosn (pronounced like "cone" with a g) was educated in Lebanon and France, taking his first starring role as the head of Michelin's Brazilian operations in the 1980s. After bringing the loss-making venture into the black, he boosted the French tiremaker's U.S. operation before landing at Renault.

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