Nissan’s resurgence is one of the most fascinating comeback sagas of the auto industry
The history of the Nissan Motor Company is connected to its philosophy – The power comes from inside.
This philosophy is based on the simple principle – a company is only as strong as the people who bring it to life. Companies do not create products, deliver services or solve problems; people do.
From being the second largest automobile company in Japan, to reach the verge of bankruptcy to it’s now historic resurgence after its strategic partnership with Renault at the turn of the century, Nissan’s story is one of the most fascinating comeback sagas of the automotive industry in this century.
Let’s turn back a few pages in Nissan’s recent history.
Sometime in the 1980s, author David Halberstam, in his book ‘The Reckoning’ opined that Nissan was the only Japanese company that could challenge the American hegemony in Detroit. And it did, singlehandedly, for some years.
In the 1980s, it was just behind Toyota, then Japan’s leading car maker. By 1999, it was still the second largest automobile manufacturer in Japan with 140,000 salaried employees and contributing more than one per cent to the Japanese gross domestic product. The company’s sales were also roughly half that of Toyota. However, the group’s domestic factories were operating at half the capacity and had wound up in the red for seven of the eight years.
‘Nissan’ is an abbreviated form of the words ‘nihon sangyo’ which literally mean ‘Japanese industry’. But after a steady decline for 27 years in a row, things weren’t looking so bright for this jewel of the Japanese industry. It was bleeding and on the verge of bankruptcy. The company’s automotive debt had reached $20 billion. Nissan realised that to survive they had to look for a foreign partner. That is when French automobile giant Renault stepped in.
CEO and MD of Nissan India, Kiminobu Tokuyama, while speaking to Car India said, “Nissan was a global automotive manufacturing entity and no one really believed it was on the verge of bankruptcy. Ghosn ‘san’ and his team managed the crisis very professionally. Unlike some of the partnerships that were signed around that time, which were more like buy-outs, the Nissan-Renault Alliance wasn’t. It was a partnership based on mutual respect for each other’s abilities.”
After flirting first with DaimlerChrysler and then with Ford, both of which ended in rejection, Nissan was wary about approaching anyone else. Meanwhile, Renault too was looking to enter the Asian market, because they realised that it was the only way forward. After an unhappy experience with Volvo, they too were treading carefully. Officials of Nissan and Renault met in Japan and in France. Both companies, while having a big presence in their home markets, were not too well known in each other’s countries.
When they dug deeper they realised that the partnership could be a perfect match. Instead of discussing money, they talked about engines, platforms and manufacturing abilities. Nissan’s production systems and quality control were world class, while Renault was superior in concept, original design, marketing, brand identity and financial expertise. The more they talked the more they realised that the fit was ideal.
Along the way they developed a deep understanding and mutual respect for each other’s products. To Renault, Nissan seemed to be the most ideal partner and the confidence in each other was mutual.
When the deal was signed Renault paid $5 billion for 38.5 per cent of Nissan’s capital stock and designated three executives to be a part of a ten-member board of directors to be headed by Carlos Ghosn as the Chief Operating Officer.
Says Tokuyama, “Renault did not walk in and take over Nissan; Ghosn ‘san’ and his team were invited to join Nissan, work together and help the company get back on her feet. Had they done it differently, there would have been grave repercussions and Nissan workers would have been de-motivated.”
From shutting down loss-making factories to cutting down on flab, to reducing even office expenses, to finally dismantling Nissan’s ‘Keiretsu’ network, Ghosn did it all to bring the company back into the black.
The ‘Keiretsu’* system that has been considered as one of the foundations of the Japanese economic model. Keiretsu weaves a company into a stout web of permanent financial, human, and business relationships. In a sense the company is imprisoned, but it is also protected. Every Japanese company stood at the centre of a Keiretsu that comprised its bank, suppliers, subsidiaries, and its customers. Reciprocal stock holdings, exchanges of information and personnel and linked sales spun a veritable spider’s web that held rivals and potential predators at bay. In Nissan’s case no fewer than 1,400 companies constituted its Keiretsu.
When the Renault team first came to Nissan workers wondered what would happen. After the initial apprehension everyone realised the strength of the partnership. The understood that Ghosn and his team hadn’t come to change or destroy Nissan.
“They joined our team, studied our strengths and weaknesses, tried to find the point where they could support and help and where we could support and help them,” says Tokuyama.
Ghosn used a battery of cross functional teams (CFT) in his recovery effort. He believed CFTs were the key to the success of the Nissan Revival Plan. The idea was to tear down the invisible walls and get executives to look beyond the functional boundaries of their direct responsibilities. Simply put, it was an attempt to get people to talk to each other, listen to each other and exchange knowledge. This improved performance and was one of the pillars around which Nissan effectively engineered its resurgence as one of the world’s largest automotive manufacturing companies.
For the company, 2003, especially, was a watershed year. It became the most profitable large automotive manufacturer in the world, with an operating profit margin of 11.1 per cent. So, while the rest of the Japanese companies were slashing salaries, Nissan was giving its employees pay hikes; where companies were reporting reduced profits, Nissan was investing over a billion dollars each in US and China, to build factories. The company is also one of the largest investors in Renault.
A lot of the credit for the resurgence goes to Renault which put its trust on the Japanese company’s will to fight back. Today, despite the stock market fluctuations, economic stagnation worldwide, American recession, Nissan is thriving. Renault too has become a global player in the automotive industry, thanks to this strategic alliance, and is reaping the benefits with its indirect presence in the US, Central and South America.
In the April-to-December 2010 period, Nissan’s global net revenues were Rs3,48,313 crore, up 19.4 per cent as compared with a year ago. Operating profit was Rs 24,453 crore. Ordinary profit was Rs 24,847 crore. Net income after tax totalled Rs 15,776 crore. The company’s forecast for the financial year 2010-2011 filed at the Tokyo Stock Exchange is: Net revenues of Rs 4,80,000 crore; Operating profit of Rs 29,138 crore and Net income of Rs 17,156 crore.
Mohan Sinha
* Inputs from ‘SHIFT, Inside Nissan’s Historic Revival’ by Carlos Ghosn and Philippe Ries
“We are here to stay”
Nissan CEO & MD Kiminobu Tokuyama speaks to Car India about Nissan’s plans for India, the new models to be introduced and the USP of the Micra
On their delayed entry into India
To be honest from 2005 to 2009, we were here without really making our presence felt. We were testing the waters and also judging our competitiveness. That doesn’t mean we were scared of the competition or were unaware of India’s growing potential. But we are a global company and went along with our company strategy on India. Initially, we also realised that because of the high custom duties we could not really sell the CBU units here and also expand our dealer network, which reflected on our sales. I think we must have sold two or three of our Teana model cars. But we utilised that time to rework our strategy. It also made us aware of the huge potential of the growing Indian market for automobiles and we decided to set up a manufacturing facility near Chennai at an initial investment of Rs 4,500 crore over a seven-year period. The Oragadam plant has an initial capacity of 2,00,000 units per year and will reach 4,00,000 units per year in full capacity in the future. So as you can see, we are here to stay.
On the question of exports taking precedence
Till now that has been the case because of the volumes from outside, but that will soon change. We have large development facilities in the US and Mexico. We have already started projects in China, South Africa, UK, West Asia and Europe. But again, that was company strategy, and India was NEVER a low priority. We were just waiting for the right time and we can see from the success of the Micra, we were right. We now have the strength to take on such a huge project and ensure that we expand our sales in India.
What next after Micra
By end of the year, we aim to introduce a global sedan into India, built on the V platform. However, it won’t be entirely on the same platform, there will be some changes. We also intend to introduce more locally made cars here. Another vehicle that we are planning to introduce here is a multi-purpose vehicle (MVP). On some of the other models, you will have to wait to get more information! We can’t disclose that as of now.
On Renault’s entry into India as an independent entity
They are our alliance partners and we also have a manufacturing facility in India. We are supporting each other, so I don’t believe it will affect the Alliance or our businesses.
The after effects of the tsunami
The catastrophic events in Japan have affected us all on an emotional level. Business has been affected to some extent, but our India operations have remained largely unaffected. It’s minimal.
The USP of the Micra
Driving a Micra is a no-brainer! It’s reliable, stylish, fuel efficient and is meant for people who want to enjoy an everyday drive. The petrol version gives you 18kmpl and the diesel gives you 23kmpl. The car itself is easy to drive, with a key-less ignition, which makes it even simpler. It also has spacious interiors and is easy to park. So my suggestion to you is to buy the Micra!
Car sales cross 2.5 million mark
Rising production costs could see sales ‘rationlise’ in 2011-12
India automobile manufacturers sold more than 2.5 million cars in the last financial, but sales were expected to ‘rationalise’ this financial year due to rising raw material costs and higher borrowing costs. Analysts believe that during Fy12, with some variation in the growth across segments, overall it will rationalise to a more sustainable level of 15 to 18 per cent.
Despite production costs and rising fuel prices, Maruti Suzuki continued to be the largest selling automobile manufacturer in the financial year 2010-11, although other car manufacturers have taken a bite off Maruti’s market share. It reported a 9.23 per cent decline in net profit for 2010-11 to Rs 2,382.37 from Rs 2,624.64 in Fy10, due to the factors mentioned above. It also saw a drop in market share by a little over 1 per cent.
However, its small car Alto remained the number one selling car with 346,840 units sold in the last fiscal in the country, twice the number of the Wagon R at 163,019. Compared to its total vehicle sales in 2009-10 totalling 8,70,790 vehicles, Maruti Suzuki sold 11,32, 739 vehicles – an increase of 2,61,949 vehicles in 2010-2011. In the passenger car segment Maruti Suzuki sold 9, 66, 447 cars in Fy11.
Maruti also had four of the five top selling models in the country under its belt – Alto, WagonR, Swift and Dzire. Hyundai’s i10 and Tata Motors’ Indica were the two other cars in the top six. Hyundai Motors was the second largest car manufacturer with 3,59,71. Hyundai’s i10 sales were 46,014 units, which was around 9 per cent higher than last year.
Rakesh Batra, National Leader Auto Sector at Ernst & Young, credited the boom to a robust economic growth during Fy11, that has led to a positive income outlook, new product launches, credit availability and an expanding rural market.
Underlying this demand for increased mobility was the low penetration of vehicles in India (11 cars per every 1000 consumers), and the economy which was set to cross the GDP threshold of $1000 per capita.
Batra believed the price rise and related costs had not really deterred the customer, who still bought his car on an EMI. “Let us put this in perspective. A two per cent increase in the price of an entry level car like Maruti Suzuki’s Alto (LXi model – Rs 2.75 Lakh) will raise its price by Rs 5,500 approx. This will mean an increase in the EMI by less than Rs 150 per month (90 per cent loan-to-value, 9 per cent interest per annum, and 3 years tenure).” Therefore, the consumer was not so severely burdened, when he thought about purchasing a car.
Even the increase in prices last year due to emission norm changes and increased commodity prices, which auto firms passed on to the customer, had not affected sales significantly, due to the demand. There was more risk from fuel price increases given that oil prices often jump to above $100 per barrel, felt Batra.
With regard to the CKD issue, he felt there could be some short term impact as the companies would have to re-design their supply chain (for imports), but most of the impact was on low volume models where it was not economical to localise sourcing and assembly.
But the amazing story was that of the luxury car segment. German luxury car makers registered impressive sales, with BMW India retaining the number one position for the second consecutive year with a market share of over 40 per cent in the luxury segment. Audi and Daimler Benz also racked up good sales in Fy11, as compared to Fy10. Thanks to the equated monthly instalment scheme, people were now quite comfortable about owning even a Mercedes or a BMW.
Data released by the Society of Indian Automobile Manufacturers’ (SIAM) stated that overall sales of passenger cars, including utility vehicles, increased 30 per cent in 2010-11. With a total of 64 new cars being introduced into the market, overall auto sales were expected to cross the 20-million mark this fiscal. Having said that, do we have the infrastructure to support the burgeoning car market?
While traffic congestion was a matter of concern in cities like Mumbai, Bengaluru and NCR, there are cities like Chandigarh, Indore, Jaipur, etc. which have started to experience the next ‘growth wave’. Some cities were also exploring alternate forms of transport.
However, the lack of a viable public transport, would force consumers to turn to the auto sector, since transportation was a basic need. So despite costs and irrespective of the infrastructural concerns, the auto sector’s growth was expected to remain strong, opined Batra.
There is also the call for more environment-friendly cars to be introduced, although the costs of producing such cars were yet to be calculated. Would the discerning Indian customer be interested in buying a car, which while helping to improve the environment, made a hole in his pocket?
“But India is a diverse country and different pockets of growth need to be looked at with a different perspective,” said Batra, “and a ‘car’ being an aspirational product, people will continue to buy them irrespective of these issues.”
Mohan Sinha
(All statistics courtesy SIAM)
