On his recent trip to Lebanon, Carlos Ghosn, CEO of Renault and Nissan addressed a group of Executive MBA students at the American University of Beirut (AUB). Ghosn who is credited for revamping the Japanese heavy-weight car maker has been spending much of his time between Europe, the USA and Japan. Executive managed to talk to the international business figure.
From your early years at Nissan, you’ve been dubbed by many as a cost killer, how much has this particular skill been put to work at Renault?
In 1999 and after a decade of decline, Nissan, with a $20 billion debt, was on the verge of bankruptcy. It was therefore urgent to cut down costs and I had to make some difficult decisions, that no one had the courage to make before. The situation was very different from when I took over Renault. The company had a sound balance sheet and was far from being in crisis. The Renault Commitment 2009 Plan set cost reduction objectives by business function. Unlike the ones put in place by the Nissan Revival Plan, the aim was not avoiding bankruptcy but improving Renault’s cost competitiveness. I don’t believe there are immutable recipes for good management. Good management is one that is adapted to a given situation and delivers results.
How have Nissan and Renault avoided the trap of corporate cannibalism?
The spirit of the Nissan-Renault Alliance in 1999 was shaped in part by the failure of the Renault-Volvo partnership. Renault learned that when things are imposed by force, they tend to fail. If employees feel that their company is taken over by another entity or that their identity is being absorbed by a greater power, the alliance will again fail. At the beginning of the Alliance, Renault’s behavior was crucial and though Nissan was financially weak at the time, we considered that there were no winners or losers. Executives at both companies were aware of the importance of respecting the identity and self-esteem of all involved parties.
We never tried to merge Renault and Nissan, and we have always been very careful to preserve the autonomy and value the identity of each company, its brands, products and corporate culture. I am convinced that this is a key factor in the success of the Alliance.
You said in an interview with Fortune magazine published in January that the auto industry was facing a difficult environment because of shifting technologies, consumer preferences and increasing oil prices. How is this affecting your long-term strategy at Nissan and Renault?
The automotive industry is indeed facing strong headwinds: competition is fierce, mature markets are stagnant or slowing; commodity prices are increasing for the fourth year in a row… The problem is that our industry has lost its pricing power. When commodity prices rise, we have to absorb the increase, as we cannot pass it on to customers. As a result, the profits of most car manufacturers are on the decline, which bears a risk for the whole industry. An even greater danger than the one inherent to value loss lies in a reduced capacity to invest for the future. This means we must constantly increase our cost competitiveness, improve productivity and expand into new segments as well as new markets to find fresh sources of profitability. Today, a car manufacturer restricting its operations to one region or one market segment is condemned to decline.
But there are also opportunities, such as preserving the environment, which will present a great technological challenge for the coming decades. The Alliance is well positioned to take on this challenge: through cooperation, we can avoid duplicating engineering efforts and resources as well as saving time in the development of new technologies. In such a framework, each partner takes the lead on a specific technology and makes it available to the other. Nissan has already developed hybrids, fuel cells and continuously variable transmissions. Renault has greater expertise in diesel engines, flex fuel, and is also working on electric vehicles.
At an AUB conference held last month, you explained how market capitalization reflects trends in the car industry. As an example, you discussed how the US car market capitalization was divided by half over the last ten years. Given such an unfavorable business environment, why were you so keen on closing the GM deal?
In my opinion, the strategy of extending the Alliance to North America was sound and the discussions revealed an important potential for synergies. However, strategy alone is not sufficient and conditions for a good execution were not quite available. The stakeholders of Renault and Nissan — shareholders, employees and partners alike — perceived the deal more as a risk than an opportunity. I am still convinced that extending the Alliance to a North American partner is a sound approach, but it can only be adopted if we have the means to implement it and stakeholders are motivated.
With net profits slumping at Nissan in 2006, some analysts have declared that you may have overstretched yourself. How do you respond to such allegations?
When results are good, management is considered to be working efficiently. When performance starts to fall, it stirs media criticism — it’s a natural process and I accept it. At the end of the day, your stakeholders are the most important party. The question is, how do they rate your performance? Every year, I face the company’s shareholders and ask for their support. Despite some of the recent challenges, 98.9% of Nissan shareholders voted this year in favor of our management team and the direction of the company. On a day-to-day working level, if you want to have an easy life, don’t become a CEO! Keep in mind not to melt down when faced with obstacles and work with your teams to find solutions and create further value. At this stage in the evolution of the Renault Nissan Alliance, having a dual CEO is helping to accelerate the decision process, which benefits both companies. We have recently announced the building of new plants by the Alliance in Morocco and India and we are introducing advanced new technologies in areas such as diesel engines. As long as I have the support of our stakeholders and believe that my position is adding value to both companies, I will continue to lead the Alliance and both companies.
What were the main reasons behind the Renault-Nissan recent $1 billion investment on a plant in Morocco?
Renault and Nissan lack production capacity for low-cost vehicles. For example, Renault had to postpone the launch of Logan MCV on some markets because it could not produce enough vehicles to meet demand. In Morocco, we were offered a great opportunity to increase our capacities in very competitive conditions as well as obtained a good incentive package. The plant will be located in a free zone of the Mediterranean port of Tangier, near one of the biggest maritime crossroads in the world. It will be dedicated to the production of low-cost vehicles (LCV): such as the ones derived from the Renault Logan platform as well as a new generation of Nissan LCVs. We want to make this plant a benchmark in terms of competitiveness and 90% of produced vehicles will be destined for export.
What new trends do you foresee in the car industry and how does the convergence of computing and communications affect tomorrow’s cars?
There is no doubt in my mind that communication and computing equipment will play an increasingly more important role in cars. People want to connect to their network and make their car an extension of their personal environment, using diverse plug-in features. We foresee another trend in the development of specific urban cars dedicated to city life, which will be small, reliable and have no carbon-dioxide emissions. We must also anti-cipate trends for developing countries, where we are currently observing an increase in demand for low-cost, reliable family cars. Between 1999 and 2006, the world auto market increased by 20%, while US and Japanese market levels held steady. However, all growth was witnessed in developing countries. Given such figures, the apparent strategy is to position ourselves in such markets and predict their development.