World Automotive Congress Address by Carlos Ghosn

From The Horses Mouth - The Revival Process at Nissan 1-15-02

Good evening, ladies and gentlemen. I'd like to thank Keith Crain and Peter Brown for their kind invitation to speak here once again at the Automotive News World Congress.

There's always something special here in Detroit, something extravagant, that makes us come back year after year despite the weather. Especially for me, since I spend some holidays in Brazil, where right now it is summer and 30 degrees Centigrade, not Fahrenheit.

So why do I come to Detroit at auto show time? It's because there's always an element of surprise, something unexpected and innovative. What is it this year? The displacement of engines under the hood? The weight of light trucks? No, this year's innovation is not on any of the display stands. In fact, it's in the marketplace. It's the size and shape of incentives!

Since we are not actively engaged in the incentive game, tonight I want to take you on a guided tour of the revival process at Nissan. I've been speaking to you for the last two years of the Nissan Revival Plan, its commitments, targets and achievements. Let's try to go a bit beyond those three words tonight.

The three-year NRP is closer now to its ending than its beginning. Looking back, there are two elements of the Nissan Revival Plan that are important to note. The first is that the word "Plan" is really a misnomer. "Process" would have been a much more appropriate word because we are talking about an ongoing revival process - of which the NRP is only one facet.

Other "plans" will follow, such as the "Nissan 180," which sets the guidelines for future growth as well as continued performance. But "Nissan 180" and the plans that will follow are possible only because the NRP is establishing a solid process.

By definition, a process is an ongoing series of actions that don't all happen at the same time. We do not want to look at the NRP as a singular happening or a point in time.

As you know, one of the big challenges in the auto industry is managing time. What we decide today, whatever the issue, be it manufacturing, product development or marketing, will have an impact several years from now.

You often judge a product and its impact to a company's accounts by what you know today of customers' tastes, existing competition or economic environment. But for us, the sequence is not the same and we have to make assumptions on all those criteria several years in advance.

Well, the NRP was designed to cope with that. Analysts and media concentrated on the spectacular headline news in 1999 -- five plant closures, 21,000 headcount reduction, 500 billion yen of assets to be sold and new business practices in Japan. That was completely normal because those were the visible aspects of the plan at the time.

But how many process changes did we undertake at exactly the same time that went unnoticed? I can tell you, they number in the hundreds all over the company, in all the countries where we operate.

They went unnoticed because they have not yet produced any significant results and could not be quantified or measured seriously in advance.

Let's take the case of product planning. The cars you see today at the show were not decided on recently. The change in processes needed to bring them here started back in 1999, along with the rest of the NRP.

Some are telling us today that we have too many sedans in Japan, too many luxury cars and not enough entry-level cars, no full size pick-up trucks or sports cars in the U.S., few diesels and an aging lineup in Europe. We know that, but, fortunately, we knew that back then too.

We addressed the product issue with the NRP just as all its other chapters and worked on a new global product plan. This chapter is about to become the one that everyone will notice in 2002; the cars you saw in Tokyo in October and the ones you see here in Detroit are but the preface.

Worldwide, we will launch 12 all-new cars in fiscal year 02, many of them addressing precisely the criticisms of our existing line-up of products.

Next month in Tokyo, we will launch the last of our fiscal year 01 products, the March in the all-important entry-level segment.

Its impact will be felt in volume terms, but also in our profits as we currently make a double-digit percentage loss on each March we sell. Rest assured, the new one is profitable.

The second critical characteristic of the NRP is that it is a revival, not a restructuring. You can restructure a loan and still have the same amount of debt. You can restructure your organization and still have the same issues and attitudes.

Or, you can make a new beginning, as Nissan has, a new beginning. A revival. A revival of the body and the spirit of the entire organization. One that changes visions, beliefs and behavior.

I believe that at its conclusion, the NRP will be looked back on as successful not only for its raw numbers but because it has established a behavioral pattern for Nissan's continued success.

As we transform Nissan from a company struggling to survive to one that people respect and admire, we first had to learn to respect ourselves.

Two years ago, I spoke extensively about the cultural challenges in becoming a global organization and the need to avoid using cultural differences as a crutch that inhibits change.

I'm pleased to say that at Nissan we have not spent one day worrying about cultural differences. Frankly, we didn't and don't have the time. The urgency of our situation forced us to focus on the true agents of change, our people. People change companies -- organizations don't.

Rather than create a theoretical construction about what needed to be done, we searched for the right people - those with a combination of intelligence, motivation and determination - and turned them loose to create and implement a measurable, pragmatic and borderless plan.

In the beginning, I did not have the blueprint for the NRP. As an outsider looking in, I had some ideas and clear beliefs.

At times your only tool is knowing that what you are doing is right. But the NRP - the revival process - was built in-house with a core group of talented individuals already working within the organization.

Motivating the entire workforce during the early stages of revival involved sharing our vision, building credibility, listening and showing trust. Most importantly, when it came to the fundamentals of the business, management could not and did not compromise. We led by example, no matter how difficult our decisions seemed to many inside and outside the company at the time. We made no excuses and accepted none in return.

Management's other key role was to give our team members the authority to make tough decisions, including the dismantling of our purchasing keiretsu relationships. The people who own responsibility for results need the authority to achieve them. This we provided.

Cross-cultural management, cross-functional teams, cross-company teams: these have been the tools we have employed in a search for commonality, for synergy and for better performance. We've achieved that combination of synergy and better performance in a variety of important areas.

We've taken national cultural differences out of the picture and we are creating a unique, specific Nissan company culture.

Today, we are a much different company and organization than we were 33 months ago when the Alliance began. And we are a much more competitive today as we approach the two-year mark of the three-year NRP.

So where exactly are we? If I could reduce a very complex operating picture into a quick snapshot of Nissan, it would come down to three key items.

First, our operating performance exceeds commitment. We have achieved three straight six-month periods of record profitability. At the midpoint of the NRP, we reached 6.3% operating margin in the first six months of this fiscal year, which is significantly higher than our initial full year commitment of 4.5% for FY02.

We have to recognize that the impact of adverse market conditions in the U.S., Japan, Europe and elsewhere in the world were softened by favorable exchange rates.

In 1999 in Japan, only four out of 43 models we sold were profitable, representing only 12 percent of unit sales. In 2000, that number improved to 11 out of 40, or 27 percent of total volume.

In fiscal 2001, 18 of 36 models will make a positive contribution, accounting for 42 percent of sales. And in 2002, we expect two-thirds of our cars in Japan to be profitable. But again, I believe we can do much better.

The second item is debt level. Under the NRP, we gave ourselves until the end of FY02 to cut our 1.4 trillion yen of automotive debt in half. We have exceeded our full-year commitment for this fiscal year six months early and we are comfortable we will reach our NRP commitment of no more than 700 billion yen well ahead of schedule.

The third and undoubtedly most critical point is the progress of our product development plan. As I said earlier, the NRP jump-started the revival process with a massive reduction of costs and a return to significant operating profitability before being followed by product revival and sales growth.

In fiscal year 2002, which begins this coming April, we will launch the largest and most exciting product initiative in the company's history here in the U.S. and Japan.

It's been said that 2002 will be "the revenge of the car nerds," the year when the engineers flex their muscles again in the auto industry.

But the truth of the matter is, at Nissan, engineering has always been a core part and strength of the company. But it simply lacked the resources. Today they are being given those needed resources. Engineering talent without resources doesn't go very far.

At the heart of the NRP from the very beginning has been a firm commitment to revitalizing the product line and technology leadership.

The product element of the NRP, like Nissan 180 to follow, lags because of development cycles. We are committed to rolling out an average of eight new models annually beginning in 2003.

Of course, we are not waiting until 2003 for the excitement to begin. You have already seen the customer response to the new 2002 Altima here in North America, including the announcement that Altima was named North American Car of the Year.

At the Detroit show, we rolled out production versions of the Infiniti G35 and Nissan 350Z, along with previews of the next generation Nissan Quest minivan and the upcoming Infiniti FX45 crossover vehicle.

Debt reduction and a return to profitability have fueled our product development and have allowed us to get back to building great cars again. We are determined to retake our rightful place among the industry leaders in design, engineering, telematics, innovation and one other thing - buzz. People are talking about Nissan again.

We are enhancing our existing models, like the powerful new Maxima and Sentra SE-R. And, we're adding new models in markets where we currently aren't represented - like the full-size trucks and SUVs to be built in our new manufacturing plant under construction in Canton, Mississippi. Today, our market penetration in these volume truck segments is zero, so we are very anxious to have this new facility and these new products come online.

But there are two types of product we will not build: Those that are unprofitable, and those that fail to quicken your pulse with pure styling and performance.

That is where we are today, a significantly better place than where we were a short while ago. But there is still much to do, starting with topline growth.

This is when people's impression of Nissan will change from initial disbelief, to giving us the benefit of doubt, to becoming believers. Right now we are continuing our revival process while beginning to focus on growth. We have designated the next stage in our revival "Nissan 180" for its three key components.

The first, "1," stands for our goal of selling one million more vehicles annually in 2005 than in 2001. Ambitious? Perhaps. Achievable? Definitely. By 2005 we will be fully engaged with new products and new manufacturing capacity developed under the NRP. But as always, we will not chase volume or share at the expense of profits. We are confident that we will achieve both, guided by the latter.

So what does the roadmap look like to achieve this growth? The first place to start is at home, in Japan. As you know, for 27 years, Nissan has lost much of its market share. This year we have stabilized our share despite the fact that our small cars only start arriving next month. On the assumption that the Japanese car market will recover starting late 2003, we believe we can sell approximately 300,000 units more by 2005.

Here in the United States, as you know, we are expanding our product range significantly. This starts already in the coming fiscal year and will carry on with the opening of the Canton Mississippi plant that will manufacture full-size pick-ups and SUVs in addition to the minivan. We're looking to pick up 300,000 incremental sales in this market.

In Europe, we are being more modest on volume. Profitability is still a challenge, even though I have recently confirmed that we would be returning to profitability in Europe as of this fiscal year. If we can demonstrate more profit potential, we will raise our ambitions, but for the moment, the plan prepares for 100,000 incremental sales.

That leaves 300,000 units that we plan to sell in the General overseas markets, with China coming on top of the list. As you know, we are discussing plans with the Dong Feng Group to significantly increase the scope of our presence on this growing market. I should be able to report a concrete project within this year.

For planning purposes, we still use conservative foreign exchange assumptions so as to ensure the profitability of our company in a hypothetically adverse environment.

All of our growth targets and the profitability that goes with them are calculated on the basis of 100 yen to the dollar and to the euro. Today's rates are much more favorable, but please don't forget that we are talking of a plan to take us to fiscal year 2005.

The second number in Nissan 180 is "8," which stands for an eight percent operating profit margin which should put us in the top ranks of automakers globally. However, if the best players shift up, we will have to revise our own ambitions, if the global markets all collapse simultaneously for a prolonged period of time, which is not our assumption, then we would have to revise our ambitions downward.

The final digit is zero, which represents our goal of becoming debt-free. Debt must not be a constraint; it must be managed in a way that permits profitable projects to be born. We must be free to make investment decisions backed by the strength of the balance sheet. When Nissan was struggling through the 1990s, it lacked the capital to invest in products and technology because so much had already been borrowed to pay for losses and non-core assets. This is the situation that we must at all cost avoid because it just cripples the decision making process.

With freed up capital, we can continue to make decisions based on the best return on investment - such as our new Canton plant, our global product plan and new technologies.

There are other tools beyond sales, profitability and debt reduction used to measure our success, including market share, brand power, customer satisfaction, quality and image. All are trending in the right direction under the NRP and will accelerate under Nissan 180.

I am often asked about the impact of luck and timing in business and I believe you must build into your thinking an awareness of both.

In building the NRP, we anticipated that the good times and record markets of the late '90s would not last forever and we planned accordingly. The fact is, the economy affects us in many ways but it doesn't affect our commitment. But if you don't prepare for growth, it won't come. There is always a competitor out there who is ready to seize it instead of you.

Overall, in every measure, our performance is improving, though it is far from where we want it to be.

We must seize the many opportunities offered by our high potential in order to make sure the company will never return to a period of doubt or decline.

We will conquer our own shortcomings. We will resist complacency. We have sinned in the past but we've clearly learned from it. We have been definitely marked by our near-death experience.

Nissan's recovery - our revival - continues ahead of plan, fueled by an unwavering focus on products and profitability. Those critics who say our recovery is strictly a result of cost cutting and asset sales are missing the point and they are in for a surprise.

We are investing in new products, new facilities and new technologies. We are investing in our brand and our distribution network. In the coming months we will introduce the new March in Japan, the new Primera in Europe and the Z and G35 in North America. All serve powerful, visible evidence that Nissan is a credible challenger in the market once again.

Ultimately, beyond new engines and new sheet metal, we are introducing a new Nissan. We have made a fundamental shift in thinking, which remains the blueprint and the process for future growth.

There will be strong growth when conditions warrant - growth in sales, built on the foundation of more powerful, dynamic Nissan and Infiniti brands.

We have put a lot of things in place in order to face downtimes without having to sell out our future and be ready when growth returns.

I've always been ambitious for our company. I don't know how ambitious the analysts are for us. But when I look at their forecast for this year and next, I can tell you there is still a discrepancy.

Many of them might look at us and see us as a repentant sinner, but one who can fall back on previous bad habits at any time. Even thought we have been performing the past 18 months with serious, strategic determination.

But we will continue to share with you what we are planning and we will continue to demonstrate that we have done what we planned - performance is the ultimate proof of our revival and the building block of credibility.

Thank you.