Carlos Ghosn, CEO of the Renault-Nissan Alliance, opening speech at the 2012 Automotive News World Congress.
Auto company CEOs seem to be constantly waging battles and fighting crises on multiple fronts. Particularly in the past year.
For Nissan, the darkest crisis began on March 11. The magnitude 9 earthquake that struck off the north east coast of Japan and the subsequent tsunami together left 20,000 people dead or missing. The aftershocks and meltdown of the Fukushima nuclear reactors created a disaster for Japan of a scale unseen since World War II.
Of all the Japanese automakers, Nissan was the hardest hit. Our Tochigi assembly plant and Iwaki engine plant were severely disrupted. Iwaki, which was building 560,000 engines per year, was only 60 miles from Fukushima. The nuclear power station was melting down. The radiation zone was expanding.
People thought we would shut Iwaki. But the fighting spirit of our team was strong.
By mid-May, we were back to 80 percent capacity, with restrictions in both volume and product mix – including engines and popular specifications that we could not produce. By September, only six months after the quake, Nissan returned to full, unrestricted production.
This rapid recovery enabled Nissan to sell 4.67 million vehicles in calendar-year 2011, 14.4 percent more than 2010 -- a new record. With the whole world watching, Nissan employees and the wider Japanese society turned a nightmare into the country’s finest hour. It was a lesson for all of us. In humility… resilience… and focus.
eople often ask how Nissan recovered so fast. I remind them that Nissan faced the ultimate crisis and has been continuously improving its recovery skills since 1999.
Back in 1999, Nissan was buckling under $20 billion of automotive debt. For most of the ‘90s, Nissan lost share and revenue in all markets. It was delivering a 1% operating profit margin. Our competitors were averaging 4%. Return on invested capital averaged 1%. Our competitors averaged 10%.
I talked to hundreds of people and got their diagnoses, which became the foundation of the Nissan Revival Plan.
We dismantled the keiretsu system, reduced headcount, restructured our manufacturing footprint, significantly reduced debt and returned to profitability within one year. We laid the foundation for an efficient company: In 1999, Nissan had 43 models, but only four made any money. Today, Nissan has 65 models and all of them are profitable or in line to be profitable.
Worldwide sales doubled, from 2.4 million in 1999 to 4.8 million in fiscal 2011 – and it will continue growing as we introduce a new product on average every six weeks through 2016. This includes 20 major product events in the next 24 months in North America.
Over the same decade, Nissan’s geographical horizons expanded significantly, particularly in emerging markets. Thanks to the alliance with Renault, Nissan entered Brazil, increased market share and is now adding a new plant in Rio de Janeiro. Together, the Alliance is rapidly increasing market share in Russia, along with our partner AvtoVAZ.
Starting in 1999, we took an inward-looking, highly centralized and siloed company and created a decentralized, cross-functional and opportunistic Nissan. This was fundamental restructuring that is still paying off. That restructuring helps Nissan survive – even thrive – during subsequent crises.
Little did we know we would have quite so many!
In the past three years, we have dealt with the “Great Recession” after the Lehman Brothers collapse of 2008; the earthquake and tsunami of March 11; flooding in Thailand in October; the abnormally stunning strength of the yen; and, the newest threat, the financial difficulties facing Europe – with the order bank in Europe down to the level of October 2008.
But the theme of this year’s World Congress is “Revived and Remodelled: The Path to Global Growth.” So instead of talking about crises, I’ll focus on revival – not just the quick turnaround or recovery, but core reinvention. That’s ultimately what a crisis is – an opportunity to reinvent your business into a more nimble, hungry, opportunistic company.
Every crisis and every turnaround is different. But when you look at real-world case studies, you see some common themes. Solutions are rarely intellectual breakthroughs. The guidelines tend to be surprising simple:
Number ONE: ASSESS the situation. Be objective and fast.
Starting with the liquidity crunch that began in October 2008, Renault and Nissan immediately prioritized free cash flow. While the Nissan Global Headquarters were still shaking from aftershocks on March 11, we were creating our first contingency plans and assessing the damage to our operations.
Number TWO: Set priorities and COMMUNICATE. Tell everyone what the plan demands in the short term – and, importantly, give a vision of what comes after the crisis.
Communication must be SIMPLE. You cannot go into battle with a laundry list of priorities. You must have two priorities max.
After the safety of our workforce, our post-quake priority was switching from our normal pull-production to a push-production system. We wanted to make sure customers could keep buying our vehicles.
Number THREE: EMPOWER people. The crisis reflex is to centralize decision making. With the earthquake and floods, we did the opposite. We gave more power to our teams on the front line, liberating them to make quick decisions that ultimately helped Nissan recover faster.
Number FOUR: Leaders must ENGAGE AND COMMIT WHOLEHEARTEDLY. Employees will work hard if they know top management is fully committed. Employees will help you create a plan and achieve it – but only if you are in it with them.
When I launched the Nissan Revival Plan, I vowed to quit if I didn’t meet all the goals I had set. The entire top management team would also leave. In the years that followed, many employees told me this gesture made all the difference.
Beyond immediate crises, let’s turn to long-term disruptions.
Our world is experiencing several paradigm shifts – all related to demographics and energy consumption. These trends have the potential to severely disrupt our industry and our planet. We can’t afford to fixate on the acute crises and forget about the bigger disruptions.
In my lifetime, the world’s population has grown from 2.7 billion to 7 billion last year and will reach 8 billion in less than 10 years.
In 1999, consumers in China bought about 600,000 vehicles. In 2011, Chinese consumers bought an estimated 17.3 million vehicles.
For millions of consumers who join the middle classes, a car is the first thing they purchase. In the USA, there are about 800 cars per 1,000 residents. In Russia, it’s 280. In China at large, it’s 50. (Already in Beijing it’s 180.) In India, it’s 15.
No one believes that these countries – engines of growth in the 21st century – will accept a level of personal mobility less than that of an average European country of at least 500 cars per 1,000 people.
Emerging economies helped push the total industry volume to over 77 million cars in 2011. We will likely exceed 100 million by 2020.
By 2050 there may be 2.5 billion vehicles on our planet – up from less than a billion today.
This data give us confidence that demand for cars will be strong in the next decades. But are we naively reacting to demographic shifts instead of proactively reshaping our industry, our cities and our planet?
India and China are together expected to contribute to more than 50 percent of the increase in global energy demand from 2007 to 2030.
If growth stays at current trajectories, then by the mid-2030s we will need the equivalent of two planets to support our lifestyle. So ... maintaining the status quo is not an option.
The West will not lower its standard of living. China or India will not reverse their rapid economic progress. So let’s then use our fast-developing technologies to increase our quality of life AND live more efficiently.
In 2007, the Renault-Nissan Alliance decided to invest $5 billion to develop the next significant opportunity for our industry: zero emission mobility. Despite the five crises that happened between then and now, we preserved this investment.
By the end of 2010, we delivered our first affordable EV, Nissan LEAF. In the past year, consumers bought more than 21,000 LEAFs worldwide.
LEAF owners worldwide drove more than 35 million miles, saving at least 800,000 gallons of gasoline. That’s the equivalent of 7,300 tons of C02 that have not been emitted.
Across the Alliance, we believe we can sell a cumulative 1.5 million electric vehicles by 2016. We will spare the planet millions of tons of greenhouse gasses, boosted by the increasing efficiency of the world’s energy grids.
Population trends help determine the kinds of cars we build. They also inform the types of people we hire -- the next-generation leaders of our industry. If we fail to understand these trends, we risk losing an entire generation of talent.
In 1999, Nissan was homogeneous and closed-minded. Nearly all of the senior managers were from a single country, and most had graduated from the same few universities.
If you look at the auto industry today, it still hires from a narrow pool – candidates from the world’s top 30 engineering schools.
Is this efficient? No. A meritocracy should draw the world’s best and brightest – from all countries and all ethnic and cultural backgrounds.
Today, nearly half of Nissan’s senior executive team was born outside Nissan’s home country – a greater percentage than probably any other big company in Japan and in our industry.
It’s easier to manage a homogeneous staff where everyone thinks alike. But a cross-cultural management team, while more difficult to manage, ensures open-mindedness – respect for other ways of doing business and objectivity about best practices and benchmarks, wherever they come from. It’s unique to the Alliance.
That brings me to my last subject – a final paradigm shift our industry should address:
Our industry has high fixed costs. Quickly meeting demands of new customers around the world is easier when you share investment costs through strategic alliances.
But conventional mergers and acquisitions have not fared well in our industry. Most of the high-profile “marriages” of the late 1990s have ended in ruinous divorces.
The 12-year-old Renault-Nissan Alliance took a different approach – one that preserves brand integrity and corporate cultures. Amidst a graveyard of failed combinations in the past 15 years, we have built the longest surviving major cross-cultural partnership in our industry. The business platform is unusually flexible and scalable.
For instance, in China, our partner DongFeng has worked with us to increase Nissan sales from 40,000 units a year in 2002 to 1.25 million in 2011. China is now Nissan’s biggest market. Soon Renault will also leverage Nissan’s experience and best practices to begin manufacturing operations in the world’s largest car market.
In Russia, Renault has a 25% stake in Avtovaz, maker of Lada. In 2012, Nissan will join this growing partnership. Together, the Alliance and Avtovaz will aim for more than 40% of the Russian market in 2013, up from 36 percent combined market share today. Through the Alliance, both companies have successfully penetrated the fastest growing markets of the world.
Partnerships are key to regional growth and a key reason the Alliance achieved a new sales record of 8.03 million units in 2011. That includes 4.67 million vehicles for Nissan, 2.72 million for Renault, and 638,000 for AvtoVAZ.
In addition to help boosting market shares, partnerships reduce the cost of developing technologies.
In April 2010 the Renault-Nissan Alliance signed a historic agreement with Daimler. We have multiple programs including co-developed vans and A-segment cars between Renault and Mercedes, and the development of an all-new compact premium car for Infiniti based on a Mercedes platform.
This week Dieter Zetsche and I announced the next step. Starting in 2014, the Nissan engine plant in Decherd, Tennessee will manufacture 4-cylinder gasoline engines for both Daimler and the Alliance.
Like all of our partnerships, the Renault-Nissan-Daimler cooperation wasn’t short-term. It’s a work in progress. It’s expanding – to electric vehicles, and to research on fuel cell vehicles, the next wave of zero-emission cars, from Paris, Yokohama and Stuttgart… and all the way to Tennessee.
I am optimistic about our industry’s future. More than 50 million people globally earn their living in the auto industry. If vehicle manufacturing were a country, it would be the sixth largest economy in the world. We have a responsibility to ensure this industry can grow, prosper and meet the expectations of society for safer, cleaner and more affordable mobility.
Reinvention is not a quick fix. It requires persistence… relentless execution … and hard work sustained for a long time. And once a new vision takes hold, no challenge – not even an earthquake -- can get in your way.
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