Rebirth Of The Z

By Tim Larimer/Tokyo

Carlos Ghosn has every reason to have that bounce in his step at the annual Detroit Auto Show this week. The Brazilian president of Japan's Nissan Motor Co., now controlled by France's Renault, has been itching to unveil the dazzling new iteration of a sports car that once defined an affordable testosterone boost. Remember the 240Z, the long-nosed rocket that every boy just had to drive after it came out in 1970, later known as the fastest-selling sports car of its time? Monday, to cacophonous music and a panoply of strobe lights in the Motor City's Cobo Hall, Ghosn was set to reintroduce the "Z" and all the verve that it once stood for.

At a time when automakers are quaking at the prospect of an economy in decline, Ghosn has an unusually bright story to tell--and he wants the Z to help tell it. It is the tale of how he and a small band of Renault executives saved one of Japan's industrial icons. In the 18 months since he arrived in Tokyo, the intense, bespectacled Ghosn has turned Nissan from a debt-ridden basket case into a profitable car company, with 22 new models in the pipeline and a truck plant under construction in Mississippi. While Ford, General Motors and Chrysler all saw sales decline last year, Nissan enjoyed an 11% increase. The company's luxury division, Infiniti, had its best U.S. sales year in history. "People were ready for this," Ghosn says with his usual rapid-fire urgency. "And we had to show quick victories to accelerate the number of people buying into our plan."

The huge Japanese automaker is by no means free of all its woes. But its dramatic turnaround is a promising lesson in global management--and perhaps a harbinger of a Japan that, despite 10 years of laggard economic performance, is capable of rising again. Indeed, while U.S. automakers are trembling at the thought of the production cuts and layoffs required to weather the oncoming economic slowdown, sales at Toyota, Honda and Mitsubishi are in overdrive, a trend that is already leading to murmurs around Detroit of a "second Japanese coming." (Stay tuned for more on that.)

When Renault bought 37% of Nissan in March 1999, analysts thought the French had flipped. Once a symbol of Japan as global industrial powerhouse, the automaker was on the verge of bankruptcy, $22 billion in debt and had a moribund sales record. As with so many other Japanese companies, Nissan had become arrogant and oblivious to changes in the market, and the old-boy network that ran the Tokyo-based company simply didn't feel like answering a new call--and certainly not one from a foreign master.

But Ghosn is a globalist--Lebanese heritage, French education, Brazilian passport--who earned his spurs as an aggressive turnaround artist at Michelin, the tire company, and then Renault. To bring Nissan to heel, the 46-year-old used psychological leverage that nobody had ever bothered to exploit in Japan. "People within the company were convinced that Nissan was sick and could die," he says. "They knew it had to change, and they were willing to help."

By October 1999, Nissan had a revival plan designed to violate most of the taboos of Japanese business; it could make Nissan competitive again. Five factories were scheduled to be shut, 21,000 jobs eliminated. In came a new compensation system that rewards merit, not seniority. And Ghosn announced a stock-option plan, something all but unheard-of in a country where bonuses have long ruled. "I doubted he could do it," says Hideki Yamano, who manages a dealership in the city of Tsu in central Japan. "But he did. It took a foreigner."

Surprisingly, the foreigner's philosophy has taken root. The company's top management ranks have little tolerance for those who resist the new order. "There is a schism," admits Akira Kaetsu, a senior manager in human resources. "We've told those who are resisting the changes that they have one year to change their attitude."

By last October, the new attitude had produced a $1.56 billion net profit, Nissan's first in seven years. The naysayers were silenced and flabbergasted. Analysts were bidding up one another's hyperbole. And in that month alone, the stock jumped 27%.

Today, far from being parodied or, worse, reviled, as many expected, Ghosn has become a symbol of promise. Salarymen mimic his wardrobe; government bureaucrats and corporate chieftains invoke "Ghosn-san" as an instant reference point in discussions about what can be done to reinvent Japanese companies. And as for the general public, Ghosn is, well, a hero. "I had never felt so moved," swooned housewife Shigeko Nakano, 52, after the authoritative lecture the bushy-browed, 160-lb. dynamo gave during a recent TV appearance. Why? "His management reforms."

Now, having moved Nissan out of danger, Ghosn faces the question of whether he and his lieutenants can restore the company's reputation as an engineering and design giant. It won't be easy. Nissan nearly foundered because its designers were forced to take orders from engineers who knew only performance and managers who knew nothing about their customers. As a result, most of the cars the company produced may have been hot under the hood, but they were tepid in the showroom. (Ever try to describe an Altima?)

Ironically, that began to change just before Ghosn arrived, when designers at the company's U.S. studio came up with the XTerra, the rugged SUV that has become the flagship for American echo boomers on the go, as well as many other of the 22 new models, which would probably never have made it to the showroom. The new Z, not surprisingly, also originated at the company's La Jolla, Calif., studio.

But the Z would not have made it this far had it not been for Shiro Nakamura, the renegade design chief Ghosn hired away from Isuzu in 1999. For the past 18 months, Nakamura, a multilingual artist with global experience, has been leading the most complex phase of Ghosn's transformation--reinventing Nissan's "brand DNA." To begin, Nakamura convinced Ghosn that if Nissan was to succeed, his designers had to have authority over the engineers, and the company had to go back to its inventive roots. The re-evaluation that followed led not only to a fresh design approach but to a new logo as well, to be unveiled this week.

The new sports car, wrapped around a 260-h.p. engine and to be priced at a mere $30,000 when it hits showrooms next year, is an expression of what Nakamura thinks the brand ought to be: affordable, with a little more risk and a lot more pizazz. Says Nakamura: "We simply didn't have a clear direction before."

The task now is to have Nakamura's creative sense infuse an entire generation of cars, not just one sexy sport model. Sports cars are great symbols, but they don't make for great profits. "The success of the Z rests on whether it will drum up interest for the new models they expect to introduce over the next three years," says Rex Parker, vice president at AutoPacific, an industry consultancy.

Make no mistake: there are still some real questions about whether Ghosn's reforms are sustainable. Morale is still low in many parts of the company, particularly among the white-collar managers who by now know their days are numbered. Ghosn must further reduce the number of Nissan's suppliers and cut purchasing costs an additional 10% by next year. A global economic slowdown could erase an awful lot of profit in the meantime and total Ghosn effort.

One thing, however, is certain: Ghosn won't let his troops quit on him. His relentless energy keeps his managers focused, if exhausted. For the rest of the company, he uses intermittent whistle-stop tours of factories and dealerships to keep driving home his gospel of "change...or else." As Ghosn commented to dealer-manager Yamano recently through his ever-present interpreter (he is diligent about his weekly Japanese lessons, but Ghosn depends on interpreters), "Your results show a loss. We want to know first, why? And second, what are you going to do about it?"

Too bad for Yamano. His stammering attempt at an answer prompted only an irritated sigh. "This is your responsibility," snapped Ghosn. "Brainstorm. Discuss. You will be held accountable for this."

Indeed. Accountability is the watchword at a company that two years ago nearly failed for lack of it. And while this week's auto-show debut may offer an uplifting break in an otherwise grindingly difficult quest, Ghosn doesn't have time to stop and savor success. "If you're coming from hell," he says, "then purgatory doesn't look too bad." If the Z takes off, then at least maybe Ghosn can start thinking about heaven.

--With reporting by Carole Buia/New York, Sachiko Sakamaki/Tokyo and Joseph P. Szczesny/Detroit

With reporting by Carole Buia/New York, Sachiko Sakamaki/Tokyo and Joseph P. Szczesny/Detroit