What drives Carlos Ghosn, chapter 3: “Renault turnaround”

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What's life like as a global CEO? In this special multi-part series, Nissan Motor Co., Ltd. CEO Carlos Ghosn shares his life story, offering personal insights and professional lessons on what it takes to succeed.

 

 

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'Le Cost Cutter' strikes again

Management at Renault had gone downhill in the years before I joined in 1996. At that time, the company was facing a massive deficit. Even under pressure from the government, the management team had not come up with an effective strategy for improving labor-management relations. Workers were aging, production facilities were woefully outdated and products were inferior. We had a lot of work to do.


Ghosn's aggressive cost-reduction plan shocked
many of his colleagues at Renault.

I took two months to study up on the company, talk to people and assess the situation. One of the first problems I identified was how the company was structured. Different departments weren't communicating or coordinating efforts. I also saw too much fruitless finger pointing from the management team, too few solutions.

It was time for me to take action. I formed a cross-functional team, just as I had done in Brazil and the U.S. We broke down the thick walls between departments, brought in fresh perspectives and emphasized teamwork and problem solving.

The first major issue we had to address was the cost structure. Before I joined the company, Chairman Louis Schweitzer had said that he thought Renault's cars were too expensive. He had already set a goal of reducing the factory shipment value by 3,000 francs per vehicle ($480 at current rate). I told him we should make even bolder cuts -- but not at the expense of technology and quality. In those areas, we should invest more heavily. That was the impetus behind the "20 Billion Franc Cost-Reduction Plan," which we announced in March 1997.

This plan shocked many at the company. At meetings, my fellow executives told me, "That was a typo, right? Tell me that the decimal point was misplaced." I felt like people were secretly thinking that I was an outsider, and that I was going to screw up their company.

However, I stayed calm and cool. Personally, I don't like confrontation. Fortunately, it wasn't necessary, since I had the support of Schweitzer. So I moved forward.

That doesn't mean I went ahead with 100% certainty; I had my own anxieties about whether I had made the right decisions. I felt additional pressure to show positive results because of my "outsider" status. I still had to earn credibility.

I turned to the same methods that had been successful during my time at Michelin. We set specific targets and timelines, and held ourselves accountable to them. I worked with suppliers to gain their support to lower the number of parts and decrease unit prices -- and I rewarded the ones who cooperated by giving them larger orders. This wasn't easy, but it was what was needed to be done.

The biggest challenge was the decision to close the Belgian Vilvoorde plant, an old facility where 3,000 people worked. This caused a great deal of controversy. We had informed the Belgian prime minister about our plan to close the plant, and he went ahead and announced it publicly without our permission. Protests erupted all over Europe. Newspapers labeled me (once again) as "Le Cost Cutter."

The public outcry happened because Europeans, including the French, did not have all the facts needed to understand the depths of the problems that had forced Renault to take these actions. Before the Belgian prime minister made his rogue announcement, we had planned to lay out the negative financial results. If we had been able to execute on this timeline and be fully transparent, people would have seen the dire financial situation and better understood the necessity of the plant closure.

This experience taught me several things. Closing a Renault plant was unlike closing any other. Renault was a state-run business, so any factory closure resulted in the collapse of a major piece of the labor union. Workers still operated in two shifts, rather than the three needed to maximize production. In the end, we resurrected Renault only by challenging conventional thinking.

Gradually, management battles and labor strikes disappeared. The commotion subsided. We were able to set new goals, aiming, in fact, to match the performance of Nissan's Sunderland plant in the U.K., one of the most -- if not the most -- productive plants in Europe. Ultimately, Renault was revived and its performance from 1997 to 1999 improved substantially. But the industry was changing around us. We needed a partner to help us break through.

This portion of My Personal History: Carlos Ghosn was originally posted on Nikkei Asian Review.

 

The birth of the Nissan partnership

My journey to Nissan Motor began with the "merger of equals" between Daimler-Benz and Chrysler. This historic partnership was announced in May 1998, and it challenged the entire automotive industry.


Renault Chairman Louis Schweitzer, right, shakes
hands with Nissan Motor President Yoshikazu
Hanawa at a press conference announcing the
partnership of the two automakers.

A few days after the announcement, Renault's executive committee held a meeting. Chairman Louis Schweitzer mentioned that Renault should also start thinking about potential mergers and partnerships. At the time, the company was showing some revenue growth, but it didn't compare to the growth of the new company formed by Daimler and Chrysler, which became as large as General Motors and Ford Motor virtually overnight. We understood the strategic challenge: Could Renault stay relevant among such mammoths?

The question then became not whether we should form a partnership, but with whom. We knew that automakers who delivered sales of fewer than 4 million units wouldn't be around much longer, so that disqualified any smaller candidates. On the other hand, the then-largest automakers, such as GM and Ford, were out of reach.

After extensive deliberations, we narrowed our list down to three candidates: Mitsubishi Motors, Nissan and a South Korean automaker. At the time, neither Mitsubishi nor the South Korean company seemed like the right fit (thought 17 years later, we entered a partnership with Mitsubishi Motors). Nissan, however, seemed like it could be a good match. It had the size and international brand recognition. And I had a good impression of the company.

Nissan had the incentive to partner. In the decade leading up to that point, Nissan had experienced only one profitable year. Its president at the time, Yoshikazu Hanawa, was publicly looking for a partner, though he initially had bigger companies than Renault in his sights, notably DaimlerChrysler. Renault was next in line to enter discussions with Nissan.

We didn't know what the others were offering. But unlike Daimler, which was negotiating with several other companies at the same time, Renault's interests were focused solely on Nissan. The negotiations went well, but it was clear to us that Renault wasn't Nissan's first choice. Our fate depended on whether Daimler was going to take Nissan's deal or not. But we kept at it, and in March 1999, Daimler's chairman, Jurgen Schrempp, left Tokyo and the Nissan deal behind.

A colleague informed me of Daimler's exit while we were attending the Geneva Motor Show. Now we were the only player in the game. I was not directly involved with the negotiations; Schweitzer had instructed me to provide assistance in case of an emergency, so I was offering support from the sidelines. But in November 1998, I was called in to pinch-hit: Schweitzer asked me to provide Nissan's executives with details about our 20 Billion Franc Cost-Reduction plan. I delivered a three-hour presentation to Hanawa-san and six other executives. It was apparently effective, because Hanawa-san later told me, "I was going to request that you be the one to come if we ever entered a partnership with Renault, Ghosn-san."

Because Renault is owned in part by the French government, it took some time to get the deal approved. Members of the government were supportive of it, but there was some hesitance after a failed Volvo deal from years earlier. Schweitzer assured Prime Minister Lionel Jospin that such failures wouldn't be repeated. The prime minister gave his approval.

When the deal was finalized, Schweitzer told me, "There's only one clear candidate to go to Nissan: you."Indeed, I had the necessary qualifications. I had experience working with different cultures and also with restructuring businesses. Schweitzer would later tell me that if I had refused, he would have terminated the Nissan partnership. But it didn't take much to convince me – this was the opportunity I had been working toward. While I had my heart set on going, the ultimate decision would be up to my family; we had just returned to France not two years before. Fortunately, they were game for a new adventure. We packed for Japan.

This portion of My Personal History: Carlos Ghosn was originally posted on Nikkei Asian Review.

 

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