The $10 billion man

Face value
Feb 24th 2005
From The Economist print edition

Having turned round Nissan, Carlos Ghosn is about to run Renault as well

IT IS said that he could add $10 billion to the market value of Ford or General Motors with a stroke of his pen. But Carlos Ghosn is not about to sign up as chief executive of either firm. Instead, in May, he will become the boss of Renault, France's second-largest carmaker, while continuing to head Nissan, Japan's number two car firm. To ease the transition, this week he named Toshiyuki Shiga as Nissan's chief operating officer.

Although Renault and Nissan have cross-shareholdings and a deep alliance, their relationship deliberately stops well short of outright merger. Perhaps that is why it has been so successful, avoiding the integration pain that has marred, for instance, Daimler-Benz's takeover of Chrysler. In his book, “Shift: Inside Nissan's Historic Revival”, published in English last month, Mr Ghosn says that the strength of the alliance “can be found, on the one hand, in its respect for the identities of the two companies, and on the other, in the necessity of developing synergies.”
Certainly the benefit has flowed both ways since the Franco-Japanese deal was done in 1999.

First, Renault rescued Nissan, buying a stake (now 44%) and installing its Mr Ghosn as chief operating officer (and later chief executive). Mr Ghosn turned huge losses into a $7 billion profit and wiped out debts of about $23 billion. This has helped to prop up Renault's sagging profits in recent years. Nissan's latest operating profit margin is about 11%, making it the world's most profitable volume carmaker. Mr Ghosn's reputation soared as he set, then met, ambitious targets.

Now he is to be the first executive to try to run two big carmakers at once. No one has ever revived a carmaker as spectacularly as he has—much less attempted an encore. But then the industry has never seen anyone like the larger-than-life Mr Ghosn. Born in Brazil to a Lebanese immigrant family, he went to a French school in Lebanon before studying engineering at the Ecole Polytechnique in Paris. Few Frenchmen speak four European languages and get by in Japanese as well. He first made his name by turning around Michelin's business in Brazil, then America, before being hired by Renault. He was soon nicknamed “le cost killer” as he revived Renault in the mid-1990s.

In 1999, when Louis Schweitzer—Renault's now soon-to-depart chief executive—decided to link up with Nissan, he knew that Mr Ghosn, already his intended successor at Renault, was the man to put in charge of rescuing the Japanese firm. Mr Ghosn's “Nissan Revival Plan” involved shedding 20,000 jobs and closing five factories, a drastic move in conservative Japan. He also abandoned the cosy keiretsu family-of-firms system, a pillar of Japanese industry. Nissan's shares in keiretsu suppliers were sold to pay off debt. He slimmed down Nissan's product range, but accelerated development of new models.

A second plan, “Nissan 180”, launched in 2002, stands for reversing the company's decline by adding 1m in sales by October this year, achieving an operating margin of 8% and eliminating its debt. With sales in North America topping 1m, Nissan is on course to hit the last remaining target, before a new plan is unveiled in April. Then it will be up to Mr Shiga to hit those targets, under his boss's watchful eye. If he lives up to expectations, Mr Shiga could be in line to succeed Mr Ghosn as chief executive at Nissan within a few years.

Mr Ghosn attributes his success to the way that he works through cross-functional teams. He thinks that when people from different backgrounds work together under pressure they come up with more creative solutions. He proved the value of this technique when he successfully merged Michelin's American tyre business with another firm in the teeth of a recession. His personal style is brisk and direct, but not without warmth.

My other car firm's a Renault

And yet why risk everything by adding to his workload? Both Renault and Nissan have concluded that they have no choice but to share a boss for the next few years. To put a Japanese executive into Mr Ghosn's chief-executive shoes immediately might have signalled a return to the old days of consensual dithering and blind respect for seniority. To put a Frenchman in would have seemed too aggressive. Mr Ghosn's diverse international background made him more acceptable in Japan. He was not seen as an invading Frenchman. Indeed Ghosn-san has become a sort of national hero in his adopted country.

Mr Ghosn will devote the first few months in his new role to “re-discovering Renault”, mostly in Paris. Then, he says, he will spend 40% of his time in Paris, 35% in Tokyo, 15% in America and the other 10% in places such as China, Thailand, Brazil and Turkey. Needless to say, he has the use of a long-range executive jet. Over time, Mr Ghosn expects the executive teams of both Renault and Nissan to become more international.

America could prove his biggest challenge. First, he has to manage Nissan's headlong expansion there: the firm stumbled last year, with quality problems in vehicles made by inexperienced workers at a new factory in Canton, Mississippi. Mr Ghosn reacted by taking direct charge of the American business, which he will continue to run hands-on for another year, in addition to his many wider responsibilities. He drafted in 200 engineers from Japan to sort out the Canton factory and improve quality. It was a reminder that not everyone can keep up with Mr Ghosn's rapid pace.

Mr Ghosn's predecessor at Renault always dreamed that the alliance with Nissan would help the French brand to re-enter the huge American market, where some foreign car brands make huge profits. But Mr Ghosn seems more cautious. He thinks America poses huge risks. Renault has failed twice there before. But if he can make the transformational European-Japanese alliance a two-pronged success in America, Mr Ghosn will truly deserve to be called the $10 billion man.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.