A Bridge Too Far

Nissan Motor Company. Ld, (say it "knee-sahn") was established in 1933, but began in North America by selling "Datsun" cars.

I paid $300 for a used 1976 Datsun B210 in 1981, it had around 150k miles. The little car had a blown head gasket and, in the cold air of Wisconsin, was blowing steam out the tail pipe.

In less than three hours, I pulled the head, slapped a new gasket on, and took off for Texas. I ran 34 thousand more miles on that 42 mpg rice burner without investing another dime for repairs.

Try doing that with anything out of Detroit in the 1970's.

In the early 1980s, after success during the fuel-short decade of the 1970's, the Datsun name was changed to Nissan.

In the late 1980s Nissan launched a seperate luxury division, Infiniti.

By the late 1990s, Nissan had lost its way. The Japanese business-mafia "Keiretsu" culture often involved captive supplier relationships (vertical integration).

The insistence of Japanese management that these supply chain deals be maintained meant a huge cash drain for Nissan. Nissan slid into $22 billion in debt in the late 1990's, lost billions, and was rescued by a Renault cash infusion for equity stake in 1999.

The French Connection

When I wrote about Mercedes' mistake (taking over Chrysler) and the ensuing culture/brand identity clash, the tagline was

"When Helmut met Sally."

For the marriage of Renault and Nissan, let's try

"When Francois met Natsuki."

He said: Parlez-vous Francais?

She said: 日産自動車株式会社.

He said: Tres bien, vous est tres beau, je t'aim beaucoup.

And they got married and lived happily ever after: the Renault-Nissan Alliance.

Uh-huh.

Now Toyota and Honda are the last two "single" Japanese automakers.

The Renault-Nissan Alliance is a unique arrangement of two global companies joined by Keiretsu-style cross-shareholding.

Brazil-born Carlos Ghosn (rhymes with zone) took over as CEO and implemented the "Nissan Revival Plan." This plan called for extreme cost cutting, especially in the supply chain. Mr. Ghosn ended up managing 2 automakers on different sides of the world.

The resulting spectacular corporate turnaround raised President Ghosn to hero status ("Ghosn-san") in Japan and universal acclaim in the western business community.

2003 was a banner year for Nissan, with new products and a soaring stock price.

Nissan was putting some daylight between itself and the tier 3 Japanese brands (Mazda, Mitsubishi, Suzuki, and Subaru). Tier 1 players, Toyota and Honda, seemed within reach.

But by 2006, merger negotiations involving General Motors at the behest of billionaire investor "Captain" Kirk Kerkorian may have distracted globe trotting management. The brilliant turnaround began to unravel a bit.

Lost in Translation

Nissan had maintained its 2003 advance to 7.2% US market share, chugging along with modest 1% year over year sales gains.

In the Japanese-French alliance's 7th year, 2006, falling sales in both the US and Japan markets brought an end to the accolades.

Nissan was forced to cut production at two Japanese assembly plants.

The company came in sixth in U.S. sales, with market share around 6%, down from 6.3% in 2005.

Renault sales and profits fell, too.

Share prices (Nasdaq: NSANY) have been flat since the 2003 run up and shareholder concerns have surfaced.

But keep this in perspective, this is not a cash bleeding Detroit dinosaur.

Despite falling sales, Nissan's 2006 net profit is still around $US4.51 billion.

In the US market, Nissans are pressured from above by Toyota and Honda. From below, Hyundai has made gains and has begun to cast eyes at the Infinity luxury marque.

But this is a global alliance, its synergies are targeted at world markets, not just the US. On a global scale, carefully executed badge engineering, and platform/component sharing may yet pay off.

One Trick Pony: Cuts Hurt Quality

The company has produced some engineering based successes.

The Nissan VQ engine is the only engine that's made Ward's 10 Best Engines list every year since 1995.

It seems that despite Mr. Ghosn's financial abilities, operational mistakes began to multiply. This is so much like the financial people running GM into the ground with relentless cost cutting.

Keep your eyes on the ball, fellas. To succeed in today's competitive car market, it takes great cars, not just good ones.

And it takes engineering to build great cars. Financial people, who are not "car-guys", will cut indiscriminately, destroying a company.

As sales fell, the company announced it was moving its North American headquarters from California to Nashville.

More than half of the white-collar workforce declined to move.

Letting key executive, design, and engineering talent slip away is not my idea of "genius." Maybe the company figures they can recruit the southbound mass exodus from Ford at lower salaries.

By pressuring suppliers hard on price, they got reduced quality.

And, like other companies attempting to transplant Japanese manufacturing operations to the low wage, non-union US south, Nissan has encountered difficulty.

Nissan's controversial decision to build a new plant in Mississippi and start production of four all-new vehicles with a low-wage rookie workforce tarnished Mr. Ghosn's halo.

The new $1.4 billion factory, in Canton, Mississippi, ramped up production in May 2003, assembling five products; Titan, Quest minivan, Altima, and platform mates Armada and Infiniti QX56.

By attempting to reach high line-speed quotas and instituting very poor labor policies, Nissan repeated mistakes made years ago by the Detroit big 3.

Guess what happened next.

In the 2004 J.D. Power & Associates “Initial Quality Survey”, Nissan fell from 6th place to 11th, with 147 problems per 100 vehicles, compared with an average of 119 problems per 100 vehicles.

Consumer Reports refused to recommend most of the products built in Canton, citing poor reliability.

Altima sedan, which began production in the summer of 2004, was less affected. Many Altimas are built at the Smyrna, Tennessee, factory, where the labor situation is different.

In the J.D. Power and Associates 2006 Customer Retention Study, Nissans ranked 12th out of 37 makes. An above industry average 48.8% of those surveyed returned to purchase another vehicle.

The Comeback Kid

Nissan has worked hard to shake out reliability problems, and the company says its internal surveys show results.

The 2006 J.D. Power Initial Quality Survey, using revised methodology, awards the Nissan nameplate 26 out of 40 stars. This is a good score.

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