Nissan-Renault alliance faces down a few challenges
Nancy DuVergne Smith CTPID Communications Director
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MIT News | Massachusetts Institute of Technology
The Nissan Motor Co. is facing challenges like the rest of the auto industry.

Environmentally friendly cars cost more to build than customers are willing to pay. Consumers hate the experience of buying cars. And only a few companies--notably Toyota, Honda and Nissan--are profitable, a lack of equity which will eventually destabilize the industry, according to Carlos Ghosn, president and CEO of Nissan, who addressed an MIT audience Nov. 10.

Ghosn shared these challenges, as well as some solutions he used to transform Nissan into a profitable car-maker, at the Industry Leaders in Technology and Management lecture, entitled "A New Model in the Global Automotive Industry?" The lecture was co-sponsored by the MIT Office of Corporate Relations and the Center for Technology, Policy and Industrial Relations.

When Ghosn went from executive vice president of the Renault Group to CEO of Nissan CEO in 1999, he figured he had a 50/50 chance of reviving the chronically unprofitable automaker. "In the 1990s, Nissan was a company on life support with $20 billion in debt. Renault decided to form an alliance, not a merger. We created something unique in the auto industry and in industry overall," said Ghosn.

His team put together a turnaround plan in three months based on input from young Nissan workers. The plan broke most of the rules of Japanese industry--they closed five plants, reduced headcount by 20,000, and dismantled traditional concepts like keiretsu, which allows a group of companies to hold equity in one another. "We are not zealots and don't pretend to be visionaries. We push synergy only if we can gain measurable improvements," explained Ghosn.

But the alliance has provided advantages to both companies. They can move into new markets faster and with lower costs because they don't have to build new plants. (Renault builds cars in Nissan's Mexico plants and Nissan uses Renault's Brazil plant and distribution networks.) The companies are collaborating on building common platforms, components and engines, and each company leads engine design in their area of expertise--Renault in diesel and Nissan in gasoline. And they have increased purchasing power because they buy components for six million cars, not three.

The alliance has so far boosted the profitability, market capitalization and sales in 192 countries for both partners.

As Ghosn anticipates adding CEO and president of Renault to his titles in 2005, he says he'll rely on the strengths of two distinct work forces: French innovation in concept stages and Japanese dedication to process in manufacturing.