Losing the Business without Losing the Company
By Carlos Ghosn
It was in March of 1999 that I got the call from Louis Schweitzer, CEO of Renault, asking me
if I would be willing to go to Tokyo to lead a turnaround at Nissan, the struggling Japanese
motor giant. The two companies had just agreed to a major strategic alliance in which
Renault would assume $5.4 billion of Nissan’s debt in return for a 36.6% equity stake in the
Japanese company. The combined company would be the world’s fourth largest carmaker.
On paper, the deal made sense for both sides: Nissan’s strength in North America filled an
important gap for Renault, while Renault’s cash reduced Nissan’s mountain of debt. The
capabilities of the two companies were also complementary: Renault was known for
innovative design and Nissan for the quality of its engineering.
The alliance’s success, though, depended on turning Nissan into a profitable and growing
business, which was what Schweitzer was calling on me to do. I suppose I was a natural
candidate for the job, as I had just finished contributing to the turnaround initiative at Renault
in the aftermath of its failed merger with Volvo. We had had to make some controversial
decisions about European plant closures, difficult for a French company with a tradition of
state control. I had been in challenging situations before then as well. In the 1980s, as COO
of Michelin’s Brazilian subsidiary, I had to contend with runaway inflation rates. In 1991, as
the unit CEO of Michelin North America, I faced the task of putting together a merger with
Uniroyal Goodrich, the U.S. tire company, just as the market went into a recession.
But Nissan was something else entirely. It had been struggling to turn a profit for eight years.
Its margins were notoriously low; specialists estimated that Nissan gave away $1,000 for
every car it sold in the United States due to the lack of brand power. Purchasing costs, I was
soon to discover, were 15% to 25% higher at Nissan than at Renault. Further adding to the
cost burden was a plant capacity far in excess of the company’s needs: The Japanese factories
alone could produce almost a million more cars a year than the company sold. And the
company’s debts, even after the Renault investment, amounted to more than $11 billion (for
the convenience of our readers, the approximate exchange rate at the end of September 2001
of 120 yen to the U.S. dollar is used throughout). This was, quite literally, a do-or-die
situation: Either we’d turn the business around or Nissan would cease to exist.
It was also an extremely delicate situation. In corporate turnarounds, particularly those related
to mergers or alliances, success is not simply a matter of making fundamental changes to a
company’s organization and operations. You also have to protect the company’s identity and
the self-esteem of its people. Those two goals—making changes and safeguarding identity—
can easily come into conflict; pursuing them both entails a difficult and sometimes precarious
balancing act. That was particularly true in this case. I was, after all, an outsider—nonNissan, non-Japanese—and was initially met with skepticism by the company’s managers
and employees. I knew that if I tried to dictate changes from above, the effort would backfire,
undermining morale and productivity. But if I was too passive, the company would simply
continue its downward spiral.
Answer ONE question from below through your presentation:
- Draw on any one of the issues identified in the case (culture, leadership, learning, and
strategy) and explain in detail the links to performance. Draw on any of the lectures discussed
in class. - Or, Strategy is a multifaceted puzzle, drawing on the case explain any 3 of the interlinked
issues that played a role in shaping the successful future of the Nissan Renault merger.
Sample Solution
