27/09/2021

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restarting-nissan:-makoto-uchida-takes-corporate-japan’s-toughest-job

Restarting Nissan: Makoto Uchida takes corporate Japan’s toughest job

SINGAPORE/TOKYO — Nissan Motor’s Makoto Uchida may well have the unluckiest timing of any chief executive in the history of corporate Japan.

He assumed his role as President and CEO in December 2019 amid management turmoil at Nissan and its top shareholder, Renault, following the dramatic arrest of then-Chairman Carlos Ghosn for alleged financial misconduct.

Nissan was already in an “extremely harsh situation” when he took office, Uchida said during his inauguration speech. And things only became worse.

Due to a failed expansion strategy set by Ghosn, Nissan’s financial performance was falling apart before Uchida’s inauguration. Revenues were plummeting, and the company eventually announced its biggest loss in 20 years — 671 billion yen ($6.1 billion) — in the spring of 2020.

To top it off, shortly after Uchida took office a mysterious virus began to spread through the Chinese city of Wuhan, where Nissan has its Chinese joint venture headquarters. The pandemic hit sales and spawned a global shortage of computer chips, disrupting car production even more.

Uchida said Nissan was in an “extremely harsh situation” when he took office. (File photo by Ken Kobayashi)

“Uchida-san had a really difficult and complex situation when he took over. The management was very distracted, and they didn’t know what to do. Nissan lost time, and time is critical for the automotive industry,” said Daron Gifford, head of automotive consulting at Plante Moran in Michigan.

Twenty months have passed, and, amid a huge reorganization, there are glimmers of light at the end of the tunnel. In July, after two years during which the world’s second-largest automaker alliance (which includes Renault and Mitsubishi Motors) by unit sales fell to third-largest, the company said it’s likely to avoid a third consecutive year of net loss. It revised its full-year earnings projection through March 2022 upward from a net loss of 60 billion yen to a net profit of 60 billion yen, as its efforts to streamline its business under the massive “Nissan Next” restructuring plan, Uchida’s brainchild, has finally started to pay off.

He describes the current status of Nissan as “just about to be discharged after a severe illness,” in an interview with Nikkei Asia in August.

Uchida has prioritized tackling the excessive concentration of power in upper management that had flourished under Ghosn, who was charged in 2018 with underreporting his salary and aggravated breach of trust before fleeing Japan in 2019. The Brazilian-Lebanese former chairman had been widely hailed as a business superstar, one who led the revival of Nissan after arriving in 1999. But he was also seen as a flawed character who fostered a culture of elite corporate privilege.

One of Uchida’s first actions after taking office was to sell the top-of-the-range Gulfstream corporate jet that had become associated with the abuses of the Ghosn era. Ghosn would use it almost weekly to fly around the globe for business, and according to a claim by Nissan, to fly with his family for personal use. The plane landed nearly three years ago at Tokyo’s Haneda Airport, where Ghosn was arrested.

One of Uchida’s first moves was to sell the corporate jet that brought Ghosn to Haneda Airport for the last time in November 2018.   © Getty Images

Uchida even ordered the closing down of the executive dining room on the top floor of the Nissan headquarters and had it converted into office space. The chief executive has occasionally been spotted at the employee canteen on the 6th floor since then.

Uchida is oblique on the subject of his predecessor. “I have to express my feelings by behavior, to persuade everyone in the company that we are different [from the previous management],” he said. “We are doing everything we can.”

Despite early signs of recovery, Uchida remains far from optimistic as the chip shortage continues to wreak havoc with production and price hikes for raw materials — everything from steel, aluminum to rare-earth minerals for electric vehicle batteries — put pressure on costs.

“We’re certainly seeing the results of concentrated effort by the Nissan leadership, including Uchida-san,” Gifford said.

But other analysts observe Nissan’s would-be turnaround skeptically. Uchida has raised profits by cutting costs but has not yet put in place a way to make up the ground that Nissan has lost in sales. “Nissan has just dropped the fixed cost, but it hasn’t come to the full-fledged period to increase vehicle sales,” said Takaki Nakanishi, the CEO of Tokyo-based Nakanishi Research Institute. “Whether it can continue the growth is now being tested.”

Uchida said he acknowledges the criticism. “This year is important for us to rise and become even better in the future,” he told Nikkei.

“We have barely floated to the surface of the water after sinking deep in the ocean,” Uchida said.

Agonizing debut

As the CEO of Nissan, Uchida made an agonizing debut. At the February 2020 extraordinary shareholders meeting that appointed him to the board, investors vented anger in an unprecedented manner. At the time, Nissan’s share price was down nearly 50% from the time of Ghosn’s arrest in November 2018.

“Toyota not only has better quality cars, but their quality of management is much better than Nissan. … Who would want to buy a car from a company that is in management turmoil? How do you plan to recover from this turmoil?” said one investor. Another shouted, “Every time Ghosn is featured in the media, the stock keeps falling, how are you going to fulfill your responsibilities?”

The abuse went on for more than two hours. “It is all my responsibility … that the performance dropped significantly,” Uchida responded to irritated shareholders during the event. “I will be at the helm and visible to shareholders, and if you cannot see that, please fire me immediately.”

However, the business environment surrounding the troubled car company has kept deteriorating.

In April that year, the Japanese government declared its first state of emergency due to the pandemic in seven prefectures, including Kanagawa, where Nissan has its global headquarters.

While issuing work-from-home orders to thousands of Nissan employees, Uchida insisted on working from his 21st-floor office, vowing to shareholders that the company would announce a bold restructuring plan in May. “I was very nervous,” he recalled during an interview with Nikkei last September.

In May 2020, Uchida unveiled Nissan Next, a massive four-year restructuring plan that led to a net loss of 671 billion yen for the year ended in March 2020. The heavy loss was driven by costs associated with restructuring and impairments to fix Ghosn’s failed expansion strategy.

Uchida poses in a Nissan Ariya at the company’s headquarters in Kanagawa Prefecture. The chief expects Nissan to post a 5% operating profit by March 2024. (Photo by Ken Kobayashi)

Uchida committed to rationalizing Nissan’s overall business under the turnaround plan. He said the company would close and downsize plants worldwide, including the closure of plants in Indonesia and Spain, to reduce global production capacity by 20% by March 2024.

He also said the company would turn away from pushing excessively for volume growth but would rather increase its “quality of sales” by lowering incentives.

Along with these efforts, the Nissan chief said the company would aim to achieve an operating profit margin of over 5% by March 2024.

Uchida implicitly blamed his predecessor for the carmaker’s current troubles, citing an “excessively stretched target aiming for a global share of 8%,” which was set by Ghosn in 2011 as the former boss pointed Nissan toward achieving twin goals that also included an 8% operating margin by 2017.

At that time, Nissan’s annual sales volume was 4.18 million units, with a market share of 5.8%. To boost sales, Ghosn promised to make inroads in emerging markets and grab a stake in the U.S. and China, two of Nissan’s top markets.

On the final year of the midterm plan, Nissan’s global sales grew to 5.6 million units, a 35% increase since goal had been set in 2011, but its global share remained 6% and its operating margin hovered just below 7%, which includes the proportionate consolidation of results from Nissan’s joint venture in China.

Nissan missed both targets and ended up with excess capacity around the world.

Carlos Ghosn in Beirut, Lebanon, on June 2021. The former Nissan executive turned fugitive left the company with excess capacity all over the world.   © Reuters

When Hiroto Saikawa, Uchida’s predecessor, succeeded Ghosn as president and CEO of Nissan in 2017, with Ghosn maintaining the chairman position, the company was under strain.

Nissan had to sell cars at deep discounts and pile on incentives to match its excess capacity.

“It’s like becoming a drug addict,” said a former executive at the time. “Once you rely on incentives, you will be able to sell more cars, but the profitability keeps on deteriorating.”

“We changed this to quality over volume,” Uchida told Nikkei. “We revised it to a realistic volume target and made sure everyone in the company understood this, and this was the hardest thing to do in Nissan Next.”

Cost of restructuring

The restructuring, however, came with tremendous pain. Not only did Nissan suffer from two straight years of massive net losses, the burden also rippled through its suppliers. Nissan Next means a phaseout of volume-centered production and slackening demand for parts.

“The situation at Nissan has had an enormous impact on our company,” lamented Kuniyuki Watanabe, president of Kasai Kogyo, one of Nissan’s main suppliers manufacturing automotive interior parts. Watanabe was speaking via video at a full-year earnings presentation in May.

For the April-June quarter, Kasai Kogyo posted a net loss of 1.7 billion yen.

Revenues also fell last year at most Nissan dealerships, not only due to aging products but also because Nissan was pushing the wrong product segment at the wrong time, according to a Nissan dealer in Texas who asked not to be named.

However, the dealer said, “I like the future I see with Nissan and the strategy they are taking. We should build products based on demand and grow organically rather than building to capacity and using incentives and dealer volume bonus to push the product.”

In Nissan Next, Uchida declared that the carmaker would launch 12 new models within 18 months.

Uchida speaks via video link during the presentation of Nissan’s Ariya at the Beijing International Automotive Exhibition in 2020.   © Reuters

But, said Seiji Sugiura, a senior analyst at Tokai Tokyo Research Institute, “the problem is that Nissan has actually delayed introducing new models,” such as the flagship electric crossover SUV Ariya. It was put off from mid-2021 in Japan to this winter, mainly due to chip shortages.

“So far, not much has been done under Nissan Next other than massive cost cuts.”

The stock market also remains skeptical about Nissan’s turnaround. This year, the company’s shares are up only 1%, at 559 yen, but still well below their level of 688 yen at the time of Uchida’s inauguration.

Slashing Ghosn-style management

Regaining management’s trust within the company is another big challenge. Uchida himself blamed the corporate culture at Nissan for the abuses committed under Ghosn’s leadership. In witness testimony in a Tokyo District Court case in July, he said: “Concentration of power to the former chairman and the lack of transparency led to the misconduct.” Alongside Ghosn, who was alleged to have failed to fully report his compensation, the company has also been charged with publishing falsified securities reports in underreporting his compensation.

“Everyone in the management,” he further testified, “was gauging [Ghosn’s] expression and was afraid to state their own opinions.” Uchida said that Nissan executives, including himself, at the time were only “proposing things that the boss would accept.”

Ghosn, interviewed by Nikkei during his detention in Tokyo in January 2019, dismissed accusations that his reign at Nissan was a “dictatorship,” calling it a narrative that was created by rivals who wanted to remove him. He also denied prosecutors’ accusations that he underreported his compensation and committed aggravated breach of trust.

Uchida has done his best to turn the page, however. He told Nikkei that “the first thing I had to do was to change the corporate culture so that everyone could express their opinions freely.”

Makoto Uchida and Chief Operating Officer Ashwani Gupta during Uchida’s first news conference as CEO in 2019. The pair has been holding online chats with Nissan employees around the world two or three times a month. (Photo by Karina Nooka)

Since last spring, Uchida, alongside his deputy, Ashwani Gupta, chief operating officer of Nissan, has been hosting online town hall meetings and other events two to three times per month with Nissan employees worldwide. The aim is to show that the current management is different from the autocratic leader whose top-down style lasted decades.

“It’s not rare that the executive meetings these days take longer than originally planned,” one executive said. “This never happened before.”

But what is unavoidable for Uchida is being compared with the former boss. “Though he was coercive, Ghosn as a businessman deserves credit for his management skills as he would take strategic actions” to make sure Nissan’s performance would bounce back, Nakanishi said. “Unfortunately I don’t see that aspect from Uchida-San. … Honestly I don’t think Nissan Next is going well.”

Sugiura echoed this criticism: “We still don’t see Uchida’s character.”

“Never imagined” becoming a CEO

Uchida, 55, spent most of his primary school years in Cairo, Egypt, as his father worked for an airline company. The family later relocated to Kuala Lumpur, Malaysia, where Uchida attended an international school.

After graduating from Doshisha University in Kyoto, he joined Japanese trading house Nissho Iwai, now Sojitz, in 1991.

In 2003, when Uchida turned 37, he decided to move to Nissan. At that time, Uchida “felt the company was [becoming a] role model for Japanese corporations as it was dynamically expanding its global business with alliance partner Renault,” he recalled during an inauguration speech.

Nissan survived a possible bankruptcy with a capital injection from Renault in 1999. Under the management of Ghosn, whom the French automaker sent in to oversee the turnaround, the company achieved a miraculous recovery, and around the time Uchida joined, Nissan had switched to growth.

Uchida fit naturally into Nissan’s globally minded and diverse corporate culture. He climbed the corporate ladder, gaining experience at the Renault-Nissan Purchasing Organization, a single purchasing organization for both companies.

Later, Uchida was promoted to corporate vice president of Alliance Purchasing, and in April 2018, he moved to Wuhan as a president of Dongfeng Motor, a 50-50 joint venture between China’s state-owned Dongfeng Motor Group and Nissan.

It was seven months afterward that an unexpected event changed Uchida’s life — Ghosn’s arrest.

Then-CEO Saikawa took full control of Nissan in 2018, but he too stepped down, in September 2019, after an internal investigation into his compensation.

Around this time, the power struggle between Nissan and Renault had burst into the open. Nissan was hoping to use the Ghosn scandal as an opportunity to increase its influence, and Renault, which is Nissan’s top shareholder, was hoping to reinforce its control of the Japanese partner. Deciding who would run the company was at the center of the debate.

Nissan’s nomination committee — chaired by Masakazu Toyoda, a former senior official at the Ministry of Economy, Trade and Industry, and also counting Renault Chairman Jean-Dominique Senard as a member — eventually chose Uchida as CEO, Gupta as COO and Jun Seki as vice COO. Gupta has worked for Nissan and Renault, and Seki has been working for Nissan since 1986, serving in both the U.S. and China; he was seen as a CEO candidate even before Ghosn’s arrest.

Choosing Uchida as CEO was seen as a “balancing act,” according to sources within Nissan at the time. Seki was later headhunted and left Nissan to join Nidec, a Japanese motor maker investing heavily in drivetrains for EVs. He is now the company’s CEO.

The irony is that Uchida — who “never imagined” he would become chief executive of Nissan — says his main task is to scrap Ghosn’s management style, which he admired when he joined the company.

“As a CEO, you must always prioritize the interest of the company,” he told Nikkei.

Ghosn was “doing this when he first joined the company, but later changed and was blinded by self-interest,” Uchida said.

Uncertain future

Nissan may be finally on track to post an annual net profit, but its future remains uncertain.

While the company wasted years fixing past problems, many of its competitors have been tackling future challenges by aggressively forming new partnerships.

In 2019, Toyota Motor and Suzuki Motor announced they would form a capital partnership. Toyota has also invested in Mazda Motor and Subaru, taking the Japanese auto empire’s annual sales up to 16 million vehicles globally, at the time of the agreement.

Nissan’s other main competitor, Honda Motor, has strengthened its partnership with U.S. automaker General Motors. In April 2020, the companies announced plans to develop next-generation Honda EVs powered by GM batteries.

In Europe, Renault rival Groupe PSA and Fiat Chrysler Automobiles completed a merger and formed a new auto group, Stellantis, which became the fourth-largest auto group after the Renault-Nissan-Mitsubishi alliance at the time of the announcement.

In 2020, the Renault-Nissan-Mitsubishi alliance’s global sales declined to 7.79 million units, compared to 10.15 million a year earlier, according to research company MarkLines.

Many of these competitors are in much better financial shape than Nissan as well, not to mention further ahead in the transition to electric vehicles.

The introduction of the Leaf in 2010 made Nissan an EV market leader, but the automaker has since fallen behind.   © Reuters

“Nissan was definitely an EV market leader” when it pioneered the Leaf’s launch in 2010, said Nakanishi from Nakanishi Research Institute. “But the automaker fell into follower [mode] before we knew it. … Volkswagen unveiled an EV-dedicated platform in 2018, two years earlier than Nissan.”

Nissan is rushing to catch up as it prepares to launch the Ariya as a flagship EV.

In July it announced a joint 1 billion-pound ($1.4 billion) investment with Chinese battery company Envision AESC and the local city council to build a “giga factory” in Sunderland, U.K., where Nissan has its main vehicle plant for Europe.

AESC made another announcement in August, that it would build a plant in Japan’s Ibaraki Prefecture. Nissan COO Gupta joined the news conference, invited as a primary customer.

The Japanese automaker may be an outlier when it comes to battery production: While its rivals pump billions of dollars into the production of batteries — either manufacturing them in-house like Tesla or forming joint ventures with battery makers, such as Volkswagen and Swedish startup Northvolt — Nissan seems to be focusing on outsourcing battery production, after having sold its battery unit AESC to Envision in 2018.

Current AESC, in which Nissan owns 20%, is a pillar for Nissan’s battery procurement, but the carmaker also buys batteries from China’s Contemporary Amperex Technology, better known as CATL.

Lei Zhang, founder and CEO of battery maker Envision Group, speaks at Nissan’s Sunderland plant in Sunderland, Britain, on July 1. Automakers are expected to soon scramble for batteries like they are struggling for chips today.   © Reuters

“We will definitely develop a strategic relationship with Nissan,” Lei Zhang, the chief executive of Envision Group and the executive chairman of Envision AESC Group, told Nikkei in an interview recently. However, Zhang insisted that he is “open to partnerships,” revealing that a few other global automakers are approaching the battery company.

Some analysts are skeptical whether Nissan can secure enough batteries when demand rises exponentially — just like how carmakers are now scrambling to secure chip supplies.

“Nissan changed its battery strategy [to outsourcing] as the company had been unable to sell out the Leaf EV,” Sugiura said. “Cumulative Leaf sales exceeded 500,000 vehicles, but last year Tesla nearly sold that amount in a single year. The Ariya needs to prove Nissan’s competitiveness.”

Back to square one

Even if Uchida manages to steer through a rough transition to EVs, the most fundamental and sensitive problem possessing the French-Japanese alliance for two decades remains — the unequal cross-shareholdings structure between Renault and Nissan.

The French government owns about 15% of Renault, which in turn controls 43.4% of Nissan. Nissan holds a 15% nonvoting stake in its French partner. And Paris has been demanding the relations between the French-Japanese alliance be “irreversible.”

In an interview with Nikkei in the Tokyo Detention House in January 2019, Ghosn admitted that “there was a plan to integrate” Renault, Nissan and Mitsubishi Motors.

In April 2019, Renault proposed such a merger to Nissan, which Nissan rejected immediately, claiming “It would jeopardize the management independence” of the company, according to a senior executive at the time.

As both companies’ financial performances have crumbled, the discussion has been put off indefinitely.

In May 2020, Renault, Nissan, and Mitsubishi jointly announced plans to deepen their alliance and cut investment costs. During the news conference, Senard stated that “we don’t need a merger to be efficient,” an apparent alteration of the company’s pro-merger stance.

Uchida has also been talking up the importance of the alliance, openly saying “no discussions are going on regarding changes in the capital structure.”

On July 24, Uchida and other business leaders in Japan greeted French President Emmanuel Macron at the French Embassy in Tokyo. Macron was in the Japanese capital for the Olympics. According to a Nissan source, Uchida reaffirmed to Macron that the relationship of the French-Japanese Alliance is well.

However, one senior Nissan executive describes the automakers’ current relationship as a “cease-fire.”

“Both Nissan and Renault’s imminent task is to turn around their performance,” the source said. “I wouldn’t be surprised if Renault rehashes the merger argument once Nissan is in good shape. At some point, it’ll be back to square one. This problem cannot be kept unsolved.”

This view echoes what some analysts are forecasting.

“If the performance of both companies recovers, it will probably develop into a leadership battle again,” Nakanishi said. “This is a paradox. And this fire has not gone out, or rather it is the biggest one left by Ghosn.”

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