The Nissan Revival Plan

October 18,1999,Tokyo, Japan - Nissan Motor Company, Ltd. today announced a far reaching recovery plan that is designed to achieve lasting and profitable growth for Nissan worldwide. combines initiatives to grow Nissan's business and market presence and reduce costs by 1 trillion Yen and net debt from 1.4 trillion Yen to less than 700 billion Yen by FY2002.

" While cost cutting will be the most dramatic and visible part of the plan, we cannot save our way to success," said Carlos Ghosn, Nissan's chief operating officer, emphasizing the importance of product development and sales growth.

Ghosn said investing in new products is vital to restore Nissan's brand power and increase worldwide market share and profitability. He outlined Nissan's new model plans. In the U.S., Nissan will expand its model range by 2002, adding four new models including a Z sports car. The first shared Alliance platform will be launched as the Micra and Cube in Japan in 2002. Nissan's European car range will be completely replaced between now and 2003 and a small 4x4 model will be launched. In addition, Nissan will immediately capitalize on new business opportunities through its alliance with Renault.

" The combination of growth and cost reduction will allow Nissan to achieve a consolidated operating profit of 4.5 percent of sales by FY2002," said Ghosn, noting that the first goal of the Revival Plan is to return Nissan to profitability for FY2000.

The 1 trillion Yen cost reduction will be achieved in three major areas: global purchasing; manufacturing; and sales, general and administrative costs. Three assembly plants in Japan will be closed by March 2001 and two powertrain operations will be closed by March 2002. Worldwide headcount will be reduced by 21,000 and key functions will be globalized. A 200 billion Yen provision will be made in the current fiscal year to absorb the costs of the restructuring program.

Reducing purchasing costs is a key component of the Plan's overall success. Purchasing policy will be centralized and executed globally in contrast to the current regional/country-by-country basis. Purchasing costs, which represent 60 percent of the company's total costs, will be reduced by 20 percent over three years and the number of parts and materials suppliers will be 600 by 2002 compared with 1145 groups currently. The significantly increased economies of scales for parts and materials will benefit Nissan's "partnership suppliers" and deliver substantial cost savings for the company.

A significant part of the overall cost savings will come from how Nissan works with its suppliers. Under a program called "3,3,3"* Nissan purchasing and engineering will work more closely with suppliers, sharing worldwide best practice and performance in technology, quality, cost and delivery. Nissan will challenge its own specifications and standards while protecting its established reputation for quality and reliability. The Revival Plan outlines the company's target for achieving manufacturing efficiency and global cost competitiveness. Nissan's manufacturing plants, including in Japan, achieve world class productivity, however the company has become burdened by excess production capacity and high fixed costs.
Nissan will reduce capacity in Japan and simplify its production scheme to further develop a lean and flexible manufacturing base. Consequently, Nissan will implement the following plant closures: car assembly plants: Murayama, Shatai Kyoto and Aichi Kikai Minato; powertrain operations: Kurihama Plant and Kyushu Engine Shop.

In Japan, current production of 1.28 million units annually represents 53 percent capacity utilization. Under the Revival Plan, capacity in Japan will be reduced by 30 percent to 1.65 million vehicles, raising the utilization rate to 82 percent by FY 2002.

" The plant closures, however painful, will guarantee the future of the remaining plants by allowing them to be industry leaders, both in terms of productivity and cost effectiveness," Ghosn said, adding Nissan will take advantage of the reduction in the number of platforms to further simplify the manufacturing scheme.

Nissan's current complex manufacturing structure in Japan includes producing 24 platforms at seven assembly plants. Under the new plan, in 2002 Nissan will have 15 platforms divided between four plants and in 2004 will have 12 platforms divided between four plants. Nissan will further reduce costs by rationalizing logistics.

Sales, general and administrative costs are to be reduced 20 percent by cutting incentives, rationalizing worldwide advertising and reducing bureaucracy; the company will be changed from the current multi-regional organization into a truly global company. The Japanese dealer organization will be streamlined including closing 10 percent of the retail outlets; in the United States, the regional organization will be streamlined.** Financial operations worldwide will be centralized to develop global financial controls and risk management. Nissan, which has share holdings in 1,394 companies, will realize assets by selling-off its interests on the basis of a cost/benefit analysis. In addition, Nissan will dispose of land, securities and non-core assets and will adopt an inventory reduction program to decrease by 30 percent its inventory-to-sales level by 2002.

" Our objective is to free resources from non-strategic, non-core assets and invest more in our core business -- cars -- while at the same time significantly reducing our debt," said Ghosn. "The aim is to grow the company, not shrink it."

Research and Development will be re-organized to give regions more responsibility for their entire product line while creating a globally integrated organization. While R&D will focus on enhancing core technologies, specific R&D resources will be dedicated to cost reduction activities with suppliers. Nissan will increasingly rely upon suppliers to reduce development time and costs and will closely integrate suppliers into the design and development process. The company wants to reduce the gap between a model's debut in Japan and its launch in overseas markets. Nissan will look to its Alliance partner Renault to further share research, advanced engineering projects and common platforms; the Clio/Twingo/March/Micra/Cube models will be the first to share a common platform." All of these actions will allow us to increase our technological strength and boost research and development output, while minimizing the amount of additional resources necessary," said Ghosn. "The objective here is not to merge Renault and Nissan R&D organizations, but to make a precise and swift division of the tasks and projects, avoid duplication and support early adoption of common standards and common suppliers."

Highlighting the growing links between the Alliance partners, the companies will establish in Europe common hubs and common back offices; and in a select number of European countries, common operational entities. In South America, Nissan will increase its presence using the existing Renault organization and infrastructure. Renault Credit International will establish a Mexican sales finance company to support Nissan's sales and profit development. The 21,000 worldwide headcount reduction will be achieved through natural attrition, an increase in part-time employment, spin-off of non-core businesses, and early retirement. In Japan, a performance-based career advancement program will be established. Worldwide, a performance-oriented compensation system for management will be implemented in 2000. Bonuses and stock options will be incentives to boost Nissan's profitability and growth. An international team of 200 Nissan managers developed the Revival Plan. "What this global team has done is fully understand the root causes of our current problems and develop solutions that allow Nissan to act decisively," said Ghosn. Yoshikazu Hanawa warmly welcomed the Revival Plan. He said, "This Plan marks a new era for our proud company and we will implement it with indomitable resolve." In announcing the Revival Plan, Ghosn underlined Nissan's commitment to become globally competitive, achieving growing market share and profits based on a bold brand and desirable products." This plan shows that not only can Nissan recover and become a strong company again, but, walk tall with Renault as the world's fourth largest car maker," Ghosn said, "We must be bold to be strong again."

Editor's note:
*"3,3,3" program means: 3 partners (suppliers, purchasing and engineering), over 3 years, working in 3 regions( Asia, Americas, Europe/Middle East/Africa)

** Detailed plans to be announced by Nissan North America by 1 December 1999

Financial Year FY refers to the year starting in April of the stated of the year and ending in March of the following year -for instance FY 99 commenced April 1999 and ends March 2000

Exchange rates :
110 Yen = $1.00
114.93 Yen = 1 euro
176.15 Yen = 1 Pound

Source : Nissan