Blueprint for a comeback
By Terril Yue Jones
Forbes Magazine
April 19, 1999
ACCEPTED WISDOM on Renaults purchase, for $5.4 billion, of a 36.8% stake in Nissan: It risks becoming money down a rat hole. DaimlerChrysler and Ford took a look at the deficit-ridden Japanese outfit and quickly shifted into reverse. Nissans debt, after all, is estimated at $22 billion to $37 billion. If it were an American company, Nissan would be in Chapter 11.
If the accepted wisdom is sound, the Nissan ADRs that trade here over-the-counter at $7.50 or so are overpriced. But maybe the consensus is just wrong.
A case for a Nissan rebound can be made right in the American market.
The brand has been doing badly here, a fact that has contributed greatly to the companys string of six losses in the past seven years (including an expected loss for fiscal 1998, which ended Mar. 31, 1999). But Nissan has responded correctly: It will design more cars specifically for Americans. With the American market growing, we've come to the conviction that there is no way for us to survive but to fight it out in the U.S., says Yukio Kitahora, senior vice president of Nissan North America.
North America accounts for a third of Nissans $49.4 billion (fiscal 1998 estimate) in world revenues. Since the mid-1980s Nissan sales in the U.S. have dropped 25% to 621,500 vehicles.
What did Nissan do wrong? Its mainstay family sedan, the Maxima, lost market share to the cheaper and better made Toyota Camry and Honda Accord. Its Pathfinder sport utility vehicle was too muted to appeal to Americans. Then a few years ago it dropped its Z sports car, which was too expensive at $40,000 but at least lent a certain glamour to the Nissan name.
The marketing muscle for these disappointing designs was the Mr. K and his dog advertising campaign -- fun to watch, but a dud at getting consumers into showrooms.
Nissan was no better operationally. For years it built as many cars as its Smyrna, Tenn. factory could churn out, not what the market could bear. Huge losses from rebates and cheap leases followed. You ask people who Nissan is, and the most common thing is, You can get great deals on Nissans, says Nissan North America Vice President Michael Seergy. Thats not good.
So now the U.S. push is on. Nissan has significantly reduced its dependency on leases, and cut inventory (factory and dealer lots combined) from 150 days of sales to 90 days. To cut costs, it plans to reduce the number of car platforms used to build vehicles from 25 to 5 within the next 6 years.
Starting in May, consumers will see a blitz of new vehicles positioned for the U.S. market -- and not Japan's. Americans made most of the design decisions this time in Nissans San Diego design center.
The new $21,000 to $26,000 Maxima is pricier than the more staid Camry and Accord, but considerably more powerful with a 222hp engine.
There is still room in the American market for a high-performance but modestly priced sedan.
In the hot sports utility market, Nissan is going after the younger, outdoorsy type with the more downscale Xterra; fortunately, American designers prevailed when the Japanese proposed leaving off the Xterras fourth door. The $17,000 starting price is well below that of competitors, like the Honda CR-V, yet will produce a healthy gross profit margin.
Nissan will be first to market with a four-door compact pickup truck, ahead of Dodge and Ford. The facade of the Pathfinder SUV has been beefed up for American tastes. For Nissans Infiniti luxury line -- holding steady at around 63,000 cars last year -- a new I30 sedan with a much more powerful engine is coming this summer. And Nissan is likely to introduce a new Infiniti SUV or luxury sports car.
Will the Z return? Almost certainly; the flagship image car is in the works in San Diego, probably around $20,000.
America put Nissan into a hole, and can take it out.
