A Revival at Nissan Shows There's Hope for Japan Inc.
                    November 16, 2000

                    Staff Reporters of THE WALL STREET JOURNAL

                    Carlos Ghosn, president of Japan's Nissan Motor Co., became a hero
                    last Thursday in Mississippi, when he stood in the rotunda of the Capitol
                    and announced that Nissan would spend $930 million to build a huge
                    auto factory in the largely rural state.

                    But the most remarkable news wasn't that a car plant could be one of
                    the largest industrial developments ever in Mississippi. It was that Mr.
                    Ghosn and Nissan are in position to launch such a project at all.

                                      In October 1999, Mr. Ghosn faced television
                                      cameras and declared that Nissan, once an icon of
                                      Japan's postwar industrial renaissance, was in "bad
                                      shape" and announced the most drastic
                                      restructuring any big Japanese company had ever
                                      seen. Mr. Ghosn, a native of Brazil who had built a
                                      reputation as a turnaround artist with French
                                      corporate giants Michelin SA and Renault SA,
                                      declared that Nissan's goal was to return to a profit
                                      by March 2001. Many in the industry wondered if he
                                      would have to make good on his vow to step down
                                      if the effort failed.

                                      But Mr. Ghosn and Nissan so far have confounded
                    the skeptics. Earlier this month, Nissan reported a profit of 170.2 billion
                    yen, or $1.59 billion, its best six-month performance in a decade and a
                    result that left analysts' projections in the dust. Mr. Ghosn says his
                    plans to cut costs and pay down debt are moving so much faster than
                    expected that Nissan now predicts that net income for the fiscal year
                    ending March 31, 2001, will reach 250 billion yen -- more than four
                    times Nissan's previous prediction made in May.

                    Nissan now is pushing ahead with an ambitious product blitz that will
                    include not just the big pickup, sport-utility vehicle and minivan planned
                    for the new Canton, Miss., factory in 2003, but also the reincarnation of
                    the celebrated "Z car," the sporty coupe that inspired a cult following in
                    the U.S. during the 1970s and 1980s.

                    Mr. Ghosn's surprising success has made him a celebrity in Japan and in
                    global business circles. Using his outsider status, he is upending Japan
                    Inc.'s traditional way of doing business, carrying out mass job cuts,
                    dismantling Nissan's inefficient keiretsu of affiliated suppliers and closing
                    surplus factories in Japan. By doing so, he has shown that it is possible
                    to bring market capitalism to bear on Japan's old-line, quasisocialist
                    corporate culture without catastrophic results.

                    Mr. Ghosn, who speaks several languages but little Japanese, has even
                    become a pop icon in Japan. Now, Mr. Ghosn's assistants say, Japanese
                    businessmen inquire about where Mr. Ghosn got his glasses, where he
                    gets his hair cut, and where he gets his suits made. His determination
                    to stay on message has put two new English words in the lexicon of
                    Nissan executives and suppliers: speed and commitment.

                    Even rivals are paying respect. DaimlerChrysler AG Chief Executive
                    Juergen Schrempp recently praised Mr. Ghosn as an "icebreaker" in
                    Japanese business, and said he planned to follow Renault's example by
                    dispatching a DaimlerChrysler executive to shape up the
                    German-American auto maker's new Japanese partner, Mitsubishi
                    Motors Corp.

                    As Mr. Ghosn collects accolades, Nissan still has a difficult ride ahead.
                    Once a strong player in the Japanese car market, Nissan went into
                    decline in the 1980s and 1990s after missteps overseas. In the U.S.,
                    the company's abrupt dropping of the Datsun brand name and a string
                    of bland products allowed Toyota Motor Corp. and Honda Motor Co. to
                    become the dominant Japanese names in the market.

                    By 1999, the company was so weak financially that Renault was able to
                    buy a 36.8% stake for the relatively cheap price of $5.4 billion. As part
                    of that deal, Renault Chairman Louis Schweitzer installed his then-No. 2,
                    Mr. Ghosn, as chief operating officer, taking over operational duties
                    from Nissan's current chairman, Yoshikazu Hanawa.

                    Now, Nissan is playing catch-up in some key markets. Its entry into the
                    U.S. large pickup and SUV market, for instance, will come well behind
                    Toyota and the U.S. Big Three of General Motors Corp., Ford Motor Co.
                    and DaimlerChrysler's Chrysler Group. Nissan's current products, while
                    well-engineered and increasingly distinctive, command on average
                    $1,000 less than they would if they wore a Honda badge, Mr. Ghosn
                    and other company executives say.

                    Mr. Ghosn (rhymes with "stone") says in a lengthy interview that the
                    challenge now for Nissan isn't just cost-cutting in the short term, or
                    boosting sales long term. It's doing both at the same time. He likens
                    Nissan's situation to driving a Formula One race car.

                    "A Formula One pilot, he's constantly using the accelerator and the
                    brakes. He uses them at the same time ... to go to the max," he says.
                    Likewise, Nissan must now cut costs, sell assets and reduce debts even
                    as it builds new factories and invests in new vehicles. "We are at the
                    same time accelerating and braking," he says.

                    So even though Nissan managers in Japan aren't done carrying out
                    plans to close five factories and cut 21,000 jobs worldwide, Mr. Ghosn
                    is wagering nearly $2 billion on a massive expansion of production
                    capacity and product offerings in North America. Those plants are part
                    of a new product blitz that will cost Nissan a projected 310 billion yen a
                    year in capital spending.

                    "We have an incredible number of projects we are doing in a very short
                    time," says Nissan design director Shiro Nakamura, who was recruited
                    by Mr. Ghosn to liven up Nissan's styling. "I've never experienced this
                    kind of tough schedule."

                    No Margin for Error

                    Nissan's future now depends on getting very little wrong as it executes
                    the revival plan Mr. Ghosn outlined a year ago. What happens over the
                    next 2 1/2 years at Nissan will be closely watched in Japan and among
                    global business leaders who wonder whether Mr. Ghosn and his team
                    have developed an effective recipe for salvaging Japan's sick corporate
                    giants -- or whether they will plateau short of their goals as others have

                    "Mr. Ghosn's management may enjoy a
                    short-term recovery. But the question
                    is how long the recovery would last,"
                    says Toyota Chairman Hiroshi Okuda,
                    whose company could suffer if a
                    rejuvenated Nissan starts retaking
                    market share in Japan and elsewhere.

                    A veteran of tough turnaround efforts
                    at Michelin's U.S. operations and later
                    at Renault, the 46-year-old Mr. Ghosn
                    is charging ahead at top speed. The
                    plan to build the new Mississippi plant,
                    he says, was finalized in just six
                    months, starting with the decision in
                    April to develop the new vehicles.

                    Mr. Ghosn has attacked Nissan's
                    structural problems with equal haste
                    since arriving at Nissan's Tokyo
                    headquarters in the spring of 1999. "I
                    didn't have a plan in mind. I knew
                    Nissan by the figures. I have seen
                    many horrible situations, but if you
                    limit yourself to the figures it's a very
                    artificial analysis," he says. To develop
                    a specific program for Nissan, Mr. Ghosn organized a dozen teams of
                    Nissan and Renault managers to dissect Nissan's operations. These
                    teams zeroed in on several big targets: Nissan's purchasing costs, its
                    marketing strategy, its bulging debts, and its bland products.

                    Suppliers got the bulk of Mr. Ghosn's focus early on, because
                    purchased materials and services accounted for 60% of Nissan's costs.
                    Mr. Ghosn opened his attack by summoning Nissan suppliers to a
                    meeting last October to explain his plans for slashing procurement
                    costs by 20% over three years. The atmosphere inside a basement
                    ballroom in the Takanawa Prince Hotel was "sober," says one attendee.

                    Mr. Ghosn tried to sell the suppliers on his vision: Cutting prices to
                    Nissan would also give them access to business with Renault, as the
                    two companies worked to share common components and materials
                    across their model lines. But the suppliers got another message as well:
                    cut prices by 8% as of April 1, 2000, or risk losing Nissan business.

                    'Deer in the Headlights'

                    The message hit home at Rhythm Corp., a Hamamatsu, Japan, maker of
                    ball joints, the part of the suspension that connects wheels to axles.
                    The shock of Mr. Ghosn's price reduction demand was so "severe that it
                    stunned us like deer in the headlights," says Takahiko Nakakoji, a senior
                    Rhythm executive who is head of the company's U.S. unit. But as they
                    pondered what to do, Rhythm officials learned that Nissan was
                    maneuvering to find alternative sources for ball joints. By February this
                    year, Rhythm had decided to accede to the 8% price cut.

                    Mr. Nakakoji cautions that delivering more savings in the future will get
                    "exponentially tougher." But he does note that formerly risk-averse
                    Nissan managers are suddenly more willing to consider suppliers' ideas
                    for cost-cutting design changes.

                    Some such ideas have been as simple as skipping a coat of paint for a
                    part that's usually out of sight, or using a cheaper material. For
                    instance, Nissan has relaxed its standards for headlight covers, allowing
                    more bubbles in the plastic than before, which helps lower the cost.

                    One of Mr. Ghosn's most-sensitive initiatives is to unwind Nissan's
                    keiretsu. A time-honored, but tottering, pillar of Japan Inc., keiretsu for
                    decades linked larger manufacturers to their suppliers through cross
                    shareholdings, exchanges of key managers, and long-term supply
                    relationships. Experts credit the system as the biggest secret behind
                    Japanese auto makers' success through the 1980s. The system
                    ensured that suppliers would deliver high-quality parts as needed to the
                    assembly line -- a key to the just-in-time manufacturing system.

                    But U.S. and European car makers have closed much of their
                    manufacturing-quality gap with the Japanese. Increasingly, larger and
                    more-integrated parts makers in the West are reaping greater
                    economies of scale and are underpricing typically small Japanese
                    suppliers. In addition, the keiretsu system ties up capital that car
                    makers, particularly a debt-laden company such as Nissan, could better
                    use on new products.

                    The man in charge of solving Nissan's keiretsu problem is a rumpled
                    Frenchman with a passion for numbers, Thierry Moulonguet, a former
                    Renault executive who now serves as Nissan's chief financial officer.

                    Enduring the Tea Ceremony

                    Mr. Moulonguet says he took time to build trust among his Japanese
                    staff. Early on, Mr. Moulonguet says, he took up an invitation from a
                    staffer who is a master of Japanese tea ceremony to attend a tea
                    service one Saturday afternoon. Mr. Moulonguet sat through the
                    hours-long ritual, much of it squatting on his knees. "It was a big plus
                    in the relationship with me and the team," he says.

                    Mr. Moulonguet began chipping away at the complex keiretsu, which
                    numbered more than 1,300 companies. Nissan began slowly, selling
                    holdings such as its stake in Akebono Brake Industry Co., its defense
                    and aerospace divisions and its 20% stake in Subaru-maker Fuji Heavy
                    Industries. In July, Nissan sold its 38% stake in Ikeda Bussan to
                    Johnson Controls Inc. Ikeda was at the heart of the keiretsu, earning
                    about 70% of its 135-billion-yen-a-year business from the auto maker.

                    Still, Nissan suppliers and others in Japan's auto industry say things will
                    get rougher. Many of Nissan's remaining parts affiliates are small,
                    privately held concerns. Because their financial information is sketchy,
                    Nissan could find it hard to value and sell its stakes.

                    Liberating capital from the keiretsu is critical to Mr. Ghosn's plans for
                    revitalizing Nissan's products, particularly in its home market and North
                    America. In charge of the product strategy is former Renault executive
                    Patrick Pelata. He has shaken up Nissan's product-planning process by
                    giving a stronger voice to regional marketing executives and by
                    challenging Nissan's designers to produce more-distinctive looks.

                    The first signs of Mr. Pelata's influence won't start hitting the market
                    until late next year and 2002. Among them: a replacement for its
                    current Altima midsize sedan that is expected to be larger, more
                    powerful and sleeker than the current vehicle. The company also has
                    plans, Mr. Ghosn says, for a SUV based on the same Altima platform.

                    In North America, Nissan right now has the wind at its back. Sales rose
                    13% in the first 10 months of this year, pushed by demand for vehicles
                    such as the Xterra sport utility. "We can't get enough products. We
                    need capacity," says Washington State Nissan dealer David Bruce

                    But most auto makers are forecasting a 5% decline in sales next year,
                    and profit margins in the truck and SUV markets are narrowing sharply
                    as capacity outstrips demand. Mr. Ghosn says he anticipated tighter
                    margins in the U.S. truck and minivan markets, and is determined to
                    push ahead with his new trucks anyway. "It's still the best opportunity
                    and the best project to do in terms of return on investment that we
                    have, globally," he says.

                    Mr. Ghosn says that his main focus now is Japan, where Nissan is
                    struggling to regain share after 26 years of decline.

                    "Look at yourself as a Nissan employee. Every month you see market
                    share going down. It is devastating," Mr. Ghosn says. In the short
                    term, Mr. Ghosn let Nissan's home market share slide further as he put
                    a clamp on money-losing discounts. But he vows that by 2002, Nissan
                    will start growing again. Nissan plans 15 new models for Japan between
                    now and 2003, he says. The first, the Bluebird Sylphy, is on sale
                    already. It is a profitable car, Mr. Ghosn says, in contrast to its
                    predecessor. Coming soon is a small sport-utility vehicle called the
                    X-Trail, aimed at young buyers.

                    Gathering Intelligence

                    Nissan has a lot of catching up to do. It was only last April that Mr.
                    Ghosn established a marketing department for Japan to gather detailed
                    intelligence about how Nissan's models were faring against the
                    competition. "You laugh," he says, "it's real. We had no substantial
                    analysis, segment by segment, [of] what was going on."

                    Mr. Ghosn faces numerous other challenges. Nissan is losing money in
                    Europe, in part because of the weakness of the euro against the yen.
                    The company's Japanese labor unions have gone along with his
                    sweeping job reductions so far, but some union officials are complaining
                    now that Nissan is creating thousands of new jobs in the U.S. even as it
                    cuts at home.

                    The pain of the revival plan is especially acute in the city of
                    Musashi-Murayama, a Tokyo suburb where Nissan is winding down a
                    vehicle-assembly plant that it plans to shutter permanently on March
                    31, 2001.

                    Mr. Ghosn's team, careful to avoid offending the Japanese public and
                    demoralizing the rest of his work force, has offered new jobs to most of
                    the plant's 2,800 workers. But they will have to go to the plants to
                    which Nissan is moving the production lines, as many as 50 miles away,
                    in some cases living away from home during the workweek.

                    "This move has been hard on families," says Moriyoshi Koyama, a union
                    activist who plans to picket the factory today.

                    A final wild card is how long the charismatic Mr. Ghosn will want to
                    remain in the driver's seat. The three-year term of his recovery plan
                    ends March 2003. Mr. Ghosn says his commitment is to remain for as
                    long "as I think my contribution is critical to the company." That may be
                    awhile: During his appearance in Mississippi, he declared: "What we have
                    done today is only 5%. We have 95% to do."

                    Write to Norihiko Shirouzu at norihiko.shirouzu@wsj.com, Joseph B.
                    White at joseph.white@wsj.com and Todd Zaun at todd.zaun@wsj.com