Thomas White Global Investing
Global Players

Global Players

August 2012

Carlos Ghosn, CEO of Renault and Nissan


“It’s not good enough to say we’re better than we were before. If you improve by 3% but competitors are improving by 5%, you’re actually becoming less competitive.”

— Carlos Ghosn in an interview with Forbes.


When Carlos Ghosn was a year-old toddler in Brazil he fell gravely ill to an infection that spread through contaminated water. Ghosn survived the infection. Still, battling for his life is not what Ghosn is best known for. This multi-cultural Brazilian-born French citizen made his name saving Japanese carmaker Nissan from bankruptcy.

Today Ghosn, an auto industry executive with a storied and rich past, manages two prominent car companies. He is simultaneously the CEO of France-based Renault and Japan-based Nissan, two distinct companies that are in a broad business alliance with each other, and account for more than one in every 10 cars sold worldwide. Behind Ghosn’s high-profile career is a background with a multitude of intertwined cultures that helped him emerge a rock-star in the brutally competitive global auto business.

During the early parts of the 20th century, Carlos Ghosn’s grandfather, Bichala Ghosn, left his dusty village in Lebanon as a teenager for the evergreen forests of Brazil. The world was preparing for a war of grand scale and it was hungry for products such as rubber that had to be tapped in the dense forests of Brazil. As Bichala Ghosn entered the rubber industry in the Amazon, he started a family in the remote regions of Brazil. His grandson Carlos Ghosn was born in a nearby town that lacked basic necessities like clean water. It was here that Carlos contracted the water-borne disease and ultimately survived. When Ghosn was six years old, he moved with his mother and siblings to his ancestral home of Lebanon. In this Mediterranean land, the young Ghosn thrived, excelling in school and leaving for France to pursue an education in engineering from some of the top French schools. Wherever he went, Ghosn had an excellent knack for the local flavor: as a toddler he picked up Portuguese in Brazil, taught himself Arabic and English in Lebanon, and perfected French in France.

After his engineering degree, Ghosn’s career started rather unremarkably in the rubber factories of Michelin, a French tire maker. But with an enormous appetite to solve any kind of challenge, Ghosn quickly became the head of industrial research responsibilities even while he was in his twenties. When Ghosn’s credentials were established in France, Michelin decided to challenge him with a much tougher test. During the mid-80’s, Michelin’s tire factories in Latin America were suffering from raging hyperinflation. People in Brazil spent all their salaries for groceries and provisions in department stores the day they received their monthly salaries for fear that if they tucked away their savings until the month-end, their purchasing power would be diminished even further.

Constant underperformance in Michelin’s factories in Brazil was attributed to this hyperinflation. When Ghosn landed in Brazil, the land he knew as a child, he saw things quite differently. With the advantage of being able to freely interact with Brazilians, armed with his fluency in Portuguese, Ghosn found that it was not just hyperinflation but deep-seated cultural differences between the French parent company and Brazilian engineers that hampered productivity. Quickly, Ghosn put together a ‘cross-functional’ team with members handpicked from different backgrounds and countries, forcing them to find a common ground to improve productivity. Soon Ghosn, the ice-breaker, turned around the Brazilian unit remarkably. As he left for North America and engineered a merger between Michelin and Uniroyal, another tire maker, his suave approach towards labor unions ensured the business arrangement was smooth.

Soon after the North American stint, Ghosn returned to France to join the money-losing government-owned car company Renault as a senior executive during the 1990s. He shook the ground by closing unproductive factories and cutting jobs at Renault, which was then known for its easy-going culture. The French press labelled Ghosn ‘Le Cost Killer’. But soon Renault returned to profitability and became the best-selling brand in Western Europe.

When I’m walking with him, I feel like I’m walking with a demigod, especially in Japan. People will touch his clothing as if to cure an illness.

— Jean-Baptiste Duzan, Renault’s corporate controller to Forbes
on Mr. Ghosn’s popularity in Japan

Around this same time, the Japanese carmaker Nissan was sending SOS messages of its own across the world. Nissan was losing market share in its home market Japan to ultra-efficient rivals Toyota and Honda. Nissan was laden with debt to the tune of nearly $20 billion, and years of losses were weighing down the company. Renault’s then Chief Louis Schweitzer, emboldened by the experience of coming out of the red, took a 37% stake in Nissan. He put this faith in Ghosn and sent him to Japan to turnaround Nissan.

Ghosn relished his new role and recreated his love for learning a new language. And this time his language was Japanese. When the Frenchman landed in Nissan’s quarters in Japan the mood was hostile. Workers and managers typically accustomed to the hierarchical Japanese style of management found fault in Ghosn’s lack of mastery of the Japanese bow. Some even compared his arrival in Tokyo as the symbol of a western occupation in Japan. But the unfazed Ghosn set out doing business.

Even while his Japanese was in its infancy, Ghosn spoke the language of business to the Japanese: profits and numbers. Amidst the backdrop of animosity and distrust, Ghosn publicly announced ambitious targets and vowed to meet them. Inspired by Ghosn’s sense of purpose, the Japanese workers mellowed and found common ground. The ‘cross-functional’ teams that Ghosn used to save Michelin in Brazil were now at play in Japan, with French and Japanese working side-by-side for the common goal. Again, Ghosn broke the cosy partnership between Japanese car companies and part suppliers, urging suppliers to compete for Nissan’s business rather than take it for granted. As with Renault, he closed factories and trimmed the workforce. Remarkably, Nissan shed $20 billion in debt and forged ahead to the path of profitability within two years. For a time, it even became the most profitable car maker anywhere in the world.

Japanese workers, who once viewed Ghosn an outsider, saw him as their saviour. They gave him the adulation they usually reserve for their athletes and sumo wrestlers. The impressed Japanese even chronicled Ghosn’s life in the form of ‘manga’, a Japanese comic genre.

Yet for all his achievements, Ghosn’s career has hit some roadblocks in recent years – some admittedly of his own making and some the result of a sluggish global economy. Ever since 2008, the U.S. car market, the world’s largest, has been highly volatile and has made life challenging for Nissan, although it is still profitable. Renault’s German rivals like Volkswagen have recently raced past the French major. The French resistance to Ghosn’s reform has been viewed as an impediment to the Renault’s progress. Some even claim Ghosn has spread himself thin by taking on the responsibility at both Renault and Nissan for day-to-day operations. And critics are quick to point out that Ghosn acted prematurely when he wrongly fired innocent senior executives at Renault on dubious charges of selling out Renault’s advanced battery car intellectual property rights in early 2011. Although Ghosn apologized for his mistake, the damage had been done.

Despite these missteps though, Ghosn is working hard on his vision to manufacture electric vehicles. With a large-scale push into the emerging markets, Ghosn staunchly believes that if emerging markets like China and India want to drive an increasing number of cars without causing damage to the environment, then the cars must run on electricity and not on fossil fuels.

For a man who made his name by helping car companies survive, it is only fitting that Ghosn wants to leave a legacy of automobiles that will help sustain the world’s resources. Now those are survival instincts.

 

 

 

 

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