Renault to the rescue

Flawed management and marketing brought Nissan to its knees despite good products, writes Alastair Sloane. Now Renault has bought a controlling interest in the Japanese carmaker.

Nissan's marketing strategy at head office in Japan has been likened to that of ring-leader Fagin in Oliver Twist, who sent his light-fingered ragamuffins out to work on mostly the same streets each day with the ditty "You gotta pick a pocket or two."

Like Fagin, Nissan expected good days and bad. On a good day the cash rolled in and everyone joined in the song; on a bad day it spent yesterday's loot, rather than squirrelling it away and working another part of town, and nobody wanted to sing.

There were more bad days. It chased sales rather than profits. Now French carmaker Renault, which sells 85 per cent of its vehicles in Europe, has bought a controlling interest in Japan's No 2 carmaker. Renault wants to use Nissan's extensive distribution network to go international.

All along Nissan has had good products, innovative design teams, brilliant engineers. But flawed managerial and marketing methods and resistance to change cost it dearly, to the point where it had to borrow money to finance new projects, borrow money to market them, borrow again to pay for marketing mistakes and again to finance new projects. And so it went on.

It made the mistake of trying to compete with its great rival Toyota instead of cutting out a market for itself and consolidating it.

For example, when Toyota built its luxury Lexus in 1989 Nissan followed soon after with the Infiniti, which has sold quite well in the United States.

But such was Nissan's messy marketing philosophy that it has spent, said one American report, twice as much selling each Infiniti as Toyota spent selling each Lexus.

As long as it kept building very good vehicles - like the Skyline, Maxima, 200SX and Pathfinder - banks kept lending it money. It became the seventh-largest vehicle manufacturer in the world. But the cost was horrendous - $70 billion in debt and counting. Things were bleak.

It was making about 500,000 more cars a year than it could sell. It made more models than anyone else. It made more platforms. It had more suppliers of components than anyone else. It had more dealers. But its share of markets, particularly America and Europe, was dwindling.

Nissan began to look for a partner which would optimise production and save costs, just like many other carmakers were doing. DaimlerChrysler looked at it.

So did Volkswagen, Ford and General Motors, but each potential buyer was faced with having to restructure Nissan's messy debt.

In stepped Renault with about $NZ10 billion for a controlling interest. The deal gave the French carmaker a 36.8 per cent share of Nissan Motor, the vehicle division, and 22.5 per cent of Nissan Diesel, the well-respected truck division.

Renault also looks like buying for about $600 million Nissan's European financial subsidiaries. In turn, Nissan, if the alliance gets it back on its feet, has the option of buying a chunk of Renault.

Renault had its eye on Nissan Diesel for some time. Renault has a strong truck division - it owns Mack Trucks, which has 13 per cent of the American truck market - and is expected to expand using Nissan's distribution network in Asia and the Mack outlets in America. Renault is also building assembly plants in Brazil and Russia.

The deal gives Renault's car arm better access to Japanese, Asian and American markets, again using Nissan's network, and better access to Nissan engine technology.

In return, the Japanese company gets much-needed money to help pay off debt, develop new products and find new markets using Renault's network in Europe.

Before last weekend, Renault was the 11th-biggest carmaker in the world and Nissan the seventh. Now the two together are fourth in production and fifth in sales.

Both carmakers will, as Volkswagen has done with its subsidiaries Audi and Skoda, develop common vehicle platforms and powertrains. Nissan now has 25 platforms; Volkswagen has four. Platform-sharing alone is expected to mean global savings between 2000 and 2002 for both companies of $6.2 billion.

In the financial year ended in March 1998, Nissan built 2,754,598 vehicles and earned $104.7 billion. Its operating income for the same period was $700 million.

Nissan's share capital is owned 58.7 per cent by banks, 31.3 per cent by corporate shareholders, and 10.1 per cent by private shareholders. Its market value as of September 1998 was $15.2 billion.

Debt-free Renault was the leading marque in Western Europe last year. In the March 1998 year, it built 2,283,265 vehicles and earned $76.6 billion. Its net income was $2.8 billion. Calculated as a ratio of revenues, this figure is the highest in the European automotive industry.

Renault's share capital is owned 55.8 per cent by private shareholders (including a 3.2 per cent stake by Renault employees) and 44.2 per cent by the French Government. The carmaker's market value as of last week was $16 billion.

But most of all, Renault's acquisition is expected to bring some French flair to an vital area, one in which Nissan was never comfortable: giving cars a name.

In recent years, Renault has had the Espace, Fuego, Clio, Laguna, Megane and Scenic. Nissan has been trying to sell models called Gloria, Cedric and Laurel.