TOKYO – When Carlos Ghosn arrived at Nissan in 1999, suppliers took the brunt of cost-cutting that helped revive the automaker. Two decades later, his successors are attempting for another turnaround with no capability to pressure parts makers.
Nissan Motor Corp, like rivals, has been hit hard because the pandemic sapped global demand. But Japan’s No.3 automaker has one other issue: an aging line-up out of step with changing tastes, including growing appetite for sport utility vehicles in the United States and luxury brands in China.
Ghosn’s relentless quest for chasing volume led to an emphasis in price and incentives, instead of new designs. Under Ghosn, Nissan halved its suppliers to 600 firms. Those that remained needed to lower costs, but benefited from more orders as Nissan’s global share of the market went from 4.9% to 6.6%.
Ghosn, who also ran alliance partner Renault, was arrested in Japan two years ago on charges of monetary wrongdoing, that they has denied. He's since fled to Lebanon.
In recent years Nissan has lost its way and new management is once again looking to cut costs, but can’t offer increased volume to suppliers. Nissan plans to reduce production capacity and model types by a fifth to trim costs by 300 billion yen ($2.88 billion).
“Cost-cutting is a no-brainer,” Chief Operating Officer Ashwani Gupta told Reuters in an interview, acknowledging that suppliers might take some persuading.
“We need to possess a logic to convince both internally and externally this is why we want the rationalization.”
Adding to the challenge is the increased “regionalization” from the auto market, Gupta said. Automakers face a number of different standards and regulations around the world, forcing these to sell cars in different regional versions.
Under Ghosn, Nissan could use fewer suppliers and increase economies of scale for components – now it needs to use more suppliers.
Technology Battle
Nissan also faces an intensifying technological battle in electric vehicles and connected autonomous driving against competitors with deeper research and development pockets such as Toyota, Volkswagen and Vehicle, as well as new rivals for example Tesla.
“We would appreciate a rise in product sales, otherwise this means the expansion costs be a bigger burden,” an official at one of Nissan’s suppliers told Reuters.
Nissan is likely to revamp the maturing vehicle line-up, with 12 new models over the next few years. Pulling that off means working more closely with parts makers.
That is the main difference between Nissan’s turnaround plan now and 20 years ago, Gupta said. “The significant with suppliers is a more technological partnership at a very early stage to achieve design to cost,” he explained.
Examples of such collaboration include designing night vision rear view mirror displays with Panasonic as well as an agreement with Chinese company Sunwoda Electric Vehicle Battery Company to study battery development because of its e-Power hybrids, a Nissan spokeswoman said.
“Within their dealing with us they have become very polite and more humble,” said the official in a second Nissan parts maker, who also asked not to be identified.
Nissan’s look for technologies have already extended its traditional supplier base, including to firms that work with rival Toyota.
Nissan now buys around a tenth of its parts, particularly electronic components, from Toyota suppliers since they're large-volume producers and for that reason cheaper, said William Nestuk, an analyst at Pelham Smithers Associates in London.
“Nissan cannot currently fund the introduction of next-generation technologies without input from either the Renault side and/or from Toyota suppliers,” Nestuk said in an email.
That competition will heap further pressure on Nissan suppliers already attempting to adjust to declining output.
“I am concerned that even if we try to work with them the company relationship won’t last,” said the official in the second supplier.
Reporting by Tim Kelly and Maki Shiraki; Editing by David Dolan and Elaine Hardcastle
