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Ghosn's aggressive cost-reduction plan shocked many of his colleagues at Renault.
My Personal History: Carlos Ghosn

Carlos Ghosn (9) 'Le Cost Cutter' strikes again

Gambling on a controversial shakeup, 'outsider' Ghosn puts Renault back on track

| Japan

Management at Renault had gone downhill in the years before I joined in 1996. At that time, the company was facing a massive deficit. Even under pressure from the government, the management team had not come up with an effective strategy for improving labor-management relations. Workers were aging, production facilities were woefully outdated and products were inferior. We had a lot of work to do.

I took two months to study up on the company, talk to people and assess the situation. One of the first problems I identified was how the company was structured. Different departments weren't communicating or coordinating efforts. I also saw too much fruitless finger pointing from the management team, too few solutions.

It was time for me to take action. I formed a cross-functional team, just as I had done in Brazil and the U.S. We broke down the thick walls between departments, brought in fresh perspectives and emphasized teamwork and problem solving.

The first major issue we had to address was the cost structure. Before I joined the company, Chairman Louis Schweitzer had said that he thought Renault's cars were too expensive. He had already set a goal of reducing the factory shipment value by 3,000 francs per vehicle ($480 at current rate). I told him we should make even bolder cuts -- but not at the expense of technology and quality. In those areas, we should invest more heavily. That was the impetus behind the "20 Billion Franc Cost-Reduction Plan," which we announced in March 1997.

This plan shocked many at the company. At meetings, my fellow executives told me, "That was a typo, right? Tell me that the decimal point was misplaced." I felt like people were secretly thinking that I was an outsider, and that I was going to screw up their company.

However, I stayed calm and cool. Personally, I don't like confrontation. Fortunately, it wasn't necessary, since I had the support of Schweitzer. So I moved forward.

That doesn't mean I went ahead with 100% certainty; I had my own anxieties about whether I had made the right decisions. I felt additional pressure to show positive results because of my "outsider" status. I still had to earn credibility.

I turned to the same methods that had been successful during my time at Michelin. We set specific targets and timelines, and held ourselves accountable to them. I worked with suppliers to gain their support to lower the number of parts and decrease unit prices -- and I rewarded the ones who cooperated by giving them larger orders. This wasn't easy, but it was what was needed to be done.

The biggest challenge was the decision to close the Belgian Vilvoorde plant, an old facility where 3,000 people worked. This caused a great deal of controversy. We had informed the Belgian prime minister about our plan to close the plant, and he went ahead and announced it publicly without our permission. Protests erupted all over Europe. Newspapers labeled me (once again) as "Le Cost Cutter."

The public outcry happened because Europeans, including the French, did not have all the facts needed to understand the depths of the problems that had forced Renault to take these actions. Before the Belgian prime minister made his rogue announcement, we had planned to lay out the negative financial results. If we had been able to execute on this timeline and be fully transparent, people would have seen the dire financial situation and better understood the necessity of the plant closure.

This experience taught me several things. Closing a Renault plant was unlike closing any other. Renault was a state-run business, so any factory closure resulted in the collapse of a major piece of the labor union. Workers still operated in two shifts, rather than the three needed to maximize production. In the end, we resurrected Renault only by challenging conventional thinking.

Gradually, management battles and labor strikes disappeared. The commotion subsided. We were able to set new goals, aiming, in fact, to match the performance of Nissan's Sunderland plant in the U.K., one of the most -- if not the most -- productive plants in Europe. Ultimately, Renault was revived and its performance from 1997 to 1999 improved substantially. But the industry was changing around us. We needed a partner to help us break through.

Carlos Ghosn is chairman and CEO of Nissan Motor Co., Ltd.

Read more installments of My Personal History: Carlos Ghosn


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