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May 13, 2008

GOLDING’S TAKE: The Nissan fox has Ghosn green

He’s a cunning old fox that Carlos Ghosn. We were all so looking forward to him getting stuck in a hole of his own making by failing to hit his own earnings forecasts.

He’s a cunning old fox that Carlos Ghosn. We were all so looking forward to him getting stuck in a hole of his own making by failing to hit his own earnings forecasts.

We were never quite sure what the fallback plan was for when things started to go wrong: would he be able to disguise the trail with further acquisitions? Was the approach to GM partly justified by the need to obfuscate?

Today in Tokyo as he stood at the microphone, you could see the front feet flailing away as he simultaneously dug a brand new channel and back-filled the hole that so nearly trapped him. It was a complex job given that he wanted to keep hold of the translation receiver rather than be hands-free and allow it to spoil the line of a pocket in his superb new suit.

The new channel has plenty of new things in it and most of them are clever. First there is the all-too-obvious proposition that times have changed and there is no way that you can forecast earnings accurately while people are having to sign new iron ore supply contracts that are 80% up on last year; while oil is at $125 a barrel and heading for $200; while every Nissan shipped from Japan to the US is earning 14% less than it did last year because of currency translation; while Japan car demand is down 5% YoY, and the US is down three.

How can you possibly fix on an 8% operating margin (the number given as the steady-state objective for Nissan) when everything around you is fluctuating more than that, Ghosn quite reasonably inquires.

He chucks a compass bearing to those who need some sort of star to sail by in the absence of a nice constellation of profit forecasts. Dividend this year will be 42 yen, next year it will be 44 yen, in 2010 it will be 46 yen and after that the forecasts for 2011and 2012 will be announced. That’s quite a clever innovation too: make the five-year forecast just a forecast of the dates when forecasts will be made. Should keep people happy if they are not thinking too hard.

Then there is the social obligation: “We have learned a lot of lessons. Some people say that we only care about profit (because that is all he ever used to bang on about in his annual results presentations to investors, reasonably enough). You will see that in the new Five Year Plan, quality is the main commitment.”  The embodiment of the commitments is contained in the phrase “everything we do is dedicated to enriching people’s lives.” That’s quite neat too. There is a word in there that comforts the need for greed.

The electric car is one commitment of the plan. We all wondered didn’t we what was so appealing about Israel and Denmark when Nissan announced first one then the other as “partners” in an electric car programme. Was it just that they were small so that the limited  range of an electric car was not an impediment? Was it that they were small enough to be able to be flexible in giving a hearing to a commercial proposition?

But it transpires that it was rather simpler than that. They are countries with a huge car tax. Danish drivers pay 25% VAT on the price of the car and then 180% of the taxed price as registration tax. The Israelis pay a sales tax of 72% “which will be cut to 12% for an electric car.” Aahhh. So that’s it. Very foxy. The Governments become more electable by subsidising zero emission cars, the citizens breath more easily and the car maker is able to sell electric cars in small volumes without losing their shirt whilst acquiring an all over tan in a fetching shade of green. “Profitable on day one,” says Ghosn of the Israeli gig.

Then there is the commitment to the ULC which those of us in the print trade used to know as the type-setting instruction of Upper and Lower Case. It’s been craftily snatched under cover of darkness by Nissan to stand for Ultra Low Cost car.

Ghosn has me-tooed Tata and signed up with Bajaj in India to make a car for five markets (India and Thailand only being named so far) for $2,500. “That’s cost price. Of course it will sell for more than that.” That’ll be the upper case then.

A questioner asks how it will be done. Dunno really says Ghosn rather endearingly. “We know that if Tata can do it for that price so can we.” He did after all invent the low cost car in the days when low was twice as high as it is now. It was called Logan and sold at $5,000 dollars.

He stamps the earth flat around his back-filled hole, brushes his hands clean on his new suit, and he’s gone – striding up his newly dug channel effortlessly shifting into another strategy, another time zone and another language. He’s good this boy.

Rob Golding

See also: JAPAN: Nissan Motor net income up 4.7%

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