President Yoshikazu Hanawa's Speech at the FCCJ Professional Luncheon
12:30 p.m. -2:30 p.m., Monday, April 19, 1999
at the Foreign Correspondents' Club of Japan
Behind the formation of this alliance was each of our two companies' strong desire to "become a powerful global player in the world's automotive market in the future." In order to achieve this, Nissan needs to redouble its efforts to facilitate the implementation of the company's ongoing "Global Business Reform Plan." For Renault's part, it needs to press ahead with its plans to "globalize business operations."
In light of these corporate goals, we started talks with Renault last July. For several months we carried out joint meticulous studies to explore the possibilities of complementing each other and creating synergies by taking advantage of each other's strengths. As a result, we found that our two companies would be the best match as partners because we would benefit from an extensive combination of complementarities and strategies for automotive operations in terms of regional business activities, products, and technology.
In other words, Nissan takes pride in its advanced technologies and development capabilities which are among the best in the world, its superior quality, and its high productivity at its plants. Meanwhile, Renault is highly acclaimed for its marketing flair for innovative product concepts and its low cost structure which enables a profit even on small cars. It is possible for us to significantly improve our competitiveness by making the best use of each others' strengths.
Based on these findings of our joint studies, we decided to pursue a new form of corporate alliance, instead of a mere merger or business tie-up. This alliance is a union of the two companies with each company maintaining its own distinctive characters, strong brand identity, and its own corporate strategies. We will cooperate with each other as global partners with a strategic link that have strong but different brands and that are capable of competing well in the global marketplace in the 21st century.
We need to push ahead with the ongoing global business reform plan through our own efforts and further accelerate the implementation of the plan on the back of the alliance if Nissan is to establish a true partnership with Renault and prepare itself to compete squarely with the world's leading motor companies. To this end, we will focus our efforts on the following four objectives.
The first is to achieve a strong financial position as early as possible. Included in the business reform plan as an urgent task is to cut interest-bearing liabilities. We reduced the consolidated liabilities for automotive operations by 400 billion yen as scheduled in the fiscal year to this past March by selling some of our assets and reducing inventories mainly in the US. Our initial plan calls for us to cut 1 trillion yen of liabilities in three years, including cutting 600 billion yen by the end of the fiscal year ending March 2001. In addition, we plan on using the capital infusion of 600 billion yen from Renault to repay the debt, thus improving our financial standing dramatically. Using the capital injection from Renault to work off our debt will bolster our foundation to improve our balance sheet and ensure that we are competitive in the future.
The second objective is to speedily put a high profit structure in place. To insure sustained viability of our company into the future, it is essential for us to have attractive products and cost competitiveness that can generate profit. For this purpose, we will press forward with our cost-cutting efforts and our global business reform plan to reduce the number of models and cut overall costs by 400 billion yen by the end of the fiscal year ending March 2001. On top of this, by taking advantage of the synergies of cooperation with Renault as much as possible, we will work to establish a high profit structure that is among the best in the world.
Through the alliance, we expect to create synergies worth approximately 390 billion yen between the two companies over the three years from 2000 through 2002. It is in the area of global joint purchasing, especially in Europe, that we stand to gain the earliest benefits of the alliance, and of the estimated total synergies of 390 billion yen, we intend to save 210 billion yen by promoting joint purchasing.
In terms of geographical synergies, we are considering using each other company's global production and sales networks. For example, we will study the viability of producing and selling Renault vehicles at Nissan's bases in Mexico, and producing and selling Nissan vehicles at Renault's bases in South America. Furthermore, over the medium- and long-term, we will seek to carry out joint business operations and extend mutual support in such regions as Asia, Eastern Europe, the Middle East, and Africa.
In the area of product development, the consolidation and sharing of platforms can be cited as a typical example of creating synergies. Specifically, we plan to reduce the combined total number of platforms between the two companies to ten over the medium- and long-term. For instance, we plan to consolidate and make a common use of a platform for Renault Clio and Nissan Micra replacements, which are expected to have an annual production of one million units. With the exception of one of the platforms of the Volkswagen group, it is quite rare, even among high-volume vehicle manufacturers, to use just one platform to produce one million units a year. In addition, we will expand the application of our all-new Sunny and Tino platform to the Bluebird and the Primera. This platform is also expected to produce one million vehicles a year by early 2000, and this alone will bring a cost savings of 30 billion yen. Thus, the common platform for the Clio and Micra replacements will be the second platform to attain a production volume of one-million units.
Moreover, we will also proceed with studies of the cross OEM supply between the two companies for major components such as CVT continuously variable transmissions, 4WD systems, manual transmissions and such, as well as the joint development of compact diesel engines for the so-called 3-liter cars which are capable of running 100 km on 3-liters of fuel. We will also study the sharing of powertrains such as engines and transmissions in the medium- and long-range. Envisaging considerable synergies, the engineering teams of both companies have engaged in discussions on these specific projects.
The third is to use our resources strategically. In running our operations in Europe and the emerging markets of South America and other areas, we will draw on the alliance with Renault to promote joint projects and complementary arrangements, thus saving on management resources for Japan and North America. We will thus be able to direct the main thrust of our efforts toward rebuilding our US business, which is one of the objectives of the global business reform plan, thereby moving toward strengthening our overall management foundation.
We managed to show a small net profit in our US business for the last fiscal year. This is because we have made great strides in putting our US business management on a sounder footing. We have cut inventories by about 100,000 units and reduced the percentage of leasing in total unit sales to 15% from 34% for the previous year, although the number of vehicles sold declined 4.7% year-on-year to 622,000 units. This year, we will be introducing one strong product after another, such as the new Maxima, the Xterra, the Infiniti I30, and the Sentra. Of these new models, we conducted test-drive sessions of the new Maxima and Xterra for the press in the US and received highly favorable comments. Our goal is to sell approximately 700,000 units in the US on the back of these new models.
Meanwhile, in Europe we sold 537,000 units in the fiscal year that ended this past March and showed a higher net profit compared with the break-even for the previous fiscal year. Although the total vehicle market in Europe is projected to gradually slow down, we expect to stay in the black.
Turning to the Japanese market, we sold 861,000 units and secured a 20.4% market share, the same level as the previous year. We changed our domestic sales structure from the previous 4-channel system to a new 2-channel system at the beginning of this April, thus embarking on a reform of our distribution system. This new sales system is aimed at offering a more extensive product range to choose from within a channel and greater benefits and convenience to our customers. Along with this, we intend to introduce a number of new vehicles with superior environmental performance during this fiscal year. Included in these new models are a hybrid car, a hyper-mini electric vehicle, and the Toroidal CVT model, which represents the world's first commercial application of CVT to a front-engine, rear-drive model with a large high-output engine. We will redouble our efforts to attain our sales goal of approximately 900,000 units this fiscal year on the strength of these new models.
By carrying forward with these strategies, we will work to further solidify our business foundation in each region of Japan, the US, and Europe.
Last but not least is to our objective to further strengthen our capability for developing world-leading advanced technologies. Advanced technologies for environmental protection and safety are indispensable if we are to overcome the intense competition which the 21st century has in store. We will continue our efforts to rebuild our company, establish a business foundation that will ensure profitability, and take advantage of the alliance with Renault to more efficiently allocate development expenditures while cutting development costs greatly. Through these measures, we intend to harness management resources for the development of advanced technologies and enhance our capability to develop such technologies, preparing ourselves for the keener technological competition to come.
If we are to speed up the implementation of our business reform plan using our alliance with Renault as a leverage, and if both our companies are to enjoy the benefits of the alliance to the greatest extent possible, it is of the essence that we promote frank and open communications between our two companies. To that end, we are going to welcome each other's top executives in our respective companies. Nissan will receive three officers from Renault to join its top management team. These three executives will be Mr. Carlos Ghosn as chief operating officer, Mr. Patrick P_lata as executive vice president for product planning & strategy, and Mr. Thierry Moulonguet as managing director and deputy chief financial officer. In turn, I will be appointed to the Renault board.
With the continuing slump in the domestic vehicle market, the business environment has been turning severer since we announced the global business reform plan last May. In order to cope with this, we intend to undertake measures to cut fixed costs and other additional steps during the current fiscal year onwards. To put it more concretely, some of the additional measures under consideration are to E Optimize production capacity E Further cut the work force, and E Reorganize our top management structure We plan to make a press announcement as soon as we put these measures together.
The alliance with Renault has helped us lay the groundwork to compete against our rivals in the world marketplace in the next century. All we have left to do is to work hard to attain our goals and to have a strong will to get through these competitive times by bringing the strengths of the Nissan group together.
We will do our utmost to increase the value of our company and offer our customers more attractive products by reaping as early as possible the benefits of our reform plan and the alliance with Renault so that Nissan will be viewed by its stockholders as a company worthy of investment.
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