The End of Detroit (21 page)

Nissan is relying heavily on modular assembly, in which entire pieces of the vehicle, such as the instrument panel, arrive at the assembly line prebuilt. It leaves responsibility for assembling the components up to suppliers, who deliver each module as it is needed on the assembly line. Modular assembly thus cuts out steps in the assembly process, meaning the factory can assemble vehicles more quickly, with fewer tasks for workers to perform and, in some parts of the plant, fewer workers. Modular assembly has been tried with varying degrees of success throughout the auto industry in recent years, almost always outside the United States, because of strong opposition to it by the United Auto Workers. GM, in fact, had to scrap plans to assemble a future family of small cars with modular assembly techniques, because of the UAW’s outrage at the potential loss of jobs and influence in the production process. But Emil Hassan, in charge of Nissan’s manufacturing operations in the United States, said modular assembly is vital for the Canton factory to accomplish what Nissan is setting out to do. “The ones who do it love it. The ones who can’t envy those that do,” Hassan said. It is a change that would not have been possible had Ghosn not taken on Nissan’s
keiretsu
system when he arrived at the company. “The biggest impact that Carlos Ghosn made was walking away from the past,” said Hassan. “It’s a paradigm shift for Nissan.”

Joining the company was an enormous shift for the Canton plant’s vice president of manufacturing, David Boyer, who ultimately bears responsibility for the project’s success or failure. Scooting around the factory in a yellow golf cart on a gray February afternoon, Boyer stops numerous times to solve problems on the assembly line and to lead a visitor through machinery and up catwalks. He grew up in western Pennsylvania, where he was “one of those kids who knew every model, every year and every make of every car,” Boyer recalled. That obsession took him to a job at Ford, where he started as a supervisor trainee in the company’s Dearborn, Michigan, iron foundry, and ultimately to Ford’s Lima, Ohio, engine plant, where he became a supervisor. But the job he wanted as a plant manager eluded him, and he knew it would take years for him to achieve it, perhaps only by the end of his career. Instead, Boyer joined an automotive supplier and then came to Nissan in Smyrna. When Ghosn approved the truck plant, Hassan appointed Boyer in charge of the project. He knows the stakes involved, he said, as traffic whizzed by on I-55, visible through the windows on the western end of the plant. “The whole company is dependent on this. It’s a tremendous investment,” he said.

Boyer doesn’t sense any conflict between his roots in the industry and the job he has attained working for a Japanese auto company rescued by a French investor. “What’s a Japanese car? What’s an American car? Parts of every vehicle come from all over the world,” Boyer declared. “It’s a global industry.” And for Boyer, it’s a personal dream he never thought he’d achieve when he was at Ford. “It’s the opportunity of a lifetime, to go from being a little kid and loving cars to starting a new plant.” No matter how daunting the challenge, Boyer said, he knows the company is in good hands. “Everybody believes in Mr. Ghosn,” he said.

As big as Nissan’s challenge is in Canton, Ghosn has even grander ambitions for the future. As he stood in front of the news conference in Tokyo in May 2002, Ghosn had achieved all of the goals in the Nissan Recovery Plan. “The Nissan Recovery Plan is over,” he told the audience. In one year, Nissan had returned to profitability. He had slashed the company’s debt below $10 billion. Nissan now dealt with just 400 suppliers, a number of them new to the company, such as Delphi Corp., the world’s biggest parts supplier, spun off from General Motors in 1999. There was little fuss made about the plants that Nissan had closed, in part because Japan’s desolate economy had forced many companies to take similar actions. But there had been enormous fuss made about Ghosn’s success, and more was in store as he laid out the next road map for the company. It was called Nissan 180. The name was meant to visualize not only the direction Nissan has taken from its darkest days, but a plan for moving forward.

The “1” in the plan stands for 1 million additional sales per year that Ghosn wants Nissan to achieve in 2004 compared with 2001, bringing the company to roughly 6 million sales per year worldwide, 40 percent higher than when Ghosn arrived. The “8” is an 8 percent annual profit margin, which Nissan actually achieved in 2001 and exceeded in fiscal 2002, when it earned more than a 10 percent operating margin on its vehicles. That was in the same league as Toyota and Honda, and just below what BMW achieved. By comparison, GM’s operating margin in 2002 was 3.7 percent. The “0” stands for zero automotive debt, something that no one could have envisioned when Ghosn arrived, but that occurred in May 2003, causing murmurs of disbelief from Nissan’s debt-laden competitors, who questioned whether Nissan’s original crisis was truly as deep as Ghosn had depicted it. (Asked about that, he simply laughed.) It is the 1 million additional sales goal that has caught the most attention in the press, particularly because the United States is responsible for about one-third of that increase, or 300,000 more sales per year. Asked which companies Nissan planned to target to take the sales away, Ghosn replied, “I don’t care. From anybody.” The comment struck some as flip, which Ghosn later acknowledged was a valid reaction. “As long as I say it, it has not a lot of credibility. I think we’ll just have to demonstrate it,” said Ghosn. “We just have to show it by facts and show it by performance, and I hope now that everybody is convinced that Nissan is out of the hospital.” Of that, there is no question. But as 2005 approaches, Ghosn will not be spending so much time tending to Nissan’s needs.

As Ghosn was unveiling the 180 plan, Renault announced that Ghosn would become chief executive of both Nissan and Renault when Louis Schweitzer, the architect of the alliance, retires in 2005. Ghosn expects to return to Paris in 2004, where he will attempt to run both companies, jumping over to Tokyo as necessary. He signaled that a Japanese executive would be appointed as chief operating officer at Nissan, and in March 2003 took some initial steps to set potential successors in place, though it is still unclear who his replacement might be.

Ghosn faces the same doubts over whether his management structure will work as he did with the recovery plan, and as he does now with his Nissan 180 plan. And Ghosn has no illusions over what he will attempt to do. “This is the challenge of our industry. You know that. You have to watch it extremely carefully. You have to be always with your eyes on the ball, and make sure that at no moment you’ve been caught by complacency or been distracted by anything. And I’m going to tell you, we’re going to have a lot of temptation in the future,” Ghosn said. Womack, for one, is skeptical that Nissan has really made progress. “They’ve just gone through the Ford Taurus phase of their crisis,” he said, drawing a parallel between Ford in the 1980s and Nissan today. Regardless, Nissan is now in the spotlight as one of the industry’s hottest players. In the overabundant way that the industry loves to congratulate its winners, Ghosn himself has been deluged with awards, magazine cover stories and Man of the Year designations from all corners of the globe. (In May 2003, Mississippi Senator Trent Lott dubbed Ghosn a “rock star in the automotive industry” on the day the Canton plant officially opened for business.)

But significantly, none of the plaques are on view in his office in the Ginza, and despite the behind-the-scenes sniping at him from his various competitors, Ghosn shows no sign of allowing his determination to flag. If it does, and Nissan stumbles, he knows where to lay the blame: squarely on himself. Because as Ghosn stands alone facing the world as the symbol of Nissan, he recognizes that he will have to shoulder the burden if it does not succeed. He will have none of the blame-laying that Detroit executives resort to when the competition proves too fierce. “I’m telling you that always whenever there is a decline, a major reason of decline is yourself,” he said in a moment of introspection. “Always, always. I mean, look at this industry. It’s never competitive pressure. It’s never the economic environment. It’s never the weakness of et ceteras. It’s always yourself.” Not that he expects to fail, for, he confides, “I deliver.”

CHAPTER SEVEN

NIBBLING FROM THE BOTTOM AND THE TOP

BMW AND HYUNDAI
start at completely opposite ends of the automotive spectrum. One is a venerable maker of German luxury cars that holds an unmatched position in the car market for its breathtakingly fast performance automobiles. The other is an upstart from Korea, earning its reputation for selling bargain cars, accompanied by a generous warranty. But BMW and Hyundai have one very important trait in common. They each want more. BMW, at the top of the automotive market, and Hyundai, at the bottom, are both gunning to expand their presence in the United States during this decade, fueled by vehicles they build, or plan to build, at plants in the United States. As a starting point, they share a confidence that Detroit’s auto companies have never been able to achieve. They know exactly who they are. BMW and Hyundai have carefully defined brand images, a clear understanding of why people buy their cars, and strong-willed executives who tune out the criticism and complaints of competing companies to focus on their goals. Both dominate markets where Detroit cannot figure out how to successfully compete, despite numerous attempts and failures. BMW and Hyundai each knows its expansion plans are a gamble, but each knows that it must gamble in order to grow. Importantly, each company knows what it is like to falter, for both companies soared in the late 1980s, only to fall ignominiously during the 1990s. They have both gotten back on their feet, and like Carlos Ghosn at Nissan, they do not plan to stumble again.

BMW and Hyundai, along with other import companies, represent a force that has weakened Detroit during the past decade. With the exception of Toyota and its expansive lineup, none of the import companies has designs on meeting Detroit head-on in every segment where it competes. They don’t have to. They can be successful by fixing their targets and taking away markets, one by one. They are doing this by introducing more models, of all types, while Detroit shifts from one extreme to the other, unable to balance its approach in order to meet the competition coming at it from all corners.

Look at what happened to the U.S. car market in the five model years between 1998 and 2002. In 1998, the Detroit companies clearly had more for customers to choose from. According to
Edmunds.com
, they sold 75 different car nameplates, of all sizes and varieties, from entry level to luxury. They sold 52 different light truck nameplates, including minivans, SUVs and pickup trucks. Import companies lagged far behind. In 1998, they sold 63 different car nameplates and just 27 truck nameplates. In those years, GM, Ford and Chrysler were simultaneously swept by the notion that Americans wanted more light trucks. They rushed to build them, giving short shrift, in the process, to their car lineups. Detroit companies’ single-mindedness was like an airplane tipping to one side as all the passengers shift across the aisle to peer out the windows at the sights below. By 2002, the Detroit companies had 74 different truck nameplates on the market, while their car nameplates had dropped to 56. It was almost in inverse proportion to the car and truck mix that they’d had on sale five years earlier, and nowhere was it more striking than among SUVs. In 1998, there were just 12 different Detroit models of sport utilities. By 2002, there were 29.

Import companies jumped into the truck market as well. But significantly, they did not abandon cars to do so. In fact, the variety of both kinds of vehicles had swelled. Five years later, import companies had 88 different car nameplates—now well beyond the number offered by Detroit—on the market, and 49 truck nameplates. In other words, they didn’t pick a single lane, like Detroit did. They picked all of them. BMW and Hyundai are just two examples of how import companies managed to keep their dual focus. In 1996, BMW sold only four different nameplates. By 2002, it had eight vehicles in its lineup, including the X5 sport utility. Hyundai, in 1996, had three vehicles in its lineup. By 2002, it had six, including a sport utility called the Santa Fe. For their relatively small size, the 100 percent increase for each was phenomenal. And for both companies, it was only a beginning.

Hyundai Motor Co. sells fewer vehicles per year in the United States than the number of Camrys sold by Toyota, or the Accords sold by Honda. But Hyundai has everybody in the auto industry on edge, the Japanese nameplates included, because it is having as much influence on the cheaper end of the market as BMW is having on the more prestigious end. Its American chief executive, Finbarr O’Neill, has sweeping ideas for what he wants to do with Hyundai’s lineup going forward. Of medium height, stocky, with dark hair and a seemingly reserved manner, O’Neill possesses a dry wit and the ability to get across a pointed quip that can be as startling as his clear ambition for Korea’s biggest car company. In 2002, Hyundai had its best year in history, selling just over 360,000 cars in the United States, and it might have sold more if it had fully used the manufacturing capacity at its Korean factories. That alone was remarkable, given that poor quality and a limited lineup had caused its sales to fall to less than one-quarter of that number in 1998. But O’Neill was not satisfied. By 2005, he wants Hyundai to sell 500,000 vehicles a year in the United States. And O’Neill is aiming for Hyundai’s U.S. sales to approach 1 million vehicles by 2010, which would make it bigger than Mitsubishi or Mazda, and roughly the same size as Nissan. That would be more than 10 times what Hyundai sold in the United States in 1998, the year O’Neill was promoted from behind the scenes to take charge of the floundering auto company.

O’Neill, who laid out his ambitions for the first time during an interview on a sultry September 2002 afternoon, admitted that Hyundai’s expansion would take some doing. For one thing, Hyundai might need to build another manufacturing plant beyond the factory that is under construction outside Montgomery, Alabama. And O’Neill knew Hyundai would have to expand its truck lineup to include more sport utility vehicles beyond just the Santa Fe. But he felt it was time to lay his sales targets right out on the table so that everyone could see them and get used to the idea that his company was planning to grow aggressively over the coming years by expanding beyond the assumptions that everyone had about it. And even before he gets there, the conventional view of Hyundai as simply a seller of low-priced automobiles, whose buyers can’t afford anything else, is beginning to change.

In the course of just a few months during late 2002 and early 2003, Hyundai was paid two of the highest and most unexpected compliments it had ever received. On a Monday in late October 2002, General Motors called a handful of journalists to alert them that one of its veteran executives, William Lovejoy, had announced his retirement and was willing to talk to them in a brief telephone conference call. Talking to Lovejoy, who had never lost his broad East Coast accent during all his years in Detroit, was always a treat because he had a knack for saying the unexpected. Since Lovejoy was in charge of GM’s sales operations, it was natural, after the pleasantries were over, to ask him about GM’s chances of meeting the 29 percent market share goal that it had set for 2002. GM had been blasting the market all year with zero percent financing and hefty incentives in its bid to gain momentum. It had spotted a rare opportunity presented by weakness at Ford, which seemed unable to get out of a lingering slump. And by all rights, GM could have expected to steal a sizable chunk of Ford’s market share, which seemed ripe for the picking. It would wind up losing 1.5 percentage points in 2002, a virtual hemorrhage given that auto companies fight hard over every tenth of a point. But to GM’s dismay, cars and trucks from import nameplates had a banner 2002. They were managing to post sales increases and gain market share without having to meet the GM deals. Though the incentives had helped GM’s sales remain strong into the summer, GM’s sales had begun lagging in the fall, and analysts were seeing evidence in the slower sales rate that the incentives were losing their steam.

Lovejoy reminded the journalists that the 29 percent goal was a “stretch” target, something that the company designed as a rallying point but that nobody realistically thought could be achieved. GM sets such targets almost every year, generally keeping them under wraps so as not to overstress their importance. However, GM took no such pains in 2002 to keep the target a secret. Lapel pins bearing the number 29 had popped up among GM executives’ ranks that summer like dandelions after a rainstorm, and the word around Detroit was that the chief executive, Rick Wagoner, had a pin that read 30, because he wanted the company to stretch even more. Lovejoy, however, seemed bent on dampening expectations. “I’m not going to make a prediction, but 29 percent is going to be a stretch to get there,” he said. Then Lovejoy added, joking, “If the competition would just play a little fairer, we could do it.” Everyone laughed, and the matter might have been dropped if Lovejoy had simply left it right there. But later on in the news conference, Lovejoy was asked who wasn’t playing fair. Instead of ducking the question, he answered it in his typical blunt fashion. The problem lay with Korean automakers, Lovejoy said, especially the largest player, Hyundai. Its lineup of increasingly respectable if bland cars and sport utilities, and its 10-year, 100,000-mile warranty, gave consumers confidence in its vehicles. Such a combination was “difficult for us to match,” said Lovejoy. “It’s one of the reasons they came out of nowhere to pick up three, four points of share.”

In that moment, on that October day, the world’s largest auto company went public with what people in Detroit had been saying behind the scenes for months: Hyundai was something to worry about. Further proof of the danger that Hyundai posed came a few months later, when
Consumer Reports
magazine, a bible for educated, quality-conscious customers, came out with its April 2003 issue, which contained its annual car-buying guide. Hyundai had made a “striking turnaround” during the past 10 years, the magazine’s quality survey showed. In 2002, Hyundai ranked with the best Japanese auto companies for the first time, just behind Toyota and tied with Honda, and well ahead of the automakers from Detroit. Hyundai could no longer be ignored by anyone, especially the companies from Japan, whose buyers were already attuned to buying import nameplates, and who would be the most likely to check out Hyundai’s vehicles as an alternative when they were out shopping. Said Nissan’s Carlos Ghosn, “Worried, I would not say. But we are watching them very closely.”

The best view of Hyundai’s future can be seen in a pair of construction projects, one set to be finished in fall 2003, the other due to be complete by 2004. The first sits on a street corner a few miles from Hyundai’s American headquarters. It is the $25 million California Design and Technical Center that Hyundai will share with its sister company, Kia, which it acquired in 1998. The design center will house 150 designers, engineers and others involved in creating cars for the two Korean brands. Until now, they have been squashed into Hyundai’s headquarters building in Fountain Valley, a modern, low-rise building that sits sheltered off Interstate 405 about an hour south of Los Angeles. The headquarters building, while fine for a sales operation, doesn’t have the facilities that the designers need. But the new building will, including an outdoor courtyard so that designers can gauge how their dreams look in the sun, revolving turntables big enough to hold the largest vehicles in the industry, so that a car can be examined from every angle, and a whole host of computer-aided technology linked to Hyundai’s engineering centers in Korea and in Ann Arbor, Michigan. Along with the design center, Hyundai is building a $1 billion assembly plant outside Montgomery, where it will produce Santa Fe sport utilities, the Sonata mid-sized car and vehicles that it isn’t talking about yet. The design center and the plant are the last two pieces in an 18-year effort to vault Hyundai into the ranks of major automobile companies selling cars in the United States. All this is similar to what Japanese auto companies did when they arrived in America, but with a sharp difference: It is happening much, much faster than it did for Toyota, Honda or Nissan. They kept a low profile while they grew. Hyundai is not so reticent and not nearly so patient. Whereas it took Toyota 10 years to sell 100,000 cars a year, Hyundai reached that mark in its first seven months on the market in the United States. But staying consistent was another matter.

By 2003, Hyundai was actually on its second try at getting a foothold in the U.S. car market. It had roared off to a fast start when it reached the American car market in 1986, less than a decade after the company was founded in Korea. Hyundai is part of the far-flung Hyundai business empire, called a
chaebol,
whose creator, the industrialist Chung Ju-Yung, made billions by turning Hyundai into the world’s largest shipping company. Chung was born in 1915, the oldest son in a Korean peasant family. At 18, he left home for Seoul, where he worked in a myriad of jobs, building railroads, working on docks and training as a bookkeeper. His first venture opened in 1938, when he started his own rice store. That lasted only a year. Chung was forced to close his business by Japanese forces, who had occupied Korea at the start of World War II. As with Toyota, the American military helped Chung get on his feet after the war. He went into the truck repair business, fixing vehicles for the U.S. armed forces. After the Korean War, he saw shipbuilding as a ticket to success and managed to convince a customer to pay him tens of millions of dollars for a vessel, although he had yet to build his first ship. With his empire up and running in the 1960s, Chung decided Koreans should someday have the opportunity to purchase locally made vehicles rather than imports from Japan, whose auto industry was performing with vigor. In 1967, he founded the Hyundai Motor Co., and a year later he signed a licensing agreement with Ford to sell its automobiles in Korea. The deal gave Hyundai access to Ford’s vehicles, which it studied with an eye to building its own. Six years later, Hyundai showed its first car, the Pony, a subcompact that had been designed for it by the Giugaro studios in Turin, Italy, among the finest automotive designers in the world. Soon after, Hyundai began building what would be the world’s largest automotive manufacturing complex, in Ulsan, Korea, with three automobile assembly plants employing more than 10,000. At that time, Hyundai had no demonstrable need for that much capacity in Korea, where the automobile market was still developing. But Chung had another strategy. He launched what would turn out to be an aggressive campaign to sell its cars outside Korea. By the early 1980s, Hyundai was exporting to Guatemala, El Salvador and Canada. The United States would soon be next.