With Carlos Ghosn In Beijing: Go Where The Growth Is

by Bertel Schmitt

Published: July 26th, 2011

with carlos ghosn in beijing go where the growth is

In fulfillment of my paparazzo duties, I stalked Nissan’s and Renault’s CEO all the way to China today. Easy for me to do: I could walk from where I live in Beijing. The walk was worth it. In the Grand Ballroom of the China World Tower 3, Ghosn and his Chinese joint venture partners announced an aggressive five year plan. Nissan and Dongfeng want to nearly double Nissan sales in China from 1.3 million in 2010 to 2.3 million in 2015.

The plan is less ambitious than it sounds. Currently, Nissan has 6.5 percent market share in China. “Our objective is 10 percent market share,” said Ghosn. That means that they budget for a total market of 23 million in 2015, up from 18 million last year. China-watchers think this is very conservative.

To reach that goal, the joint venture has to build a lot of capacity. Underscoring that the 2.3 million are not just targets nobody takes seriously, current plants are being expanded, new plants are being built. Capacity in China will be 1.5 million units next year, and will reach 2.3 million by 2015. Over the next five years, Nissan “will launch around 30 products” in China.

This growth will do little to ease unemployment elsewhere. Already, 90 percent of the parts going into Nissan cars in China are made in China. Ghosn expects localization “to reach nearly 100 percent by 2015 with our extensive network of 400 local suppliers.”

Speaking of localization, Ghosn said something today that will raise eyebrows in Japan, Europe, and around the globe if they hear it:

“I am also proud to recognize that in addition to China being home to the largest volume facilities in the Alliance, it is also home to the best performing plants. Based on our global ranking system that measures quality of production and products, our plants in Huadu and Xiangyang rank first and second against 34 other plants in the Alliance.”

Keep those eyebrows up. Ghosn repeated and perfected a sideswipe at M&As, which he thinks are past century. He believes in “shared growth,” brought by alliances:

“From the alliance with Renault to our strategic partnership with Daimler, Nissan has a proven track record of successfully managing cross-cultural and cross-functional relationships.”

As we could see yesterday in our comparison of Japanese car companies, those relationships seem to bear fruits. Ghosn is focused on where the growth is: The emerging markets of this world.

Back in Ye Olde Country, Ghosn’s cost cutter colleague Sergio Marchionne still believes in old-style mergers, because “alliances don’t squeeze enough value out of the partnership,” said Bloomberg yesterday. If your home market is moribund Italy, and if you have been given a Chrysler when it was still in the emergency room, then you better squeeze as hard as you can.

You don’t have to squeeze as hard if you are big in emerging markets, and a major player in China, which is, as Ghosn had remarked a month ago, “one of the most profitable markets in the world. It used to be the United States. Now it is China.” And is anybody budgeting for twice the Chrysler sales by 2015?

#BertelSchmitt #CarlosGhosn #China #Dongfeng #Japan #Nissan

Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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Cammy Corrigan on Jul 26, 2011

Herr Schmitt, A few months ago there was a paranoia running rampant that the Chinese partners will eventually divorce their rich foreign husbands and keep the technology and Chinese market for themselves in the divorce settlement. With the Chinese government acting as the divorce lawyers for the wives. I still believe this will happen, but since you're TTAC's "Herr" in Beijing, is that paranoia still there? If so, maybe Ghosn will want to re-think that investment in China and look for somewhere more safe. Like Russia.... :O)

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- Bertel Schmitt on Jul 26, 2011
  
  That paranoia had been there when I arrived in 2004, and at all the JVs, the foreigners said "In 8 years, they'll throw us out." Did not happen. JV contracts that expire ( Volkswagen's contract did, GM will be next) are extended.
  
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- Eldard on Jul 26, 2011
  
  @Bertel Schmitt REminds me when Panasonic recently sold its battery division to the Chinese and there were some causes for concern. I recently argued with an American "patriot" (whatever taht means) on another car site lamenting that it was America that retooled Japan and Germany after WWII and allowed them to become what they are now. Yeah, because 60s American car tech is going to save Detroit in the here and now. It doesn't really matter if you give away current tech. What's more important is who can innnovate faster. My money's still on Japan and Germany (and to a lesser extent, Korea.) Though I am looking forward to the Roaring 20s. In the Chinese era. ;)
  
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- Cardeveloper on Jul 26, 2011
  
  @Bertel Schmitt Bertel, please explain to me the logic in requiring the JV's establish their own "brands". If that isn't setting up to kick out their partners, I don't know what is. It's interesting to note the JV's (govt?) are requiring 75-80% domestic content, no imported content need apply.
  
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- Bertel Schmitt on Jul 27, 2011
  
  @Bertel Schmitt First of all, the JVs are not "the government." The JVs are entities usually owned 50:50 by foreign and Chinese companies. The Chinese companies usually "maintain good relations" with the government to paraphrase Ghosn. The only mostly government owned JV would be Shanghai GM, which maintains good relations both with the Shanghai Municipal Government and Washington, DC. Second, I said nothing about a 75% to 80% local content requirement. A JV can produce 100% CKD, but that would be silly when cars built in the West are up to their headliners full of Chinese parts. I had explained the alleged logic behind the "Chinese" brands several times, I'll do it again. The official reason is to provide low-cost cars to the toiling masses. Some carmakers don't buy that logic. Why spend the money for another brand, dealer networks etc. if you just can make low cost cars under the JV brand? There are unsaid reasons: When Shanghai GM sells its low cost Chevrolet Sail in China, "Chevrolet" and "Sail" are still owned 100% by GM, and if the paperwork is written well, there are license fees going from Shanghai to Detroit (or Delaware). When Shanghai GM makes a BaoJun, then the "BaoJun" BRAND is owned by the JV. Profits are split, but no more license fee cost items. There may be license fees for the designed in Detroit, made in China components under the hood. Also, JV contracts usually forbid exportation of the JV-made car. If the JV-made car is suddenly "Chinese," no such limitations. Shanghai GM has seen the light and exports made-in-China Chevys. Lastly, there is a market for Chinese cars in China. Local brands hold about 50% of the market, supplied by "independents" such as Chery, Geely, Brilliance, BYD and a legion of others. Consolidation must and will happen in China, and the SAICs, BAICs, FAWs, Dongfengs etc of China want to have Chinese brands to prepare for and to hasten the death of the unfit.
  
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Eldard on Jul 26, 2011

2nd pic says "shoot me."

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