Why Nissan's Disaster Recovery Bested Rivals

By Peter Nunn December 5, 2011

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There's no doubt that 2011 is turning out to be one of the toughest years on record for Japanese automakers. They have contended with two major natural disasters, a supercharged yen, strong and increasing competition from rivals in the United States and Korea, and sales in their perpetually moribund home market continue to shrink. How Japan's “Big Three” – Toyota Motor Corp., Nissan Motor Co. Ltd. and Honda Motor Co. Ltd. – have reacted to address the challenges has put them at center stage, working overtime to overcome. Japan is no stranger to adversity, from '80s-style trade conflict, to dealing with two so-called lost decades of economic growth to that perennial battle called yen appreciation. Even so, the pressures over the past nine months have been relentless.

Industry analysts, meantime, noticed something unusual as the months have progressed: in terms of recovery from the two natural crises – namely, the March 11 earthquake and tsunami in Japan and serious flooding in Thailand that started in September – one member of that J3 trio seems to have fared better and more effectively than others. That company is Nissan. Once upon a time, many would have assumed that it would be Toyota taking that accolade. Toyota, after all, is Japan's largest, most-powerful automaker with massive resources and a global standardized production system that for years was second to none. Or Honda, long seen as Japan's smartest, sexiest automaker, famed for its cutting-edge technology, world-class engines and independent pioneering spirit.

Instead, it's Nissan that's set the recovery pace, almost from the outset when the first tremors of that devastating earthquake began to hit north eastern Japan on that fateful March 11 Friday afternoon. The world saw the images on television. The horrific damage that was inflicted by the killer waves of the subsequent tsunami. The meltdown at the Fukushima nuclear plant that sparked prevalent radiation fears. The thousands left dead or missing. This was Japan's biggest tragedy since World War II and the nation naturally went into shock mode.

Production Suspended
In the auto sector, production was immediately suspended. In Nissan's case, the Iwaki engine plant was one of two assembly plants severely damaged by the earthquake. Its Tochigi engine and vehicle assembly plant was also put out of action. For Toyota, the plants that actually sustained damage were Central Motor's Miyagi plant and Kanto Auto Works' Iwate plant. But damage eventually proved slight (cracked concrete floors, equipment shifting out of place, that sort of thing) and no injuries were reported. Honda found that that none of its plants were directly affected by the quake but its Tochigi R&D center was badly hit when a wall collapsed. One worker was killed and 30 injured due to the giant magnitude-9 temblor. Within two weeks, Honda had its engineering and purchasing units back up and running again, albeit in a makeshift fashion.

Across the industry, vehicle production ground to halt. Not just to survey the damage but also due to the severe shortage of parts from suppliers in the stricken Tohoku area. Then something really unusual happened. Japan's automakers all clubbed together and formed a partnership to get component supply up-and-running again – it was cooperation rather than the usual cutthroat competition.

But in Nissan's case, there was something else. Within days of the March 11 quake, Nissan CEO Carlos Ghosn was on television, a film crew following him around the stricken Iwaki engine plant as he surveyed the damage. Speaking to reporters, Ghosn was clear and decisive in assessing what had happened, what needed to be done – and even was ready to say precisely when the engine-making plant would be operating again. Such openness and clarity is rare in the corridors of power of corporate Japan.

Art Of Crisis Management
Of the Japanese major players, Nissan seems especially well-versed in the art of crisis management. "We believe that Nissan was quick to get key executives together to assess the situation – and quickly implement solutions," commented Chris Keeffe, a Nissan spokesman in Yokohama. He then went on to draw a picture of the top men in charge, quickly gathering together, sitting down in a room to hammer out a course of action. "One of Nissan's strengths, which helped us overcome the challenges, was our working together cross-functionally, meaning that manufacturing, purchasing and R&D functions worked together for quick and focused recovery actions," he added. No doubt that Ghosn’s television appearance also helped spur the local authorities in Iwaki into action, too.

As it turned out, Iwaki was fully recovered by mid-May and the Tochigi plant came back on line in April. Even so, it took Nissan until October to achieve full and unrestricted production again in Japan, while Toyota claimed it got there in September (two months earlier than forecast). For Honda, Japan was 100% back as early as July.

Honda, though, seems to have come off much the worst amid the massive flooding in Thailand. In a blow to the company in what's already been a formidably tough year, Honda’s assembly plant in Ayutthaya, on the north side of Bangkok, was completely submerged and will be out of action for some while yet. Other Honda plants in Asia and Japan, as well as those in the United States and Canada, had to make production adjustments due to the limited supply of parts from Thailand – which, as with the situation after the Japan earthquake, underlines how interlocked the global supply chain has now become.

In Nissan's case, its Smut Prakan plant is based some 18 miles south of Bangkok and as soon as the flooding started, Nissan moved fast to shore up the plant’s defenses. While the plant was unaffected, its suppliers were inundated and so Nissan’s vehicle production was suspended. Nevertheless, the company was able to move with exceptional speed to restart limited production by November 14. What's more, throughout the crisis, Nissan said the impact of the floods to the supply chain didn't affect its vehicle production outside Thailand. Nissan was able to localize the impact much better than did Honda.

To some degree, Nissan can point to good luck. The flooding had different impact in various parts of the country and Nissan didn’t get the worst of it. But working with suppliers, effective pre-crisis planning also seems to have been a key. Once again, we hear executives gathered swiftly when the effects of the flooding were known. "Everyone co-operated to get information out globally, cross-region. Smooth information flow enabled everyone to work with the same information to seek solutions and prevented wasteful overlap,” said Nissan's Yokohama-based spokesman Chris Keeffe.

Even Toyota has noticed how Nissan seems to have been less affected than others by the year's disasters. At Toyota's recent event in Tokyo to detail first-half financials results, Executive Vice President Satoshi Ozawa said he didn't know exactly why Nissan should have fared better than its rivals in dealing with the natural disasters, but admitted that Toyota will be studying if anything can be learned from Nissan’s actions. High praise, indeed.

Parts Supply
Rumors in Japan suggest that parts-supply logistics played a role in Nissan's comeback. For one thing, the company happened to have put in a bulk order for parts just before the March 11 earthquake. Thus it had a plentiful array of parts in stock, helped to speed its recovery. Nissan doesn't always use the same suppliers as Toyota and Honda, which also could have been a factor. Nissan also has benefited greatly from its strategy of using common parts on a global scale, reported Japan's Nikkei. By using its low-cost “V” platform for vehicles in emerging markets and standardizing parts worldwide, it was able to swiftly resource to V-platform parts made in China when the Thai crisis hit. Nissan is not the only Japanese automaker to try this parts-commonization strategy, but Nissan’s recovery from the two natural disasters seems to indicate it has been the most successful at making it work.

Then there's Nissan's corporate organization. In the way it's structured, with Carlos Ghosn at the top and with several foreign-born executives making up the Nissan board, Nissan has a very different corporate look than that of Toyota and Honda, whose boardrooms are exclusively Japanese. The most senior non-Japanese on the Nissan board is Colin Dodge, a tough, plain-speaking Brit who now is chairman of Nissan Americas but who began his career at Nissan's Sunderland plant in the United Kingdom. In recent past, Dodge served as Chief Recovery Officer for Nissan in Japan as it's re-grouped in the post-Lehman financial world. It may be coincidence, but Toyota and Honda don't have executives with those exact responsibilities.

The ability to move metal also should not be discounted. As Toyota and Honda continued to struggle to deliver cars post March 11, Nissan was able to fill those gaps in the market with its own offerings. Thus the Altima (top) managed to outsell the Accord over several months in the U.S. market this year when the Accord was in short supply; outselling the Accord normally is tough duty for Nissan. In October, though, when normalized production was back in effect for Honda, the Altima reverted to number three behind Accord and Toyota’s Camry in the sales charts.

Still, in the United States, Nissan also has sales of the Versa, Rogue and Juke going well – and save for a 9.1-percent dip in May, Nissan's U.S. sales have been up significantly every month. Nissan also has been posting a solid sales performance in China and Europe throughout the year and it's this strength across multiple product lines and markets that have seen the company survive the worst – and caused rivals to take notice. Japan is one major market in the doldrums but there again, Nissan, in percentage terms (-13.7 percent through November), has fared better than Toyota (-30.6 percent) and Honda (-25.3 percent) so far this year. In the home market, Nissan has resumed its longstanding No. 2 position to Toyota, but still has no answer to the power of the Toyota Prius and Honda Fit, Japan's most in-demand vehicles.

In the big picture, Nissan comes over as perhaps the most quick-thinking and streetwise of Japan's top automotive players and that, no doubt, helped the company succeed in terms of recovery from the March earthquake and Thai floods. Nissan also has a portfolio of many good products and a broad, efficient global production footprint to manufacture them. Put that all together and add a slice of good fortune in the mix to explain why Nissan has managed to been more successful than its rivals in dealing with this 2011’s intense adversities.

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