Bad blood: Nissan's Ghosn-Saikawa team was complicated

YOKOHAMA, Japan — One summer morning last year, when Carlos Ghosn was still the respected and feared guiding light of Nissan Motor Co., he was joined by executives and personnel at Nissan's global headquarters for the unveiling of a new piece of corporate artwork.

A year later, that festive commemoration provides a telling glimpse into the brewing management crisis that is now threatening Nissan and the Renault-Nissan-Mitsubishi alliance.

Chairman Ghosn basked in the moment. But CEO Hiroto Saikawa, the man who served for years under Ghosn's high hand and followed him as chosen successor, was none too pleased.

Making its debut was a towering metal sculpture of intersecting circles titled "Wheels of Motion." The work — by an artist from Ghosn's ancestral homeland of Lebanon — celebrated Nissan's transformation from near-bankrupt national embarrassment in 1999 into a driving force behind the international alliance the executive built into the world's biggest automotive empire.

In short, the sculpture was actually a thinly veiled monument to Ghosn himself.

Saikawa had learned of the event only shortly before, when asked, as the company's new CEO, to review a draft announcement. The Nissan career man was perturbed he hadn't been informed, according to a source familiar with the matter. He was also unhappy the project was commissioned outside Nissan's internal design department and that Nissan paid $1 million for it.

Some Nissan insiders aware of Saikawa's reaction found it petty and micromanaging. But others saw the morning's unveiling itself as a poorly timed ego trip by Ghosn, a lavish salute to himself.

"It raised eyebrows," recalled one person in attendance that day. "People were wondering who paid for it, who commissioned it and why. And why not use a Japanese artist?"

If bad blood was already brewing that day between Nissan's CEO and its chairman, it finally boiled over last week. Japanese authorities indicted Ghosn last week over allegations of financial improprieties uncovered through an internal Nissan investigation.

Ghosn, 64, a man once hailed as a hero in Japan for restoring Nissan to health, is now entering his fifth week in a Tokyo jail along with American human resources executive Greg Kelly. Ghosn would face 10 years in prison if found guilty of misstating his compensation in the carmaker's annual securities reports.

Yet behind the legal battle rages yet another struggle — over legacy.

Two competing narratives are unfolding about Nissan and its recent history.

The version forwarded by Saikawa and others at Nissan is that Ghosn drove the automaker into trouble by chasing global market share at the expense of sustainable profitability.

The alternative narrative holds that it was Saikawa who fell down on the job, that he had fumbled Ghosn's 2017 handoff of the CEO job and allowed Ghosn's momentum to slow. Some people familiar with the situation claim that Ghosn was preparing in recent weeks to reassert control of Nissan, moving Saikawa aside.

Saikawa was the dedicated company man trying to chart a new path for Nissan after Ghosn's years of leadership. But Ghosn remained hovering in the background, larger than life and still perceived by many as the company's ultimate decision maker.

On the eve of Ghosn's indictment, new details emerged that, as chairman, Ghosn was planning a management shakeup that would remove Saikawa from office.

Ghosn was dissatisfied with Nissan's performance under Saikawa and was prepared to discuss the shuffle during a trip to Japan, said one person familiar with the decision. It was on that trip, as their planes landed in Tokyo, that Ghosn and Kelly were arrested.

"It was a path to a different CEO," another person privy to details said of the shakeup plan.

Ghosn was critical of Nissan's recent sales slump in the U.S. and of Nissan's overall direction, one person said. Operating income fell 17 percent in the first half of the current fiscal year ended Sept. 30, 2018.

Ghosn also was unhappy with Saikawa's handling of the ongoing final inspection scandal in Japan, a discovery that Japanese factory personnel were not following correct inspection procedures before releasing vehicles into the market. The resulting recalls of 1 million vehicles — in the Japan home market only — have dented Nissan earnings.

Saikawa's age was another issue to be discussed on Ghosn's trip, one source said. At 65, Saikawa has reached his expected retirement threshold.

But Ghosn never had a chance to bring the matters before Nissan's board. Authorities arrested him on Nov. 19 and he was dismissed as chairman three days later while locked up.

People who know both men say Saikawa is every bit as strategic and laser-focused as Ghosn, if not as charismatic or nattily attired. Japanese employees sometimes find Saikawa intimidating. The brush-cut Nissan lifer, they say, is happier working overtime than drinking with the boys.

Saikawa began purging Ghosn's legacy just hours after the powerful chairman's arrest. At an evening news conference, Saikawa slammed his longtime colleague as the "mastermind" of "significant" fraud and called his tenure a "long regime." Saikawa publicly criticized Ghosn for amassing too much power, losing touch with daily operations and neglecting Japan.

Sensing the corporate sea change, many at Nissan have quickly fallen in line.

When Nissan announced it was recalling another 150,000 vehicles in Japan this month because of bungled final inspections, executives weren't shy in linking the problem partly to Ghosn's policies of relentlessly pushing for cost cuts and volume. They noted that the inspection equipment at one of the affected plants was outdated for lack of capital investment.

Nissan Corporate Vice President Seiji Honda cited Ghosn's cost cutting when asked about the recall.

"Since Mr. Ghosn arrived at Nissan, did it spur this kind of nonconforming practice?" he asked. "Partially. Partially, there may be a tendency that has been spurred by this pressure."

The friction between Ghosn and Saikawa dates back to Ghosn's final years as CEO, when Ghosn was pushing hard to achieve the goals of his Power 88 midterm plan unveiled in 2011. His targets were to reach an 8 percent operating profit margin and 8 percent global market share. The market share goal relied heavily on Nissan's North American operations reaching a 10 percent market share, a gain of more than 3 percentage points from the plan's starting point.

But by 2016, the plan's final year, Ghosn began backing off his targets. And in the end, he missed both of those goals. In November 2016, he appointed Saikawa co-CEO, and in June 2017 Saikawa became sole CEO.

Saikawa debuted in the role by unveiling a six-year business plan that specifically steered away from his predecessor's aggressive numerical goals. He said Nissan wouldn't overstretch itself, and he instead proclaimed a theme of "steady growth and maintaining a certain level of profitability."

He promised a kinder, gentler Nissan focused on improving brand image. This was welcome change among some Nissan employees, squeezed by cost cutting, and some Nissan dealers, who had been squeezed by aggressive stair-step incentives from the Ghosn era and other profit-eroding practices.

"Saikawa's job was cleaning up the mess that Ghosn left behind from trying to achieve targets that were too ambitious," said Tatsuo Yoshida, a senior auto analyst at Sawakami Asset Management who worked at Nissan during the beginning of Ghosn's tenure. "Saikawa saw himself in charge and wanted to do what he thought was right for the company."

But that shift raised red flags among some Ghosn acolytes who saw ambitious growth targets and volume as essential in a new globalized era when only the biggest automakers would survive.

Indeed, Nissan's sales in the critical U.S. market immediately plunged under Saikawa's softer approach, as the company began dialing back incentives and fleet sales. Combined sales of the Nissan and Infiniti brands fell 28 percent in April alone. By November, they were down 7.6 percent for the year in a market up 0.4 percent.

Saikawa had warned it would be "no pain, no gain" as Nissan lurched to a more sustainable path. But an uncooperative market only exacerbated the hurt. Overall U.S. demand stagnated and sedan buyers all but vanished, just as Nissan was rolling out a redesign of its flagship Altima four-door.

In Japanese companies, the chairman is traditionally a figurehead who relinquishes operational control. But even after he stepped aside as CEO, Ghosn acted more as a shadow boss, controlling such things as final remuneration for other executives, as well as for himself.

If Ghosn and Saikawa didn't see eye to eye, they still maintained a veneer of civility.

Despite Saikawa's initial reservations about Wheels of Innovation, for instance, he duly opened the event and feted his boss for his leadership. The company even flew in a group of French journalists to chronicle the unveiling. But Nissan's corporate body language told a different story. The company issued an English-language press release of the event only a month after it happened. And curiously, it never got around to issuing one in Japanese for the home market.

Now that Ghosn is in jail, any jockeying for power between Ghosn and Saikawa is done. Neither Ghosn nor Kelly have spoken publicly since their arrests. But Japanese media have reported that Ghosn denies wrongdoing, and Kelly's lawyers say he also maintains his innocence.