The Zen of Nissan

Cover Story: The classic Z car is back. Can it rev up a tired brand?

Business Week - International Edition 07/22/02

author: Chester Dawson

Six months after being dispatched by his bosses at Renault to overhaul Nissan Motor Co. (NSANY ) in 1999, Carlos Ghosn had lunch with an esteemed visitor in the company's 16th-floor executive dining room at its Tokyo headquarters. His guest was the former head of Nissan's U.S. sales subsidiary, Yutaka Katayama, father of Nissan's original 240Z sports car. Universally known as "Mr. K," Katayama came to plead a case that had been coldly rejected by Ghosn's Japanese predecessors: Revitalizing the Z car line.

To the Z-maniacs who still inhabit every corner of the U.S. and Japan--and who drive their friends and families crazy with their Z fan clubs, their obsessive search for spare parts for vintage models, their weekend rallies--this lunch was a high moment in the history of the automobile. Anyone born after 1965 won't get it, but for 15 years--from 1970 to 1985--the Z sports car was the ultimate thrill machine, an unbeatable combination of rakish lines, raw horsepower, and affordability that young Japanese and American guys found impossible to resist. To this day, middle-aged men who can't remember the name of the girl they took to the prom can still tell you everything about their first 240Z. The inline six-cylinder engine. The 150-horsepower kick. The long nose of the hood. And that first sweet moment on the highway when the Z opened up and showed what it could do.

But at the time the 89-year-old Mr. K sat down to lunch with the brash, no-nonsense Ghosn, the Z was headed for extinction. Production had slowed to a trickle as the company attempted to stave off bankruptcy. U.S. sales ceased in 1996. The arrival of Ghosn, whose ruthless downsizing at Nissan-parent Renault had earned him the nickname "Le Cost-Killer," seemed to guarantee that the Z would soon be very, very dead.

The unsentimental Ghosn, however, had a surprising answer for Katayama. "When I broached the subject of the Z, his face lit up, and his eyes shone," says Katayama. "I couldn't have been happier with his response." Recalls Ghosn, now Nissan's CEO: "It was obvious. I could not imagine reviving Nissan without putting the Z back on the road." Turns out the Cost-Killer was a Z-man, too. When he worked for tiremaker Michelin in the U.S. in 1989-96, he often took a company-owned Nissan 300ZX for a spin in the mountains near its North American headquarters in Greenville, S.C.

Now the boss has something else to tool around in. On July 5, the all new 350Zs started to roll off the assembly line at the Nissan plant in Oppama, Japan. Ghosn himself got the first 350Z produced, a silver 3.5-liter V6 model with burnt-orange leather seats, a 240-watt seven-speaker Bose stereo system, and Nissan's own Carwings navigation and infotainment system. The car doesn't quite levitate, but maybe that will be an option in an upcoming model.

Ghosn's decision could be a milestone for Nissan. Although the company has climbed back from the brink of insolvency in the late 1990s, historically Nissan's fortunes have ebbed and flowed roughly in sync with the popularity of its Z cars. The high performance and dashing design of the Z created a halo effect for the rest of the Nissan line, even back in the days when the company was known as Datsun in the U.S. In their heyday in the late 1970s and early '80s, Nissan and the Z were style pioneers, both in Japan and America. "Nissan had the true sports cars," says John Yukawa, who is project head for the 350Z--and who quietly kept a group of Nissan designers working on the Z even when the line seemed headed for the junkyard. "That's why I signed up and why many others like me joined--in hopes of working one day on a Z." But Nissan then forsook its style heritage by focusing too much on bland, Toyota-style sedans. The result was a decade of design ennui for Nissan, and a near-death experience as profits and sales plunged.

Ghosn has deftly turned this situation around. Wringing out savings from suppliers and scrapping excess factory capacity allowed Nissan to post a record net profit of nearly $3 billion for the fiscal year that ended Mar. 31--a 12% increase over the previous year. Sales, though, grew less than 2%, to $49.6 billion. Now, Nissan can no longer depend on cost-cutting alone to boost profits. The carmaker can push suppliers only so far. Already, Kawasaki Steel Corp. and component maker Calsonic Kansei Corp. have put Nissan on notice they'll fight further price concessions. To keep the profit momentum going, Nissan sales must rise soon and keep rising. "The real battle for Nissan is yet to come," says Takashi Oshika, a research director at Mitsubishi Research Institute, a Tokyo think tank.

Ghosn vows he will boost overall Nissan vehicle sales to 3.5 million by 2005, up from 2.5 million in 2001. And he plans to use the Z, which has a starting price of $26,809, as part of his full-scale sales offensive. Already, Nissan has scored hits with cars such as the new Altima sedan and the G35 from the company's upscale sister brand, Infiniti. All together, Nissan is preparing to launch 28 new models worldwide--from luxury SUVs such as the Infiniti FX45 to U.S.-size pickup trucks and budget subcompacts--in the next three years. One goal of Nissan's big rollout is to shed its dowdy image.

As the 350Z heads for the showrooms, Ghosn's big hope is that a bit of Z-ness will rub off on other models, which could translate into higher margins for all Nissan cars. That's what happened when the redesigned, more muscular Altima was introduced last year: The car drew customers into Nissan showrooms, and, even if they didn't buy an Altima, many drove off with a Maxima or Sentra. A smash hit with a Z would draw in tens of thousands more. "It's not just another car in our lineup," says Ghosn. "It's really the symbol of the revival of our company." And the symbol of Ghosn's personal victory, too. A successful Z launch will seal his bid to run both Nissan and Renault in 2005--which would probably make him the most important auto exec on earth.

No wonder Ghosn, who's usually big on delegating authority, took a personal interest in this car. Throughout the Z's redevelopment, Ghosn kept designers on their toes, insisting on such details as making the speedometer easier to read and redoing the interior to make it more like Porsche and BMW. In the fall of 2000, at a viewing session in the courtyard of Nissan's main research and development center near Tokyo, he made a snap decision that sent his designers back to the drawing board just days ahead of the planned final design "freeze." The reason? Ghosn didn't like the Z prototype's single rear exhaust pipe. Real sports cars, he insisted, have two tailpipes. "That required a lot of reworking," recalls chief designer Mamoru Aoki.

While the new Z pays homage to earlier Zs, with its rear quarter windows and trademark circular "Z" insignia, the overall design is a radical departure from the original. Indeed, Nissan explicitly rejected a retro look for the Z. Instead, it wanted something that incorporated touches of the past--such as the trademark hatch in back--but reflected prevailing moods in the industry. Its broad stance and compact frame clearly echo recent designs by trendsetters such as Audi, BMW, and Porsche. What its designers refer to in Japanese as the car's kibi-kibi ("tight") look mimics a professional racing machine--from the minimalist cockpit to its aerodynamic exterior. "We modeled it after a Formula One car," says Aoki.

That's a real makeover from the 240Z's long snout and narrow body--key Z-car DNA that had been retained in previous model changes. Another major departure from the first Z is the pricing strategy. Although Nissan did meet its pledge to keep the 350Z below $30,000, top-of-the-line models approach $37,000. That's way below some rivals, such as the $51,600 Porsche Boxster S, but still not pocket change for the younger drivers who were the original's most ardent fans. The starting price for a 240Z in 1969 was $3,500--half the price of rivals. That's about $17,000 today when adjusted for inflation.

This time, company officials say they're not aiming for first-time car buyers and cash-poor youths with a need for speed. Instead, "this is a good third car for somebody with a sedan and a truck," says Patrick Pelata, Nissan executive vice-president, product planning chief, and a former Renault exec and key member of Ghosn's brain trust. So Nissan spared no expense in packing the newest Z with standard goodies--from a powerful 287-horsepower engine to brushed aluminum trim on the dash and separately shaped seats for the passenger and driver. Nissan figures the car will be a hit with thirtysomething lawyers and bankers as well as aging baby boomers with a nostalgic bent. "To me, it's everyman's sports car," says U.S. sales and marketing chief Jed Connelly.

But competition is heating up among midrange sports cars, even as demand has fallen in the past decade. In that shrinking market, the Z's price tag may yet prove a liability. "There's not much point in launching a car at an uncompetitive price," snipes Lewis Booth, CEO of Mazda Motor Corp., whose RX-8 sports car, to be launched next year, is expected to start at about $20,000.

It was high prices that killed off the earlier Z line. The tab for a fully loaded 300ZX eventually ballooned to nearly $50,000, a big turnoff, even for a high-performance vehicle. To avoid that mistake, Nissan designed the current Z to .....

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share its chassis among three models and so split the bill for development. That's a big edge, because the cost of creating a new model from scratch averages nearly $500 million. The 350Z also shares its V6 engine with the Altima, Maxima, and G35.

Among many parts that will be shared are the air-conditioning units. All told, seven different Nissan and Infiniti models will use the Z's basic architecture by 2005, accounting for 200,000 cars a year. Says planning chief Pelata: "We'll have the same kind of economies of scale as the Mercedes-Benz C class cars or BMW 3 Series."

When it comes to looks, the Z's shorter overhangs in front and back give it a rounded appearance akin to Audi's successful TT roadster. At the same time, the clean geometric shapes of the door handles, windows, and wheels are meant to identify it clearly as a member of the Nissan family. As for performance, early reviews say that the Z is dead-on in its attempt to strike a balance between sports car zest and value. "If you liked the original 240Z, you'll love the new 350," writes Csaba Csere, editor-in-chief at Car & Driver, who points out that the Z has nearly as much horsepower as a Porsche 911, a car that costs 2 1/2 times the price.

Nissan expects to sell the bulk of the 40,000-50,000 Z cars it plans to produce annually in the U.S. The original sketch for the 350Z's angular design was drawn up by Ajay Panchal in Nissan's San Diego design studio, with American buyers in mind. Nissan will debut a roadster version of the 350Z in the U.S. later this year. U.S. dealers are betting that the Z will eventually outsell even the Chevrolet Corvette--which means annual U.S. sales of 30,000 units, a big number for a sports car. Chevy officials, though, insist they don't feel threatened. "Our buyers are Corvette people," says Ken Thompson, a sales manager at Frank Parra Chevrolet in Dallas. "The Corvette has a place of its own."

In the U.S., early signs for the Z are encouraging. Advance orders for the car already top 7,800 units. Nissan plans a major U.S. advertising campaign for the Z starting in August. The campaign will feature a new slogan for the brand, similar to the "Shift_the Future" line being used in Japan.

Excitement is building back home in Japan, too, where Nissan is expected to sell several thousand Zs a year. Limited edition toy versions of the car are trading on Japanese Internet auction sites. Nissan has begun an aggressive teaser ad campaign, showing a profile of the car under the slogan, "One step ahead: Meet the Z."

But even in the birthplace of the Z, some opinion-makers remain critical. Makoto Oura, chairman of Japan's biggest Z car club, says Nissan should have settled for a smaller, 2.0-liter engine and cheaper parts to make it more affordable to average Joes. Although he has one on order, he admits that "I bought it because it's a Z, not because I'm especially thrilled with the package."

That concern looks like the one warning flag as the Z begins to roll out. But Ghosn is betting drivers will forget the sticker price the minute they get behind the wheel and shift into first. If Ghosn is right, this car could be his greatest legacy at Nissan--good enough to trade in Le Cost-Killer for a new moniker, Mr. Z.

By Chester Dawson in Tokyo, with Larry Armstrong in Los Angeles and Joann Muller and David Welch in Detroit