Managing Operating Exposure and Fx Risk at Nissan

TUI University

Jorge A. Ramirez

BUS 401Module 5

Dr. Prakash Menon

Core and Coordinating Professor

Oct 30, 2010

Managing operating exposure and FX risk at Nissan

In 1999 Nissan was in a really bad possession. The company was carrying massive debts, experiencing heavy losses, and to top it all off they had developed a badly damaged brand reputation. The CEO of Renault, a European auto maker that didn’t have such a great outlook themselves, decided that they would spend $5 billion to buy effective control of Nissan that year. As you can imagine there was skepticism to say the least. Amongst those skeptics was Robert Lutz, who is currently vice-chairman of General Motors Corp. He publicly stated that Renault might as well have dumped the billions in the Pacific Ocean.

At that time Renault appointed Carlos Ghosn, a savage cost-cutter and first-class intellect, as CEO of Nissan. Carlos Ghosn himself though that his chances of salvaging this company were about fifty-fifty. One of the first thing Ghosn did as CEO was to shutter a Renault plant in Belgium and cutting billions in costs by leaning on suppliers and in-house units alike. He determined that he had to slash purchasing costs by 20%, reduce capacity by 30%, close five plants, and displace 20,000-odd workers through layoffs and attrition. Needless to say, these actions were not openly received by Japan. Japan’s public viewed the sale of the company to foreigners almost as an act of treason. Nissan belonged to a massive web of business alliances in which they valued stability over sound financial management. Unfortunately for Japan, this mindset in this case, did not work. In Japan, such large companies were viewed as simply too big to fail. They figured that if the banks in their network of partners didn’t jump in to save them, then the government would. But, there is no way they could be stable without the financials to back them. These companies had billions of yen tied up between...