What Carlos Ghosn sees in Brazil

October 5, 2011, 3:58 PM UTC

Nissan this week is announcing that it will invest about $1.5 billion in a new assembly plant near Rio de Janeiro, Brazil. Its strategic partner, Renault, will invest about $750 million to expand an assembly plant in near Curitiba, Brazil. The push is aimed at more than doubling the combined share of vehicles sold by the two automakers in Brazil, which just last year became the world’s fourth-largest vehicle market. Carlos Ghosn, chief executive of Nissan and of Renault, discussed automotive investment, as well as global politics and economics, in a phone conversation with Fortune from Brazil.

Nissan (NSANY) and Renault are pursuing aggressive expansion in Russia, India and China — why is Brazil the last of the BRIC nations to command your attention?
“Renault actually was here starting in 1997, but that was before my term as CEO and the first years weren’t successful. In 2005, when I took responsibility for Renault, we first needed to fix what was here. The financial crisis of 2008 postponed a lot of things. But now we have Nissan and Renault together in Russia and India and Nissan in China. Our alliance will have the four BRIC countries. In the next stage Renault will be part of the plan in China.”

Since you were born in Brazil and spent the first six years of your life here, does the investment in production have any special meaning for you?
“I have a lot of attachments and ties here. I moved to Lebanon when I was six; lived in Paris from age 16. But I kept my Brazilian citizenship and have family members here. I also worked here as an executive for Michelin. It’s rewarding to finally say that I’m playing on my own turf, and I think that people here recognize me as a familiar face.”

Is Brazil’s economic boom going to end soon, thereby rendering your initiative late or ill-timed?
“There’s a lot left in Brazil. I don’t think it’s reached its potential. The country is extremely wealthy in terms of natural resources such as water, oil and precious metals. The population is growing. The democracy is stable. Auto ownership is only 250 cars per 1,000 residents, compared to between 550 and 580 in Europe. I feel very good about the decisions we’re announcing. I’m not looking at the near-term perspective as much as I’m looking at the next ten years.”

How will you finance the investment?
“Renault and Nissan have pretty good free cash flow. Nissan has plenty of cash Renault’s debt is extremely small, a billion euros, for a company its size. It’s not going to be a problem.”

What would be your “elevator pitch” to someone who needed convincing that Europe can emerge intact from the Greek debt crisis and broader economic and political difficulties for the European Union?
“It’s hard for me to imagine that Europeans won’t resolve these concerns. The EU was formed for political, rather than purely economic, reasons. I don’t see anyone wanting to go back to the bad old days with everyone fighting one another. Bottom line is I don’t think Europeans are so stupid as to blow up Europe now. Things might be complicated and slow, but we’re not stupid, we’ll muddle through. What the decisions will be I can’t tell you. [The EU] will protect the euro and it will protect Europe. I may be wrong, but I think the
markets are exaggerating [their reaction].”

As someone who spent a significant part of his life in Lebanon, what is your reaction to the upheavals across the Arab world, known as the “Arab spring?”
Without getting into particulars, there are two or three phenomenon that are critical. One is demography. The majority of the Arab world is less than 25 years of age. Young people are well-connected and see what’s happening in the world. They are profoundly frustrated because they see no way to change things, no alternatives. There’s too much economic inequality, too much poverty — and if you don’t have a job, things can get explosive. Frankly, I don’t think we have seen the end of it. The West can help by contributing, as much as possible, solutions of wisdom and tolerance. What is happening is irreversible, the transition to democracy doesn’t always happen smoothly; it can happen with violence. Lebanon has a history of emigration. Don’t forget: In many of these countries there’s little or no emigration so there’s no where to escape.”

How can debt-laden governments worldwide continue to fund subsidies tied to sales and development of electric cars like the Nissan Leaf and soon-to-be introduced Renault Fluence? Aren’t they in trouble?
“On paper you are right, the financial problems will challenge programs. In reality, not one program has been ended. In the UK, France, and the Obama administration they’re telling me that they intend to maintain (subsidies). The Chinese want electric cars. Electric cars represent one of the few areas that governments and corporations can cooperate to make something happen that will benefit the public.”

Do you think the strength of Japanese currency will push automobile manufacture from Japan to other countries?
“If the yen remains at the level of today I say publicly that it will be difficult to justify any new project in Japan. 76 yen to the dollar isn’t competitive for us. We’ll have to move jobs, we’ve said this to the government. We have to make decisions on new projects all the time. Instead they’re going to go to China, Thailand, Brazil, India, the U.S. Japanese people don’t speak too much, but they act. If the government doesn’t pay attention, it will have a problem.”