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Case 6

Nissan United Kingdom, Ltd. John E. Walsh, Jr.

Entering into a Business Relationship in the United Kingdom

In 1970, three thousand Datsun cars rusting on the docks of Rot- terdam, abandoned by the existing U.K. concessionaire, was the cata- lyst for the relationship that developed between Nissan United Kingdom Limited (Nissan U.K.) and Nissan Motor Company of Japan (Nissan M.C.). Nissan Motor Company approached Octav Botnar, who arranged the transshipment and sale of the Rotterdam Datsun automobiles.

Botnar had arrived in Great Britain from West Germany in 1966 to reorganize a failing and insolvent U.K. distribution company (See Appendix A). By 1969, he had increased company sales by 300% with substantial profits, and in 1970, had established his own automobile marketing company called Moorcrest Motors.

Late in 1970, Botnar flew to Tokyo and arranged an agreement for a sustained distributorship relationship between Nissan M.C. and himself, changing the name of his company from Moorcrest Motors to Datsun U.K. Ltd.

In 1971, the Datsun name was unknown and customer resistance to Japanese products was high. If you told someone you had a Datsun, they assumed you were the owner of a small, German, sausage-shaped dog. The automobiles had questionable visual appeal, but were eco- nomical and reliable. In 1971, Datsun U.K. sold 6,900 vehicles; 30,000 vehicles in 1972; and 60,500 in 1973.

According to one Datsun U.K. executive, the phenomenal rate of growth was achieved by a totally new approach to marketing and selling automobiles. Botnar’s philosophy was that the right kind of

I would like to thank and acknowledge Edward M. Luttwak who helped in the prepa- ration of this case.

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dealer is self-motivated to make money and does not need a manage- ment hierarchy. Thus, the whole operation was single-tiered with direct contact between individual dealers and the Datsun U.K. office.

Dealers were given high margins, and profits earned by Datsun U.K. were constantly reinvested to improve facilities. Reinvestment was strongly encouraged by Nissan M.C. Botnar believed staff should be kept to a minimum (20 people established Datsun U.K.), and his was the smallest headquarters staff of any sizable automobile distributor in the U.K. with the best record of sales and turnover per employee.

Datsun U.K. avoided relying on outside supplies, preferring to develop in-house facilities where possible. The print room was a depart- ment of one, converted from the ladies’ toilet, and producing all the company’s publicity material.

In October 1973, the company suffered a major disaster when one of the worst fires on record in West Sussex destroyed the parts ware- house. Staff were outside watching helplessly as firemen battled the blaze. Botnar, keen to keep business running as usual, approached the parts manager. “What are you doing?” he inquired. “Watching the fire,” replied the parts manager. “I’ll watch the fire,” said Botnar, “You order the parts.”

In-house facilities continued to be a feature of Datsun U.K.’s opera- tion and now included Datsun Finance, Datsun Insurance, and Datsun Extended Warranty. Together, they provided the customer with a total ownership package.

Datsun U.K. was so successful during its first three years of opera- tion that Nissan M.C. amended the existing clause in their distribution agreement that would change the automatic renewal from three years to five, and renew automatically every five years, provided that Datsun U.K.’s obligations in the contract were met and agreed sales targets achieved.

By 1974, Datsun U.K. was outselling Toyota, its nearest Japanese rival by more than three to one. The U.K. was the only market in the world where Nissan outsold Toyota. The growth of Japanese automo- bile sales provoked British demands for import restraint. The Japan Automobile Manufacturer’s Association (JAMA) agreed in 1976 to confine sales within the limits of current market shares, which left Datsun U.K. with 6% of the entire U.K. market or 60% of total Japan- ese automobile sales in the U.K., and also 60% of total Nissan M.C. sales in Europe. In 1977, Datsun U.K. sold 82,000 automobiles. In 1978, sales exceeded 100,000, whereas Toyota sold 28,000 and Honda only 19,500.

Octav Botnar respected Chairman Katsuji Kawamata and President Takashi Ishihara, the two senior Nissan Motor Company executives, and they in turn respected him and depended heavily on his talents and advice. He and Ishihara had an understanding that any major operational difficulties could be referred directly to Ishihara who would

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resolve the problems personally. This procedure was rarely needed, but when it was, Ishihara took immediate action.

Under President Ishihara, management decision-making at Nissan Motor Company was based on seniority, as typified in these statements by Paul Ingrassia and Kathryn Groven in a Wall Street Journal article on November 1, 1989:

For years, a strict regimen governed the staff meetings at Nissan Motor Company’s technical center in Tokyo’s Western suburbs.

Employees wore identification badges listing not only their names but also their date of hire. No one could voice an opinion until everybody with more seniority had spoken first, so younger employees—often the most enthusiastic and innovative—seldom spoke at all. According to Satoko Kitada, a young designer, “. . . tasks were assigned strictly on the basis of seniority. The oldest designer got to work on the dash board. The next level down did doors. If a new person got to work on part of the speedometer, that was a great deal.”

Quite aside from his business interests, Botnar developed a deep inter- est in Japan and its history, in which he was widely read. He admired the Japanese belief in long-term relationships, the importance of mutual trust and harmony (wa).

Planning a Manufacturing Facility in the U.K.

The strength of the U.K. market motivated Octav Botnar to meet with President Takashi Ishihara in early 1980 to suggest that a base existed to support manufacturing facilities in the U.K. A new plant could not only service the U.K. but would be a source of exports that would overcome the restrictions on foreign automobiles enforced in other European markets like France, Italy, and Spain.

In July 1980, a meeting was held between key Nissan M.C. execu- tives, Octav Botnar, and the U.K. Minister of State and Department of Labor to discuss the proposed facility. After long discussions and many meetings about employment and industrial relations, financial assis- tance, environmental protection, local content, and nationalism, Nissan M.C.’s first step was to consider whether to proceed with a detailed feasibility study. The Minister of State would present the possibility of the study to the House of Commons. If the House of Commons was in agreement, an outline program for an investment would be prepared and presented to the Department of Labor for further discussion.

The project would include an assembly plant with a capacity of 5,000 units per month from one shift, which could be doubled later. A stamp- ing plant would be operative from the start with engines, axles, suspensions, and instruments initially being imported from Japan.

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Depending on the U.K. and E.C. market, one or two basic models would be produced; these would be world models—front-wheel drive with good fuel economy, suitable for the fleet market and previously introduced in Japan. If a decision to go ahead was made, the aim would be to start production within 2 or 3 years.

Norman Tebbit, the Minister of State, presented the proposed feasi- bility study to the House of Commons. A lengthy and spirited discus- sion waged, and continued sporadically throughout 1982 and 1983.

The U.K. Assembly Plant

By the end of 1986 an assembly plant in Sunderland, England began operations. The initial assembly started with minor changes to the Blue- bird and Sunny models. In 1987, the plant began assembling the new Stanza (GP model). Plant capacity was approximately 200,000 cars per year of a single model. The plant consisted of a car assembly plant incorporating a paint plant, a welding plant, a stamping plant, a unit assembly plant, and a machine plant.

The new Stanza model was substantially modified to make it increas- ingly suitable to U.K. conditions at the manufacturing stage in early 1990. The annual capacity in 1993 was 300,000 cars and engines, with 88% of production for export.

Because the plant was wholly owned by Nissan M.C., key manage- ment positions were held by Japanese. These managers introduced employees to “the Nissan way,” which stressed the proper use of people, lean car production, consensus flexibility and team work, and the social organization of control.

Sale of the Stock in Datsun U.K.

In June 1981, Botnar recognized that it was in the long term inter- est of Nissan M.C., Datsun U.K., and the U.K. dealership network for Nissan M.C. to acquire control of Datsun U.K. All of the shares, except those held by the Camelia Botnar Foundation, representing less than 2% of the total, would be sold. The effective transfer would occur when the U.K. plant became operational. Nissan M.C. agreed it was essen- tial for them to have control. The price of the shares would be based on the certified balance sheet as of July 31, 1981, with adjustments for any change at date of acquisition of net asset value and real estate value.

Nissan M.C. wished only to acquire the distribution of vehicles and parts. Botnar pointed out that the subsidiary companies, Datsun Finance Ltd., Datsun Parts Transport, Ltd., Datsun Plant and Indus- trial Machinery, Ltd., and Datsun Fleet and Leasing, Ltd., were of a vertical integration and formed an essential part of the operation and

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distribution. Nissan M.C. agreed but suggested that they should be separately valued by the assessors. Botnar stated that if Nissan M.C. did not wish to acquire or operate the subsidiaries, they would be sold off in whole or in part, and thereafter, to maintain their service to Datsun U.K. if required.

In May 1985, officials of Nissan M.C., and Botnar signed a letter of intent for the sale of Nissan U.K.* The shares would be sold in two stages. In the first stage, 26% would be sold, but no later than July 31, 1986. In the second stage all of the rest of the shares available would be sold on a date fixed by mutual agreement but would be completed before July 31, 1988.

For determining the value of the shares of Nissan U.K., the inde- pendent professional valuer(s) would be nominated respectively by both parties from among the internationally reputed valuation firms in the U.K. The report of the valuer(s) would not be binding on either party in respect to the value of the shares, but would be the basis for negotiation of the shareholders and buyers. The final price would be decided in negotiation between the shareholders and the buyers in con- sideration of the valuation.

A major management reshuffle occurred in April 1985. Nissan M.C.’s market share in Japan had dropped every year since the late 1970s. To revive the company’s marketing strategies and to shore up domestic sales, Yutaka Kume, 63, was made president, Takeshi Ishi- hara, chairman, and Katsuji Kawamata, counselor. Kume joined the company in 1946 as an engineer, with a background in manufacturing.

At the time of the reorganization, Yoshitada Uchiyama, executive vice-president in charge of overseas sales, wrote Botnar stating, “I am determined to contribute to the greater development of our overseas business, to ensure sales in the U.K. market.” After a personal visit to Botnar, Uchiyama praised Botnar’s energetic sales of Nissan auto- mobiles and Botnar’s excellent planning and timing in upgrading the dealership network in the U.K. At the end of 1985, Nissan U.K. sold 105,000 automobiles while Toyota sold 34,700.

Ending a Business Relationship in the United Kingdom

In March 1986, Katsuji Kawamata, the former chairman of Nissan died, signaling to Botnar a change in focus; the deference shown to for- eigners. At that time, Yoshikazu Kawana, 50, a soft-spoken economist and a member of the board of directors of Nissan M.C., headed up European operations.

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G *The name of Datsun United Kingdom, Ltd. was changed to Nissan United Kingdom on January 2, 1984.

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A Business Relations Agreement was signed on September 25, 1986. The agreement would be in effect until terminated by either party giving the other at least thirty days prior notice in writing. Any termination would be without prejudice to the rights and obligations of the parties as they relate to vehicles at the time when the termination takes effect, and the rights and obligations would continue in force and effect until such time as their agreement shall have been fully performed in rela- tion to such vehicles. No mention was made of arbitration procedures.

In 1988, the merchant bankers retained by Botnar valued total Nissan U.K. holding at 750 million pounds. Nissan Motor Company’s merchant bankers, after specifically noting that the estimate was not to be taken as a definite offer, stated that their method of valuation had produced the figure of 330 million pounds. This figure in Botnar’s eyes treated Nissan U.K.’s book value as if it were bankrupt, not a highly profitable business. Botnar countered with a memorandum to Nissan M.C. suggesting the sale of the core distribution business for 390 million pounds, while he retained the automotive financial group, the financial services, and a car removal unit. Kawana suggested tabling any negotiation about the subsidiaries until after the sale of Nissan U.K., and proposed an outside audit to determine profits and value.

Discussions with Kume and the negotiations for a sale price for Nissan U.K. led Botnar to write Kume in November 1988. He wrote:

I had an understanding with Mr. Ishihiara when he was president that any major operational difficulties could be referred to him directly when necessary. I seldom needed to use this line except in very extreme cases, but he resolved the problems personally.

I was trying to ascertain whether a similar arrangement could be estab- lished between us, because when I have addressed problems to you once or twice in the past, you have delegated them to your subordinates which was futile for us both. Nevertheless, I feel I should update you regard- ing the negotiations. I have never approached Nissan with a proposal to sell Nissan U.K. There was an agreement in principle in 1980 when Nissan publicly undertook a feasibility study on setting up a plant.

I agreed that it was reasonable for Nissan to aim to control the sales business in the U.K. in view of the large production volume involved and the importance of the U.K. market to the production plant. Furthermore, as Nissan M.C. did not have and still does not have staff with the expe- rience and expertise necessary for managing a business like Nissan U.K., it was agreed that a number of selected staff would spend some time working at Nissan U.K. prior to the acquisition in order to assimilate as much knowledge and know-how as possible to enable Nissan Motor Company eventually to take control of the business successfully.

In 1985, Nissan had decided to reduce its investment and to make in phase one a small plant, producing 25,000 cars per year initially from assembly kits, rising in phase two to 100,000 per year in 1992. This made the task of managing Nissan U.K. even more complicated.

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Suddenly Nissan presented itself as being ready to take over Nissan U.K. within a few months, with no training of any staff, no preparation, no knowledge of the company or the market and with no interest in the effect such a takeover would have on the management and staff of Nissan U.K. or the dealer body, and regardless of the fact that relations between Nissan U.K. staff and the dealer body had greatly deteriorated in recent years.

We were amazed at how Nissan personnel could have acquired the intricate know-how and expertise necessary for running a complex busi- ness like Nissan U.K., without having any knowledge of the business. Yet the whole problem as far as the Nissan delegates were concerned was to find out the purchase price—everything else was no problem.

We, on the contrary, consider that for Nissan to acquire the company at this time would be the worst thing which could happen to Nissan U.K., our staff, the dealer body, and for Nissan itself. The whole fran- chise in the U.K. would suffer considerable damage.

The Nissan delegates however were uninterested in the substantial factors which made the acquisition ill-timed, ill-advised and even absurd.

Briefly, the situation with Nissan U.K. and the dealer network is as follows:

The protracted public debate between Nissan’s top management in Japan, which was widely reported in the U.K. press, coupled with five years of shipping restrictions on Japanese cars to the U.K., severely undermined dealers’ confidence in the future of the franchise here. Many dealers left the network during this period, leaving the franchise greatly weakened.

From 1983, the problem of excess production in Europe heightened, and the fight for market share in the U.K. became fierce. Nissan’s main competitors bought market share at any price: Ford increased its share from 25% to 30%, General Motors from 8% to 16%, the smaller man- ufacturers increased their share and new direct competitors to Nissan entered the market in the shape of Hyundai, Seat, and the Eastern Euro- pean Marques.

Throughout this period, manufacturers have been applying a perma- nent policy of discounting, special terms for contract hire, leasing, and car rental companies. In order to compete in the market, Nissan U.K. has to offer the same incentives to its dealers.

The net result of this marketing policy is a huge increase in the size of the used car market in the U.K. and the sale of used cars has become crucial to the success of the dealers’ new car business—the used car market is now three times as big as the new car market.

The majority of Nissan dealers had insufficient space to cope with volume used car sales and the concomitant workshop activity, so the Nissan franchise ceased to be profitable for them and they turned to low volume/high profit margins such as Toyota, Honda, Mazda, Saab, Volvo, etc.

This, coupled with the appreciation of the yen from 1983 to 1986 of c. 50%, has made the whole new Nissan car sales business unprofitable, for the dealers as well as for Nissan U.K. Both Nissan U.K. and the

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dealers therefore had to engage in ancillary activities in order to survive in business.

No one in Nissan Motor Company seems to understand that even in the most profitable European franchises, Ford and General Motors, only 20% of the dealership profit comes from new car sales; used car profits are much higher and the dealers rely on their accessories, bodyshop ser- vicing, insurance repair, car rental and financing activities to keep the business viable.

The Nissan delegates were very interested in Nissan U.K.’s re- ported overall profitability, but although we tried to explain the business to them, they were not interested and seemed not to understand that the profit shown on the balance sheet is not generated only from new car sales, but mainly from returns on retained dividends, the finance business, transport, accessories, property rental and retail activities, etc.

The delegates were not aware and/or interested in the dealer network and how much had to be done to enable Nissan U.K. to maintain its market share in the wake of the shipping restrictions, the erosion of the price competitiveness of Nissan cars, not to mention the increased sales in line with the extra production available from the U.K. plant.

This was strongly reminiscent of my short experience with Nissan when I gave up the Nissan franchise in Switzerland in order to concen- trate on the greater task of developing the U.K. market in view of the production plant. When I handed over Nissan Suisse to Nissan (without asking any consideration for goodwill), its market share had been increased threefold in five years; we were ready to overtake Toyota and we were making 10 million Swiss francs profit per year.

Now, three years later, Nissan has doubled the headcount, lost market share to the extent of being overtaken even by Subaru and Mitsubishi, experienced a drop in sales to one third of Toyota’s, and shows annual losses of several million Swiss francs.

It is ironic that at the time of Nissan’s acquisition of Nissan Suisse, the general manager, a German gentleman, had the impertinence to announce several times in the press and in the presence of the new chair- man of Nissan Suisse, that some “order” would be returned to the fran- chise now that Nissan was running the company.

Such a level of crass and mindless behavior is really unbelievable in a company of purported international standing, even if the top manage- ment were unaware of it—like the fact before discussions about Nissan U.K. had seriously started, the delegates were asking Nissan U.K. staff to help them to find a replacement for me, as chairman of Nissan U.K.

In view of this, I could not permit the same fate to fall upon my loyal staff and dealers in the U.K. In fact, we honestly and openly believe that now the absurd saga of discussions with Nissan’s delegates about the acquisition of Nissan U.K. is over, Nissan has been dealt a great service.

Since 1985, we have been buying and building 150 new dealerships, of a high enough standard for Rolls Royce and Mercedes. The show-

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rooms are first class, they have ample facilities for volume new and used car retailing, bodyshops for used car repair, and profitable insurance work and government testing facilities for used cars; an investment so far of £250 million.

We have created our own separate retailing network, which trades exclusively new Nissan cars, operating under the name of AFG Limited, an independent commercial enterprise. It has the capacity to retail 100,000 used cars. It is the largest motor retailing company in the U.K. and probably the largest in Europe.

We are convinced that it has turned out to Nissan’s advantage not to have invested in Nissan U.K.; the investment would have been wasted because we do not think Nissan could ever have done a similar job.

In relieving Nissan from this burden, we consider that Nissan M.C. will be in a position to use all its know-how and competence in other major markets in Europe such as Germany, France, the Netherlands, Spain, and Italy, where Nissan cars are sold through back street garages with no investment of facilities, leaving Nissan obliged to underprice and discount the cars in order to sell them; in Europe, Nissan retail prices are on average 25% under the local competition, which must have a sig- nificant bearing on Nissan’s profitability, whereas in the U.K. we sell at the same price as Ford and General Motors, the market leaders.

As far as the U.K. is concerned, we would ask you not to worry. We are doing everything necessary and possible to develop the business in view of the expansion of the U.K. plant. We are also ready to repeat that we are not considering selling the company. Should the situation ever change in the future, Nissan would have first refusal.

I appreciate your confidence in Kawana, and I am sure that with these things clear between us, there will be cooperation on day-to-day prob- lems between Nissan U.K. and Nissan.

I trust that this letter will not offend you or anyone else at Nissan. Although some issues may be unpleasant to face, my only intention in writing is to try to explain a very complex situation and series of events with the objective of being of help to Nissan.

Kume’s reply was short, reserving comments and rebuttals. Because Nissan U.K. would not be sold, all understandings and intent premised on its purchase would cease. Nissan M.C. would need to reexamine its relationship with Nissan U.K. in the future.

At the end of 1988, Kawana met with Botnar to discuss how to reestablish the formerly good relationship between the two companies, and explain the new Nissan Europe structure that he would head. Kawana wanted both parties to cooperate and would send Nissan people to learn the U.K. market and develop some expertise. He added there were no perpetual agreements and restated Botnar’s position; Botnar would not accept 12 months of termination in a new distribu- tor agreement if it was proposed.

During the next six months, Nissan M.C. reduced Nissan U.K.’s profitability by denying supplies of models more easily saleable with

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higher profit margins, and exacting high transfer prices for autos that were supplied. Furthermore, Nissan U.K. was charged more for autos than its counterparts in other countries in Europe. The price dif- ferential between Germany, the Netherlands, and the U.K. averaged 19–24%.

Botnar wrote Kume complaining that Nissan’s export department behaved irresponsibly in allocating in favor of Germany and the Netherlands by preferential pricing and supply. The tactics were meant to illicit a commitment from him for higher volume. A manager repre- senting Kawana attempted to negotiate a price increase of 10–12%. After prolonged negotiations, Kawana interceded and agreed to a 3–4% increase.

In October 1989, Botnar and Nissan U.K. executives came to Tokyo with factual information to resolve pricing and model allocations through face-to-face negotiations. During the discussions, Nissan M.C. deduced that Nissan U.K. was trapped, and in Botnar’s view, propos- als from Nissan M.C. were insulting.

In November, Kume summarized the meeting, stressing the impor- tance of trust and confidence for building stable and sound business relationships. He believed that all Nissan people carried out their jobs in a fair, equitable, and responsible manner under his direction. The U.K. operations were no exception, assuring Botnar that every trans- action was not done to force him out of business, or to undermine him. Kume hoped that Botnar would understand Nissan’s situation in respect to profitability and R & D. Nissan’s export business to the U.K. was not profitable, which restricted Nissan M.C.’s support.

Botnar wrote Kume and said he lacked trust in Nissan M.C. because of Nissan’s unfair pricing and supply policies, and the procrastinating tactics used by Nissan in pricing negotiations over the last three years. Botnar felt that all of the tactics were designed to make trading conditions with Nissan unacceptable and the franchise unprofitable so that he would be coerced into relinquishing the Nissan franchise altogether.

In 1989, Kawana investigated the sale of 70% of the Automatic Financial Group (AFG) by Botnar. Botnar explained that this group was owned by him and was not part of Nissan U.K. Therefore, man- agement of AFG would remain with him. Botnar expressed the hope of cooperating with Nissan M.C. honestly and fairly, but at the end of the year Nissan U.K. was notified it would be denied supplies of two highly salable high margin models.

On November 15, 1990, Automotive Magazine published the fol- lowing article:

The war of nerves between Octav Botnar’s Nissan U.K. and Nissan Europe has taken a new twist with the announcement that Nissan Europe is to set up a London office.

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Former Ford fleet supremo David Hurst, the Nissan Europe director responsible for the UK and Eire, will move from Amsterdam to head up a new office, in Arlington Street SW1, which opens on November 19. The move pointedly makes no reference to Nissan U.K.

The move will increase pressure on Nissan U.K., which has been locked in bitter disputes with Nissan Europe over pricing of the new Primera, and will fuel speculations that the wrangle will escalate into a full-scale power struggle over the UK concession.

The importer’s retail affiliate, AFG, meanwhile, has put “for sale” signs up over the doors of yet more dealerships; currently 27 are up for grabs. Sales will continue to fall next year, the company claims.

Nissan U.K. has had to negotiate with Nissan Europe over the Primera price, and claims the margin it receives does not allow it to market the car aggressively to the fleet market. Nissan U.K. revealed that only 1,500 Primeras have been sold since the car was launched in September.

Nissan M.C. has in the past made no secret of the fact that it would like to reclaim the U.K. concession, which Mr. Botnar established in 1968 and holds “for life.” But negotiations have continually faltered.

In November 1990, Botnar suggested that he and his team meet Kume and the top Nissan M.C. leadership in Tokyo to jointly develop principles for pricing and the model mix. He stated again that if Nissan M.C. desired to buy Nissan U.K. he would be ready to negotiate a sale. His letter was sent to Kawana. A meeting was held in Amsterdam, but both Kawana and Botnar sent subordinates to represent them.

Kawana accused Botnar of being responsible for the deterioration of the relationship between Nissan U.K. and Nissan M.C., and suggested that Botnar behaved irrationally and rejected the renewal of talks on the purchase of Nissan U.K. by Nissan M.C.

On December 31, 1990 Kawana formally wrote to Botnar stating that Nissan U.K.’s distribution franchise would be canceled as of December 31, 1991. He stated, “The Distribution Agreement will ter- minate in one year form this date. This notice does not void Nissan U.K.’s responsibilities regarding vehicles already ordered, and Nissan M.C. is ready to provide its products until the termination of the Agree- ment under the existing terms.”

Press releases were given concurrently with the dispatch to Botnar who was questioned about the cancellation before he received the letter. Nissan U.K. filed suit against Nissan M.C. and its British manufactur- ing and European distribution subsidiaries, to enjoin the defendants to maintain the Distribution Agreement first signed in 1971 and the Busi- ness Relations Agreement of 25 September 1986; demanding a retrac- tion of the cancellation of that agreement; and damages for the breach of the two agreements.

In March 1991, Botnar was approached on behalf of Nissan M.C. with offers to buy out his holdings, or at least the AFG dealerships.

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This time the intent was serious, but Botnar refused to negotiate because the amount offered was a distressed sale price.

In May 1991, Nissan M.C. and two of its European-based affiliates, Nissan Motor Manufacturing U.K. and Nissan Europe, petitioned the Japan Commercial Arbitration Association for arbitration, seeking to confirm the cancellation of Nissan U.K.’s distribution rights, to pro- hibit Nissan U.K. from using Nissan trade names, trademarks, etc., and to have Nissan U.K. pay the cost of the arbitration. The opening section suggested that Botnar had a shadowy, perhaps Nazi past (actually, Botnar was a resistance fighter against the Nazis, see Appendix A), and he engaged in tax evasion. Coming as it did from the foreign supplier of a U.K. importer, this accusation naturally triggered a massive tax raid (extensively covered on television). It included a search of Botnar’s own home, and was followed by the false rumor that he had been arrested.

Nissan M.C. claimed that the prices it charged to Nissan U.K. over the years were especially discounted to assist its growth, and that Nissan U.K. chose to regard those prices as normal, rather than as an exceptional favor.

In the petition, Nissan M.C. further made a whole series of charges:

1. That the splitting off of Automotive Financial Group from Nissan U.K. and the subsequent transfer of a sizeable portion of its shares to the Union Bank of Switzerland violated Article 21 of the Memorandum of Distribution Agreement (see Appendix B).

2. That an attempt by Union Bank of Switzerland to sell its Auto- motive Financial Group holding to Nissan M.C. was blocked by Botnar.

3. That efforts by units of the Botnar group to acquire sale fran- chises from other car manufacturers (albeit after the cancellation notice) violated Articles of the original Distribution Agreement (Appendix B, Article 16).

4. That its cars have been sold at higher prices in Britain than on the Continent because Nissan U.K. exacts abnormally high profit margins.

5. That the publicity given to the over-pricing accusations against itself by Nissan U.K. violate Articles 18 and 28 of the Distribu- tion Agreement.

In late 1991, Nissan U.K. answered Nissan M.C.’s petition, and also presented a counterclaim to stop attempt to have arbitration in Japan. In seeking the dismissal of all Nissan M.C.’s claims and the payment of all arbitration costs, Nissan U.K. pointed out that:

1. Nissan U.K. never signed any agreements with two of the peti- tioners (Nissan Motor Manufacturing U.K. and Nissan Europe)

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that called for disagreements with them to be handled by arbi- tration in Japan.

2. The current contractual arrangements between Nissan U.K. and Nissan M.C. based on the 1985 Agreement, which did not call for arbitration in Japan, whereas the 1971 Agreement arbitra- tion clause only comes into effect if questions arise in connec- tion with that agreement.

3. Nissan U.K. was successful because of its own widely-recognized marketing abilities, not because of any special pricing conces- sions from Nissan M.C.

4. The Automotive Finance Group (AFG) was separated from Nissan U.K. to accommodate Nissan M.C.’s limited funds for the purchase of Nissan U.K., and that the establishment of AFG did not constitute a transfer of the core import and distribution business. Further, when the Automotive Finance Group was established as a separate entity, Nissan M.C. raised no objection.

5. Nissan U.K. also denied further Nissan M.C. charges that it failed to submit order and sales forecasts. The latter were duly provided as requested, when Nissan M.C.’s own pricing sched- ules allowed such forecasts to be made on a sound basis. One cannot forecast how many cars can be sold without knowing their prices.

6. That it never failed to make payments or accept the delivery of vehicles on due dates to “any unreasonable extent.”

Appendix A Biographical Note: Octav Botnar

Ever since he became widely known in Britain as an innovative and very successful businessman, attempts by the British press to profile his life story collided with Botnar’s refusal to give out any information.

Octav Botnar was born on October 21, 1913 in Czernowitz, the German-speaking cultural center of Bukovina, then part of the Haps- burg empire, annexed by Romania in 1919, annexed again by the Soviet Union in 1940, and now part of the Western Ukraine. His name at birth was Oswald Bundorf; he adopted the named Octav Botnar while in the French resistance against the German occupation.

A left-wing political activist while still a schoolboy, he was arrested at the age of sixteen and imprisoned for three years by the Rumanian authorities. After the outbreak of the Spanish Civil War in 1936, he volunteered for the Republican cause, but was detained while in transit through France. When World War II began in 1939, he joined the elite 22me Regiment de Marche of foreign volunteers. After the Armistice of June 1940, he became a prisoner of war. Escaping in November

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1940, he immediately joined a resistance network of German speakers who specialized in penetrating the German occupation forces to carry out anti-Nazi propaganda.

After the arrest of the original leaders, he organized his own resis- tance network, which at one point edited, printed, and distributed a German-language anti-Nazi newspaper at the rate of 100,000 copies per issue. From 1943, he led escaped Russian prisoners of war in ambushes and raids against the German occupation forces. He survived numerous firefights.

Following the Allied liberation, he remained in France until his return to Romania in late 1945. Recognized as an outstanding organizer, he was first given the task of reconstructing the war-damaged transport network of the capital, Bucharest, and subsequently spearheaded the emergency relief effort during the famine of 1946. After the full Com- munist takeover, he continued to be given important positions, but in 1960 he was arrested and tried as a “capitalist spy.”

In 1964, weighing 40 kilograms, Botnar was released from the forced-labor barges of the Danube delta where many died of hunger. In 1965, he emigrated to West Germany where he obtained immediate citizenship as a former Hapsburg citizen. Already 52 years old, he could only find work as a car salesman. He was so successful in reorganizing a dealership of NSU (the small German auto manufac- turer absorbed by Volkswagen in 1969) that in 1966 he was sent to Britain to rescue NSU’s failing British distribution company.

Appendix B Articles from Memorandum of Distribution Agreement

Article 8: Term of this Agreement

This Agreement shall continue in force and govern all relations and transactions between the parties hereto for a first period of three (3) years as from the date of signing, unless this Agreement is terminated as provided for hereinafter.

Article 16: Prohibition on Dealing in Other Motor Vehicles

Without NISSAN’s prior written consent, the Importer shall not buy, sell or otherwise deal in motor vehicles of any kind manufactured in Japan except the Motor Vehicles or any motor vehicles manufactured elsewhere the price, size and performance of which are similar to those of any Motor Vehicles or which are sold in competition with the Motor

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Vehicles. The Importer shall also strive to make its dealers agree that they will not buy, sell or deal in motor vehicles of any kind manufac- tured elsewhere the price, size and performance of which are similar to those of the Motor Vehicles.

Article 18: Advertising

The Importer undertakes to make the Products known in the Territory in order to achieve the maximum possible sales of such Products. NISSAN may at its own expense advertise and defray costs of public relations work to the extent NISSAN may consider advisable.

Article 21: Right of Termination

This Agreement shall continue in force and govern all relations and transactions between the parties hereto until the termination thereof or same is canceled on the grounds hereinafter mentioned.

In the event of non-performance, unsatisfactory performance and/or violation by the Importer of the provisions of this Agreement then NISSAN shall give to the Importer sixty (60) days written notice requir- ing the Importer to remedy such non-performance and unsatisfactory performance and/or violation as be specified in the notice.

i) An Assignment has been made by the Importer of the whole or an important part of its business without the written consent thereto first having been obtained from NISSAN which written consent shall not be unreasonably withheld.

ii) A Court Order for the liquidation of the Importer has been granted or a resolution to the effect has been adopted by the Importer to liquidate its business.

iii) A Petition in Bankruptcy has been filed against the Importer. iv) The Importer has failed to comply with NISSAN’s request to

rectify any non-performance, unsatisfactory performance and/or violation specified in NISSAN’s notice sent to the Importer, NISSAN shall have the right to cancel this Agreement on an additional thirty (30) days notice to the Importer.

All the outstanding orders, debits and/or credits affected prior to the termination of this Agreement under Article 8, 16, 21, and/or clause 1 (2) of this Article shall be valid even after such termination of this Agreement.

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Article 28: Increase of Sales

The Importer undertakes to use its best efforts to increase the demand and enlarge the outlet of Products of NISSAN and undertakes further to do everything in its power to improve the sales from year to year and also to improve as a result thereof the reputation and the good name of NISSAN and its Products.

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