(FORTUNE Magazine) – During a weeklong tour of Nissan's facilities in North America in mid-November, chief operating officer Carlos Ghosn spent 4 1/2 hours under a hot Arizona sun driving a dozen cars, vans, and pickup trucks at the company's test facility. Ghosn piloted all the vehicles with zest, but he got a special kick at the wheel of a sports model, the Skyline GT-R, which he quickly accelerated to its electronically limited top speed of 110 miles per hour. Ghosn's test session was closed to outsiders, but Nissan engineers in attendance describe him as a vigorous driver who knows how to extract performance from a car. And from subordinates too. "He put us through the wringer with his questions," said one, "but it is really exciting to have a senior executive who is truly interested in the product."

So far, Ghosn (rhymes with "bone") has yet to win a reputation as a bona fide "car guy." But this forthright, animated man did receive considerable acclaim as "le cost killer" for recently turning around the French carmaker Renault. Now that Renault has bought a controlling stake in Nissan, he plans to drive the ailing company back to financial health--and the Japanese are worried. Ghosn's blunt statements about Nissan's weakened condition and its need for massive work force reductions have landed him on the front pages of newspapers across the country.

There is a good reason the Japanese are wary of Ghosn. The changes he has proposed could permanently alter traditional business practices, such as lifetime employment, seniority-based promotion, and cross-shareholdings. If he succeeds, it is not an exaggeration to say that he could be the foreigner who has made the biggest impact on Japanese life since General Douglas MacArthur broke up the holding companies and democratized Japan's economy after World War II.

That's a big "if," of course. Ghosn, 45, has received no endorsement from government officials, and he has been blistered by some business leaders. Says Jay Woodworth, an independent Asia auto analyst based in New Jersey: "Ghosn is pressing the outer limits of what is doable, both within the company and externally, with the government and Nissan's very tough labor unions." Toyota Chairman Hiroshi Okuda, no stranger to Western business practices, took note of the 21,000 workers (14% of the total) that Ghosn wants to remove from the Nissan payroll over the next three years, and observed, "It will be difficult for Nissan to implement its plan, given that there are such a large number of people" to be let go. Okuda, who heads an organization of Japan's largest employers, sent a message to member companies on the same day that Ghosn revealed his plan, warning them against using large-scale layoffs to solve business problems.

Analytical and unsentimental, Ghosn is unmoved by the criticism. He believes he is on a mission, and he is determined not to let anyone stop him. "The situation at Nissan is bad, and some radical change has to be done," he said in an interview with FORTUNE in Tokyo. "There are fundamental management problems. Nissan has to do things that make business sense, not because of habit or tradition."

While Ghosn's methods are controversial, almost no one disagrees with his premise. Nissan has lost money and market share throughout the 1990s, and it labors under a debt load that reached $19.4 billion at the end of 1998. Last year Nissan spent $1 billion on interest payments alone, money that should have been reinvested in modernizing its aging product line. To make things worse, the company has a stodgy, ineffectual management, a dysfunctional corporate culture, and a model lineup that ranges from mediocre to unacceptable. There is no sign that Nissan was making any improvements under its old management. It lacks a clear profit focus, a strategic vision, or any sense of urgency. "Nissan has never really done anything well," says MIT professor Michael Cusumano, who has written several books on the Japanese auto industry. "Their technology is average or below average. Their supplier network is average or below average. They have no distinctive competence." In Japan, where Honda is known for its engine technology and Mazda for it styling prowess, Nissan has always been thought of as second fiddle to Toyota--the Al Gore of the Japanese auto industry.

Ghosn's plan to revive Nissan is direct, comprehensive--and bloody. Besides the payroll reductions, he wants to close five plants and cut production capacity by 30%. He wants to reduce the number of suppliers by half, and he's asking those that remain to cut prices by 20% over three years. He plans to slash overhead by 20% by, among other things, eliminating one-fifth of Nissan's dealers in Japan. But it's not all cost cutting. To restore growth, he plans to boost capital spending to 5% of sales, from 3.7%, and move new products into foreign markets like Europe and North America four times faster than before.

To ensure that there are no doubts about his determination, Ghosn has studded his plan with benchmarks and goals. He expects Nissan to break even by March 31, 2001, and to achieve operating profits of 4.5% two years later. He isn't leaving himself any safety net if he fails. "We will have to bear the consequences," he says. "It would not be, 'I'm sorry, we are going to come back with another plan.'" Analysts have applauded his audacity. J.P. Morgan Securities' Nick Snee, who follows Nissan from London, said, "There is no company whose middle managers can't be unfrozen by strong and clear leadership from the top, and Carlos Ghosn is going to supply lots of that."

The thawing out may take a while: Ghosn still faces resistance within Nissan. "There is a certain amount of denial," says one insider. "There is a group in the company who still think this will blow over, though their number grows smaller by the day." Many managers are upset by Ghosn's intent to sell Nissan's shares in hundreds of affiliated companies. A number of them have business relationships with these companies, and they will resist the loss of power and prestige that will come if the ties are dissolved.

But Ghosn is counting on the crisis atmosphere--as well as on his status as an outsider--to get results. Says he: "Everybody at least shares this constant: There is no way we can continue to do what we used to in the past. It is certainly an advantage to be from outside Nissan. It frees you from any kind of responsibility for what has been done in the past. And it allows you to challenge in a very decent way what has been done without anybody's having a second thought about, 'Hey, where were you when we were doing this?'"

Ghosn will have help. He has recruited 17 Renault managers, including a chief financial officer and a head of product development, to go to Nissan with him. Typically impatient, he gave them 48 hours to decide whether they wanted to move from France to Japan. He's also created nine cross-functional teams to drive reforms in areas like purchasing and manufacturing. Nissan President Yoshikazu Hanawa will stay on to serve as a liaison with government and labor, but the restructuring has taken a personal toll. During public presentations of the plan in October, he betrayed a severe nervous tic and uncharacteristically deferred all substantive questions to Ghosn.

In background, perspective, and energy, Ghosn epitomizes a new breed of borderless global managers, of whom Ford CEO Jacques Nasser is the most prominent example. These executives are multilingual, have worked around the world, and seem impervious to jet lag. Ghosn, who was born in Brazil of French and Lebanese parents, speaks five languages (he is still learning Japanese) and has held major jobs on four continents. He made his reputation running the North American operations of Michelin tire in Greenville, S.C., where he presided over a successful restructuring as well as the acquisition and integration of Uniroyal Goodrich. It was a delicate job because he had to close plants and fire workers without antagonizing the rubber workers' union, but he got through it without a strike.

Ghosn had just returned to Michelin headquarters in Paris in 1996 when Renault Chairman Louis Schweitzer recruited him to restructure the automaker. Renault was riding a surge in European auto sales, but its costs were high and its efforts to internationalize were moving slowly. Ghosn tried out the tactics he would later use at Nissan: close plants, reorganize manufacturing and purchasing, and trim the supply base. To prove he could create as well as cut, Ghosn championed the renewal of Renault's product line by introducing cleverly designed new vehicles like the Megane Scenic, a minivan that looks tiny but somehow manages to carry seven people with an innovative two-three-two seating arrangement. But he still got tagged with the "cost killer" nickname (which he detests) that French newspapers hung on him.

Ghosn's restructuring put Renault back in the black after just one year of losses and is expected to produce annual savings of $3 billion a year. But Renault was still selling 85% of its cars in Western Europe--a third of them in France alone--and it sorely needed a partner to help it go global. It had retreated from the U.S. in 1987 and failed to acquire Volvo in 1993. More than a year ago, Renault speeded up its search for a partner. "When Daimler-Benz and Chrysler announced their merger," recalls Ghosn, "it created a lot of homework for executives at all the car manufacturers, who were asked, 'Look, how are we going to compete with megacompanies like this?' The question at Renault was very simple: How are we going to survive? And the answer was, You are going to have to join forces with whoever complements you in the best way possible."

Nissan was also looking for a partner--or a savior. With its continued losses and high debt creating a combustible condition, Hanawa declared last January that the company would welcome an investment by a foreign automaker. Nissan had several suitors: both Ford and DaimlerChrysler actively investigated a linkup, though both decided they had more urgent opportunities elsewhere.

Where others saw a pile of debt and an intractable company culture, Renault saw a promising opportunity to break out of its corner of southwestern Europe and gain the size and heft it needed to join the ranks of the car giants. Renault had only a tiny auto presence in Asia and none in America, two areas where Nissan was a player. In addition, Renault could make use of Nissan's advanced technology and lend the Japanese automaker some of its marketing and design expertise. Combined, Renault and Nissan would rank as the fourth-largest auto producer in the world, behind GM, Ford, and Toyota and just ahead of Volkswagen.

In March, Renault agreed to invest $5.4 billion in Nissan in exchange for a 36.8% stake. It also got veto power over capital expenditures and an agreement that Ghosn would become Nissan's chief operating officer. To be sure, Renault was buying a troubled company, but it went into the deal with its eyes open. "Nissan was an excellent opportunity," argues Ghosn. "We would never have done this if Nissan was not cash strapped. It helped them recognize that the best answer was an alliance." Note those words: an alliance, not a merger. Mindful of the rocky relationship between Daimler and Chrysler, Ghosn didn't want to waste energy merging operations and answering awkward questions about who was in charge. He believes that the two companies are better off working together as partners without trying to combine their businesses and create a common culture. Other automakers have similar arrangements; GM, for instance, owns a stake in Isuzu, which gives it a window on the Japanese company's advanced diesel engine technology.

Success in the auto industry starts with good products, and Nissan's history of mistakes leaves Ghosn plenty of room to make improvements. For years Nissan tried to go model to model against Toyota, which is one-third larger. That meant Nissan's cars were late to market and cost more because Nissan didn't have Toyota's economies of scale. Engineers dominated the company and tended to put more features into the cars than customers would pay for. In the 1990s, for instance, Nissan pioneered active suspension but eventually withdrew it from the market because of customer apathy. The chief engineers also dictated styling decisions with predictable consequences. Conservative to a fault, Nissan became enamored of formal four-door sedans like Cedric and Gloria in its home market and completely missed the trend to car-based sport-utility vehicles like the Honda CR-V.

Takahiro Fujimoto, an economics professor at the University of Tokyo and the author of several automotive books, attributes Nissan's design failures to its inability to learn from experience. "Nissan's weakness is both strategic and organizational," he says. "In strategy, Nissan tried to mimic the scope and scale of Toyota but never achieved sufficient sales. Organizationally it failed to convert its technological and manufacturing potential into attractive product concepts, styling, and brands. Toyota is also bureaucratic, but it learns faster."

Boring cars are only the beginning of Nissan's problems in the U.S.--its second-largest market after Japan--where sales have been depressed for more than a decade. Nissan sold just 621,528 cars and trucks last year, more than 209,000 fewer than in its peak year, 1985. Its market share has steadily declined from its high of 5.6% in 1980 to 3.5% through October of this year. The company has veered off the road numerous times, beginning in 1981, when it replaced the well-known Datsun brand on its products. "The hubris of Nissan management showed a total lack of understanding for marketing," asserts MIT's Cusumano. "That was the start of their massive decline." Nissan also turned a deaf ear to its U.S. managers. For years the Americans begged for cars and trucks that were more attuned to the U.S. market, with bigger engines and more contemporary styling. Instead they received boxy subcompacts, slow-selling coupes, and underpowered trucks.

To make things worse, the U.S. became a dumping ground for Nissan's excess production. Nissan liked to run its plants at full capacity regardless of how well the cars were selling because, under its bookkeeping rules, the plants were generating a profit even if dealers were selling cars at a loss. Nor did it help that managers got bonuses on the basis of production, not profits. "We had a lot of excess production that we had to force on the market," says Jed Connelly, the top American executive at Nissan North America in Los Angeles. At the same time that Nissan dealers were slashing prices and offering big rebates to move its cars, Nissan's Smyrna, Tenn., plant was running at top speed and winning awards for productivity.

Years of discounting and distress sales seriously undercut the value of the Nissan brand. While Toyota stood for quality, customers came to Nissan to get a better deal. Ghosn estimates that Nissan stuffs a $1,000 bill in the trunk of every car it sells in the U.S.: That's the difference between the profit it makes and the profit on a comparable Toyota or Honda. To improve its image, Nissan lavished $200 million on an unorthodox advertising campaign two years ago called "Enjoy the ride," featuring a spectacled Japanese actor and a Jack Russell terrier. The quirky campaign won lots of awards, but potential customers were unmoved.

Infiniti, Nissan's money-losing U.S. luxury division, has fared even worse. Another instance of Nissan's playing catch-up with Toyota, Infiniti reached the U.S. market a few months after Lexus in 1989 and has been behind ever since. Today Lexus outsells Infiniti nearly three to one. Ghosn says the dealers are starving for products. Infiniti's skimpy model line seems to be composed of odds, ends, and afterthoughts. Its compact G20 sedan reached U.S. only after it had been on sale in Europe for two years, which meant that it was already out of date when it was launched. Infiniti's flagship, the chrome-bedecked Q45, looks more at home on Tokyo's Ginza than on Rodeo Drive and has been a sales disappointment for a decade.

Ghosn thinks he can boost Nissan's standing in the U.S. in a hurry. "In the U.S., when you have strong products, marketing incentives disappear immediately," he says, snapping his fingers. "It takes longer in Europe and Japan because customers are more brand-conscious." First on his shopping list is a full-sized pickup truck that will give Ford and Chevy some competition, followed by a big sport utility along the lines of the Dodge Durango. Nissan is also developing a car-based sport-utility that would be sold at Infiniti dealers too, as well as a new minivan that would replace the existing Quest.

Nissan already has one certified hit on the U.S. market, the Xterra, a sport-utility vehicle for under-30 buyers that has copious amounts of storage space for athletic gear. Ghosn hopes to get another winner after he chooses from among three competing designs for the successor to the iconic Datsun 240Z sports car, which was originally introduced in 1969. A new Z-car would do little to boost sales volume--two-seaters aren't big sellers--but it would raise the morale of Nissan dealers and give a lift to the company's image.

In the past Nissan has blitzed the market with new models only to run out of gas, but Connelly is convinced it won't happen this time. "With the focus Mr. Ghosn has given our company, I don't think we'll lose our way the way we have before," he says. One thing Connelly doesn't expect to see are any Renault cars on Nissan dealers' lots. Customers have long memories about the reliability of French cars.

Closing plants, reducing head count, and increasing purchasing efficiencies are chapters out of the standard turnaround playbook, and Ghosn has been there, done that. More difficult will be executing some intangibles: creating the right products at the right price, and marketing them in a way that is consistent with an overall brand strategy. After all, what does Nissan really stand for? Getting designers out from under the thumb of the chief engineers and giving them more room to be creative is a start.

Ghosn has moved his family of six to Tokyo, and he is studying Japanese. Weekends, he takes competitors' cars out onto the crowded highways around the city. He is expected to remain at Nissan for three to four years. If he fails to reach the targets he has set for himself, he might take a different position back at Renault or run another automotive supplier like Michelin. But if he returns Nissan to respectability, he will be able to get a job almost anywhere. Clearly he'd like to stay in autos. "Business is tough; you need tough guys," he says. "It would be easier to make money in other sectors, but since I was a kid, I liked cars." Maybe "le cost killer" will turn out to be a car guy after all.