Q: Japan now is restricted to shipping 2.3 million cars to the United States annually. At that level, do quotas really affect Nissan's sales performance in this country?

A: It means that we are getting about the same number of shipments from Japan as we did last year. So, whatever increase in cars we have to have here will come from Smyrna [Tenn., where Nissan assembles subcompact cars and pickup trucks].

Q: But with the yen rising against the dollar, do the quotas really matter? Wouldn't the change in yen-dollar value affect your market share in the United States?

A: I think so. If we pass along the yen appreciation in our prices, certainly it's going to affect our sales. It's kind of difficult to say to what extent it's going to affect us. But beyond the 10 percent price increase level , it's going to affect our sales in some way.

Q: Are you going to have a 10 percent price increase?

A: About 10 percent above the prices in effect at the end of 1985. Most Japanese manufacturers so far have increased prices around 4 percent as a result of the dramatic change in the yen-dollar relationship.

The 4 percent increase, which we did last December, I don't think that it's affecting our sales at all.

Q: Why not?

A: I think that there is a demand-supply situation. Our demand is still higher than our supply.

Q: What about pressure at the lower end of the market? You all have some formidable entries at the upper end with the 300 ZX and the Maxima. But a lot of your product is still at the lower end, which now is under attack by Korea and everyone else.

A: Well, certainly the lower end is going to be affected by the Korean entry the 1986 Hyundai Excel . So, I think that, not just us, but all other Japanese manufacturers are working toward upscaling their product lineups in some way or other. That's going to be a trend for everybody, as far as Japanese auto manufacturers are concerned.

Q: That little Nissan car in Canada, the Micra, would that be coming into the United States?

A: No, we don't have any plans for that.

Q: Well, it's going to get a little crowded in the upscale end of the market, isn't it?

A: Yeah, I think so. In the upper segments, I think, competition is getting tougher.

Q: Under what circumstances might you change your view on bringing the Micra into the United States?

A: Well, I think that, if the VRA Voluntary Restraint Agreement placing quotas on Japanese auto exports to this country continues, I don't think that there is a niche for this kind of Nissan vehicle in the U.S. market, because of the new entries in the lower segment. At this time, I don't see that there is any benefit for us to introduce that particular model to the U.S. market.

Q: You seem to be saying that the one way the VRA seems to be affecting you all is that, if you didn't have the VRA, you could bring in the Micra?

A: Yes, yes. Originally, we had plans to introduce Micra in the United States. But, because of the VRA, we dropped the plans.

Q: Well, in order to maintain your 5 percent market share, you have to hold onto some part of the lower end of the market. There's only so much space at the top. Should the VRA continue, would you consider building the Micra minicar or its equivalent in the United States?

A: No, we don't have that planned at this time.

Q: Are you planning any expansion of your facilities at Smyrna?

A: No, we don't have any plans to do that now. The capacity of the Smyrna plant is 240,000 units a year, half for small pickup trucks and half for our Sentra car. That's our current plan. But, as the market demand dictates, we may change the mix of production at Smyrna.

Q: Change the mix, but keep the current capacity?

A: Yes, keep the production level at this time.

Q: Based on its stated U.S. production plans and its projected import sales in this country, Honda likely will pass Nissan this year as the No. 2 Japanese seller in the United States. What are you planning to do to fight back?

A: We certainly don't want to fall behind Honda. But we have to see where the market is going, where the yen-dollar situation is going. It's very difficult to make any kind of a decision at this time under the extreme yen-dollar situation. So, we'd like to wait and see.

Q: Where do you see the yen-dollar situation going? How far do you think the yen will fall?

A: Well, now at about 180 yen to the dollar, it's very difficult for everybody Japanese businesses . It's going to be very difficult for everybody to be comfortable. How we're going to cope with the severe yen-dollar situation, that's going to be the major challenge for everybody at this time.

Q: Are Japanese auto makers putting pressure on MITI Japan's Ministry of International Trade and Industry to put pressure on Washington to do something about the yen-dollar difference? Do you have that kind of clout?

Hagwara laughed and deferred to Yoshiaki Saegusa, Nissan's Washington-based vice president of external relations.

A: (Saegusa): I don't know what kind of pressure we can apply. But certainly, from our standpoint, we would like to see the yen depreciate from the current level to whatever is a reasonable level. But I think that 170 yen to the dollar or 180 is very extreme.

Q: What would be a more livable level?

A: (Saegusa): Maybe 200.

Q: Let's think the unthinkable. What happens at 160 or 150?

A: That's an extreme case. If that happens, I think that we would have to have a very drastic turnaround in the way we think and work, in the way we do business over here. So, we haven't any definite answer for that.

Q: Well, when you say "turnaround," do you mean increasing production here, decreasing production? What?

A: Or, we might have to give up a share to maintain a certain profit level. I don't have any definite answer for that, yet. But it would have to be something drastic. To maintain our share would be very difficult. That's what we have to study for now.

Q: What do you think of the so-called "hollowing" of U.S. corporations, where American companies increasingly are going overseas to buy parts and products that they can't build as cheaply here?

A: Well, that has been the strategy for General Motors and Ford. They are buying cars from Japan. But under the current yen-dollar situation, that's going to be very difficult. They may have to reconsider their strategy. Somebody has to absorb the cost increase brought about by the dramatic yen appreciation. Somebody has to absorb that increase, either General Motors and Ford or the Japanese manufacturers who are producing cars for them. They all face a tremendous challenge.

"It's going to be very difficult to pass along the whole yen appreciation in consumer prices. In the past few months, the yen has appreciated by 25 percent. But I don't think that anybody can pass that percentage along in their prices.

Q: There was some concern that the Japanese auto makers deliberately were holding down their prices, that the yen's appreciation against the dollar wasn't adequately reflected in the price increases passed along in December, and so forth. How do you respond to that?

A: Well, certainly, we have to maintain our sales momentum and market share. That's the first consideration.

Q: Because of antitrust regulations, you can't set prices with your dealers. But as far as these additional dealer markups are concerned, can't you exercise any kind of subtle pressure to encourage them to stop the practice?

A: No. As you said, we're not allowed to do that. I don't want to go to jail.

Q: What about your overall sales goals in the United States?

A: We want to be able to sell 1 million units a year by 1990.

Q: This country is Nissan's main profit center?

A: Sure.

Q: Are U.S. auto makers closing the gap with the Japanese in terms of quality?

A: I know that the U.S. auto manufacturers have been striving for the quality upgrade, and I think the gap between U.S. car quality and Japanese car quality is getting narrower. But we still feel that we have the competitive edge in quality over the U.S. manufacturers.

Quality is going to be the most important factor in sales success in the United States.

Q: Some people argue that Toyota and Honda have better quality than Nissan. How do you respond?

A: As far as some of the publicized consumer satisfaction indices are concerned, we know that we are behind Toyota and Honda. But as far as Nissan is concerned, we don't see that difference in reality. We think that we are very competitive with Toyota and Honda in terms of quality. But, certainly, we have to accept the facts [of consumer perception], and we are making every effort to further increase quality.