Nissan plans to slash costs after first loss in 11 years

Nissan Motor Co outlined a new plan on Thursday to become a smaller, more cost-efficient carmaker after the coronavirus pandemic exacerbated a slide in profitability that culminated in its first annual loss in 11 years.

Under a new four-year plan, the Japanese manufacturer will slash its production capacity and model range by about a fifth to help cut 300 billion yen ($2.8 billion) from fixed costs.

It will shut plants in Spain and Indonesia, leave the South Korean market and pull its Datsun brand from Russia as part of a strategy unveiled on Wednesday to share production globally with its partners Renault and Mitsubishi Motors.

“I will make every effort to return Nissan to a growth path,” Nissan Chief Executive Makoto Uchida said, adding that the company had learned from its past mistakes of chasing global market share at all costs.

“We must admit failures and take corrective actions,” he said, adding that starting with top-level managers, the company had to break its inward-looking culture which in the past has stymied efforts to deepen cooperation with France’s Renault.

Uchida said improving the company’s cash flow was its biggest challenge. He reiterated that Nissan’s cash liquidity was good even though it had negative free cash flow of 641 billion yen in the year ended in March.

Nissan declined to give any forecasts for its current financial year which started in April due to the uncertainty created by the coronavirus pandemic. It also declined to give details on how many jobs it was cutting.

In what is Nissan’s second recovery plan in less than a year, Uchida pledged a return to profitability with a core operating profit margin above 5 per cent and a sustainable global market share of 6 per cent under

Nissan posted an annual operating loss of 40.5 billion yen for the year to March 31, its worst performance since 2008/09. Its operating profit margin was -0.4 per cent.

The automaker said on Thursday that it sold 4.9 million vehicles last year, up from an earlier estimate of 4.8 million.

That was still the second decline in a row and a fall of 11 per cent from the previous period but meant Nissan clung on to its position as Japan’s second biggest carmaker, just ahead of Honda and a long way behind Toyota.

Even before the spread of the novel coronavirus, Nissan’s slumping profits had forced it to row back on an aggressive expansion plan pursued by ousted leader Carlos Ghosn. The pandemic has only piled on the urgency to downsize.

Nissan, Renault and Mitsubishi Motors said on Wednesday they would work more closely on developing and producing cars to reduce costs and ensure their alliance’s continued existence.

Renault is due to announce its own restructuring plans on Friday which are expected to include job cuts despite resistance from the French government.

Nissan’s operating profit has tumbled for four consecutive years as its pursuit of market share, particularly in the United States, led to overcapacity at its car plants, steep discounting and a cheapened brand.

The new four-year plan is the vision of Uchida and Chief Operating Officer Ashwani Gupta, who took over after months of internal turmoil following Ghosn’s arrest in 2018.

Under the plan, Nissan will curb its ambitions for sales growth to target annual sales of about 5 million units, Reuters reported in April, a cut from a previous goal of 6 million cars outlined in July by then-CEO Hiroto Saikawa.

Spain said on Thursday that the closure of Nissan’s plant in Barcelona could cost the company as much as 1 billion euros ($1.1 billion) and that investing in the factory would be a cheaper alternative.

Protesting workers burned tyres and blocked the entrance to the Barcelona factory following the announcement.

Earlier Renault, Nissan Motor and Mitsubishi Motors Corporation ruled out a merger on Wednesday and instead said they would cooperate more closely on vehicle development to slash costs and salvage their troubled alliance.

The three carmakers are reeling from the coronavirus pandemic which engulfed them just as they were trying to rework their partnership following the arrest in 2018 and subsequent ousting of its chairman and chief architect, Carlos Ghosn.

Ghosn’s push for Nissan to merge with Renault soured relations between the French and Japanese carmakers and the new plan is designed to serve as a peace treaty to resolve the long-standing tensions, senior sources have told Reuters.

“There is no plan for a merger of our companies,” Renault Chairman Jean-Dominique Senard told a news conference to unveil the new alliance strategy. “Our model today is a very distinctive model; we don’t need a merger to be efficient.” Renault shares surged by almost 20 per cent following the announcements.

Reuters