Carlos Ghosn's arrest threw Nissan Motor into a corporate tailspin with allegations of self-dealing, profligate spending and filing false statements. Now the car maker's profits are falling off a cliff, and successor Hiroto Saikawa may go down with them.
Troubled by slumping US sales, aging models and a product cycle that is out of sync, the Yokohama-based company will announce on Tuesday its lowest annual operating profit in a decade, raising the possibility of a dividend cut. The outlook for the current fiscal year to March 2020 probably will not be any more promising.
Chief executive Mr Saikawa has yet to announce a turnaround plan since the arrest of former chairman Mr Ghosn in November, and sources say there is internal strife over whether he is the right executive to fix Nissan. Alliance partner Renault may not look too favourably on Mr Saikawa’s reappointment if he continues to oppose a merger said to be backed by its own chairman Jean-Dominique Senard, who is also a Nissan director.
In addition, alliance partner said it would block Mr Saikawa's reappointment if he did not agree to a merger – a request made by Renault's new chairman that Mr Saikawa batted away, the Yomiuri newspaper reported last month.
“A new management team and strategy may be the answer,” said Michael Dean, a Bloomberg Intelligence analyst.
“We do not comment on rumours or speculation,” said Nicholas Maxfield, a Nissan spokesman. “The company’s focus is on stabilising operations and strengthening its management structure, while addressing the weaknesses in governance that enabled this misconduct.”
The surprise jailing of Mr Ghosn, who led both car companies for two decades, exposed rifts over control and decision-making. Since then, Mr Ghosn was released and detained once again. Currently out on bail, he has denied all charges against him, saying his arrest was due to a “dirty game” played by some Nissan executives. He is now preparing for his trial, which may start later this year or next year.
A pending litmus test for Mr Saikawa’s job security will come next month, when Nissan’s directors are set to formally adopt new corporate governance rules that include creating a more independent board. In an extraordinary shareholders’ meeting held last month to remove Mr Ghosn from the board, Mr Saikawa was peppered with questions as to why he was not stepping down to take responsibility for Nissan’s poor governance.
Mr Saikawa said there are many ways to take responsibility and he believed the right thing for him to do now is to help Nissan rebuild, signaling his intention to stay on. Even so, Mr Saikawa needs Renault’s vote from its 43 per cent stake to back his reappointment, especially given that roughly half of minority shareholders have voted against his appointment since 2017.
While the French car manufacturer agreed in 2015 not to interfere in the appointment of top Nissan managers, Nissan's financial weakness could give Renault an opening to push harder for a merger.
The list of potential replacements include chief operating officer Yasuhiro Yamauchi, who sits on the board of Renault. His recent promotion preserves management ties between the automakers, who along with Mitsubishi Motors form the world’s biggest car alliance.
A recent management shuffle also put the spotlight on executives who may also be in a position to lead the company. Hideyuki Sakamoto, in charge of manufacturing and supply-chain management, joined Nissan in 1980 as an engineer and has worked around the world, including the Nissan Technical Centre in North America, Nissan’s largest affiliate supplier in Japan and Renault in Brazil. Jun Seki, formerly Nissan’s China chief, is now senior vice president overseeing “performance recovery."
“Nissan clearly had very bad corporate governance and an atmosphere where few felt they could question Mr Ghosn,” said Janet Lewis, an analyst at Macquarie Capital Securities (Japan) Ltd. “His departure will enable them to reboot, but it will take time to put a strong management team in place.”
Nissan in April warned investors of bad times ahead as it cut preliminary profit for the year ended March to 318 billion yen (Dh10.62bn), a 30 per cent decline from the previous guidance, which itself had been lowered. That would mark the first time the Japanese car maker earned less than Renault in a decade. An out-of-sync product cycle, aging lineup and poor consumer reviews “will take years, not months to fix,” Ms Lewis said.
Nissan also may announce that it’s paring the targets in its plan for the six years through fiscal 2022, the Asahi reported, citing people it didn’t identify. Nissan will lower its fiscal 2022 revenue target to about 14 trillion yen from the existing target of 16.5 trillion yen and cut operating margin target to about 6 per cent from 8 per cent, according to the newspaper. Nissan declined to comment on the Asahi report.
Even lower mid-term forecasts would fall short of analysts’ projections. Operating profits likely won’t recover to levels seen under Mr Ghosn until 2023, meaning there will probably be no growth in the current six-year plan, according to estimates compiled by Bloomberg.
“The impact may persist this fiscal year,” said Koji Endo, an auto analyst with SBI. “The downward revision it made in the past year wasn’t enough to push the all the bad things out of its door.”