Nissan gets ready to reform its business strategy as sales disappoint

The car maker is implementing aggressive cost controls, shut two plants and cut 4,300 white-collar jobs

Nissan's Ariya concept car is displayed during the Tokyo Motor Show. The company is looking at aggressive cost cutting measures. Reuters

Nissan is planning aggressive cost cuts to deal with an unexpected slump in sales as the expansionist strategy it inherited from fugitive former chairman Carlos Ghosn flounders, four people familiar with the plans said.

Japan's second biggest car maker is set to eliminate at least 4,300 white-collar jobs and shut two manufacturing sites as part of broader plans to add at least 480 billion yen (Dh16.15bn) to its bottom line by 2023, two of the people said.

The moves come on top of a turnaround plan unveiled in July and are likely to include cutting Nissan's range of cars and the array of product options and trims in each line, slashing jobs mostly at head offices in the US and Europe, and reducing advertising and marketing budgets, they said.

"The situation is dire. It's do or die," a person close to Nissan's senior management and the company's board told Reuters.

Most of the planned cuts and measures to enhance efficiency were presented to Nissan's board in November and received its general blessing, two sources said.

A Nissan spokeswoman declined to comment on new restructuring measures or the view that weaker-than-expected sales were the catalyst for a global overhaul.

Under Mr Ghosn, Nissan embarked on a global expansion, boosting capacity to add new models, driving more decidedly into markets such as India, Russia, South Africa and south-east Asia and spending heavily on promotions and marketing to hit targets.

Now, many of those models are missing sales goals and executives at Nissan's Yokohama headquarters estimate up to 40 per cent of its global manufacturing capacity is unused, or under-used.

Some executives are worried Nissan, part of an alliance with Renault and Mitsubishi, could post another loss at its car making business in the last quarter of 2019 - and possibly for all its operations in the year ending in March.

One source said that would most likely hinge on whether Nissan books big restructuring expenses in its current financial year, or waits until the year ending in March 2021.

In July, Nissan said it would cut 12,500 jobs from 14 sites around the world, from the UK to Spain, Mexico, Japan, India and Indonesia - and reduce its model range by 10 per cent.

At the time, Nissan officials said that meant shutting one production line at each plant.

Now, Nissan is considering shutting two plants permanently, on top of the reductions at the 14 other sites, people close to Nissan's management and board said. They didn't say which two new sites were at risk.The axe was also likely to fall at Nissan's North American head office in Tennessee and its European headquarters in Geneva, as they were bloated with high-spending sales and marketing staff.

One source said Nissan's marketing teams globally gobble up nearly 1 trillion yen a year, or about 45 per cent of Nissan's annual fixed costs of 2.1tn yen.

Nissan had been saddled with the excess, "thanks to (Ghosn's) highly aggressive, expansionist volume goals, which we failed to achieve", the source said.

A spokeswoman for Mr Ghosn said he declined to comment.

Mr Ghosn told a news conference in Beirut on January 8 that Nissan's poor performance since 2017 was down to Hiroto Saikawa, who formally took over from him as Nissan chief executive in April 2017.

"He was CEO and he was responsible for it," Mr Ghosn said.

In addition to cuts in Nissan's fixed costs, managers are also considering plans to kill off unprofitable models, accelerate the pace of new product development and reduce the average age of its line-up by half from five years now.

The new plans aim to add 480bn yen to Nissan's bottom line by the end of March 2023, with 300bn from cuts in fixed costs and 180bn from an array of cars to be launched in the next three years, sources said.

Nissan is aiming to achieve an operating margin of 6 per cent on revenue of 14.5tn yen by March 2023, compared with 3 per cent from 13tn yen forecast for the year ending in March 2020, according to plans announced in July.

But since July, Nissan's operating performance has worsened by more than expected, making it likely its new management team will have to find savings significantly above the 480bn yen currently envisaged to hit its targets, three sources said.

To be sure, Nissan has plenty of cash in its coffers to cope with setbacks. According to quarterly results, it had 1.14tn yen in net cash at the end of September.

Still, sources said Nissan was no longer adding freshly generated cash to its war chest, mainly because of its high fixed costs and the sales slide. Furthermore, it has expensive car launches in the next few years that could eat into reserves.

"Even if we had one trillion yen in cash, that could be depleted in no time if we didn't pay attention," a person close to Nissan management said.

Three of the people said the collapse in Nissan sales around the world was a major factor in forcing the company to consider restructuring above and beyond the measures outlined in July.

They said Nissan's global sales would likely fall towards 5 million vehicles, or slightly above, way short of its sales goal of 5.5 million for its current financial year.

The worse-than-expected downturn, which has forced Nissan to spend more on promotions to cushion the fallout, has created additional urgency to take more drastic steps, sources said.

Of particular concern is the US market, where sales fell 10 per cent in 2019, and the continued sluggishness of the Chinese market, which left Nissan's sales volumes down 1.1 per cent from 2018.

One especially troublesome issue for Nissan has been its sales efficiency. In 2018, it had 69 models and sold 5.2 million vehicles - or 75,000 on average per model line - and it was planning to expand its line-up to 73 by the end of 2022.

Now, it aims to cut its range to 62 and boost average sales per line to 87,000, the equivalent of Toyota's average last year, according to calculations and forecasts by the team formulating Nissan's recovery plan.

"We thought by now we would be selling 6 million cars a year. But the truth of the matter is our selling ability is about just north of 5 million," one source said.

There is some concern the new measures being considered, known as "Phase Two" cuts, might not be enough to achieve its three-year turnaround goals if sales don't recover fast enough.

"Those Phase Two measures will most likely fall short," said one person familiar with restructuring plans, making a point echoed by several people close to the management team and board.

To make matters worse, the restructuring efforts have been disrupted by the political turmoil following Mr Ghosn's departure in 2018, his flight from Japan in December and subsequent accusations against former colleagues at Nissan.

The upheaval rattled Nissan's top management team so much that it paralysed their ability to execute many of the planned restructuring moves smoothly, according to sources.

The latest turmoil lasted from December to mid-January, when the board curbed the influence of "anti-alliance" forces sabotaging the plans, sources said.

Nissan's new chief executive Makoto Uchida took the reins at the start of December with Ashwani Gupta, who has worked at Mitsubishi, Nissan and Renault, as chief operating officer.

"Whoever the action was aimed at, the upshot is that Gupta is now completely freed from pressures from those anti-alliance forces to carry out all the planned turnaround measures," one source said. "He should do so without hesitation as the board has cleared the way."