Nissan lays out plan to reverse U.S. slump

YOKOHAMA, Japan — Posting its first quarterly net loss since the Great Recession, Nissan outlined a three-point plan to reverse its tumbling fortunes in the key U.S. market.

The strategy is to make U.S. vehicle sales more profitable, introduce eight new U.S. models and make sure dealers are on board with the plan.

But CEO Makoto Uchida, who took office Dec. 1, pleaded for patience with a global recovery campaign that still hasn't crystalized.

Hard times will continue into the coming year, he warned.

"We thought that 2019 would be a bottom, and from 2020 onward, we envisioned a picture of growth," Uchida said while announcing last week that the carmaker slumped into red ink in the October-December quarter. "However, it will take more time."

The ¥26.1 billion ($239.3 million) loss was Nissan Motor Co.'s first since April-June 2009, when the entire auto industry was mired in the global financial crisis.

Nissan's latest stumble was triggered by a bigger-than-expected fall in sales, along with restructuring charges of about $91.7 million related to job and production cuts.

Global retail sales fell 11 percent in the fiscal third quarter. A 17 percent decline in North American sales accounted for the biggest part of it.

Nissan has now further cut its U.S. sales forecast for the current fiscal year, ending March 31, as well as its profit assumptions. It had earlier expected U.S. sales to slide only 9.9 percent to 1.31 million for this fiscal year. It now expects U.S. sales to fall 13 percent to 1.26 million vehicles.

Nissan booked a sixfold increase in negative cash flow for the three quarters to Dec. 31.

Over the first nine months of its fiscal year, it bled about $6.15 billion in cash.

Uchida said Nissan will scrap a fiscal-year-end dividend so the company could save cash and invest more in future product and new technology.

In the U.S., Nissan is trying to buttress profitability by reining in incentives and fleet sales, but it is fighting against an overall market decline.

At the same time, Nissan is short on new product that can lure buyers and command higher margins. Uchida said the aging product portfolio is undermining volume "very seriously."

Nissan COO Ashwani Gupta targeted three points of focus for rebuilding the U.S. business.

• First, Nissan is switching from quantity of sales to quality of sales. Gupta said that transition is making progress, but he conceded it isn't easy in a declining market and will take more time.
• Second, Nissan is moving to refresh its lineup.

The average age of its U.S. lineup is 5.2 years, Gupta said. That compares with an average age between 2.5 and 4 years at competitors. Nissan expects to reduce the average age of its portfolio to between 3 and 3.5 years by releasing eight new or redesigned products, he said.

But again, that will take time — the eight products will be arriving over the next two years.

• Finally, Nissan is working with its U.S. retailers to ensure they are on board with the shift.

"I can ensure you that dealers are fully engaged," Gupta said, adding that he will be at the New York auto show in April to unveil a new vehicle and will meet U.S. dealers afterward.

"Obviously the challenges are high, and we are working hand in hand," Gupta said. "With these three concrete countermeasures, we are confident that the U.S. will come back."

To win dealers' support, Nissan last week committed to boosting its marketing outlays by 60 percent and more than doubling dealers' sales-volume bonuses.

But U.S. market conditions will make a rebound challenging for Nissan, said Michelle Krebs, an executive analyst at Autotrader.

"This all comes at a very bad time because we are in the post-peak era of vehicle sales," Krebs said. "New product does not stay fresh very long, and refreshing takes money. Nissan is stuck in a situation where they don't have the money.

"I don't see any sign it is working yet," Krebs said.

Uchida conceded the complete revival plan is still a work in progress.

According to people familiar with the board's thinking, some directors want Uchida to move faster to make dramatic cuts. That may include shuttering plants, slashing more jobs and possibly revamping operations at Datsun, the brand relaunched as an entry-level product line for emerging markets.

Globally, Nissan is awash in overcapacity, as former Chairman Carlos Ghosn pushed the carmaker to achieve higher volumes while building factories for an emerging market boom that never fully materialized.

Nissan's worldwide factory utilization rate is around 75 percent, when a healthy rate should be in the range of 80 to 85 percent, said one person close to the situation.

"There is a need to do more than what has been announced, and that may include closing plants," said one person familiar with the board's thinking. "They are asking them to go faster."

Progress is coming slowly in part because Nissan, for the first time, is trying to coordinate its global restructuring plans with the operations of its alliance partners, Renault and Mitsubishi. The goal is to make cuts at Nissan that can be best counterbalanced by the other carmakers.

Going forward, Nissan will coordinate its turnaround plans with Renault and Mitsubishi, especially in hot spots such as Indonesia and India, where Nissan shares a plant with Renault.

In Indonesia, where Mitsubishi is the strongest partner, Nissan suspended production at its own local plant in an effort to clear bloated inventory. Nissan also has decided to pull the Datsun brand from the Indonesia market.

Other possible restructuring targets include Nissan's production facilities in Spain, where it has a casting and machining plant along with an assembly plant, and its Cuernavaca plant in Mexico, said one person familiar with planning. Also under the microscope is a small Infiniti engine plant in Decherd, Tenn.

Infiniti, also struggling with slumping sales, is expected to limp along with existing products until Nissan gets the rest of its house in order, another person familiar with the plan said.

Last year, Nissan embarked on a global restructuring plan that cut 12,500 jobs worldwide and suspended production lines at eight locations worldwide. The goal is to cut capacity to 6.6 million vehicles a year, from 7.2 million in the fiscal year ended March 31, 2018.

But fully closing factories introduces new regulatory, labor and political considerations that take longer to navigate. Such actions must also be integrated with Renault and Mitsubishi.

"They need the revised plan to account for the entire alliance," one source said.

More job cuts are inevitable and factory closings are likely as Nissan fleshes out the next steps and reveals a full blueprint around May, several people familiar with the board's thinking said.

But still unknown is exactly how deep the cuts will go, they said.

Uchida declined to tip his hand about further measures. But he said the restructuring plan he inherited from his predecessor, Hiroto Saikawa, doesn't go far enough.

"We have to do more than what we have done," Uchida said. "Otherwise, it will be very hard to improve our profitability."