Global Insight Perspective | |
Significance | Nissan has confirmed media reports that it could miss its mid-term sales target of 4.2 million vehicles set as part of its "Nissan Value-Up" business strategy in 2005. |
Implications | Following what CEO Carlos Ghosn has called a "performance crisis", and a reduction in the sales and profits targets for FY 2006/07, it is unsurprising that the company may slightly alter its long-term targets in the face of the stagnation of its model line-up in two key regional markets. |
Outlook | Reports have suggested that Nissan may delay this goal until March 2010, which would fall in line with a number of projects it is undertaking in emerging markets. |
Nissan has confirmed media reports that it could miss its mid-term sales goal of 4.2 million vehicles in the fiscal year (FY) ending March 2009, which it had previously revealed as a key component of its corporate "Nissan Value-Up" business strategy in 2005. A spokeswoman for the automaker told Dow Jones Newswires that it may take longer to achieve the goal than originally anticipated due to a weak performance in FY 2006/07. The representative declined to provide a new timeframe for the goal, saying that it is likely that Chief Executive Officer (CEO) Carlos Ghosn will give some indication of this when he presents Nissan's financial results on 26 April. She also added that the other two goals contained within the three-year plan will remain intact.
Further Details of Battery Deal Revealed
Following on from an announcement on Friday (13 April) that Nissan and NEC had signed a contract to develop lithium-ion batteries for use in hybrid and pure electric vehicle powertrains (see Japan: 13 April 2007: Nissan and NEC Announce Battery Tie-Up), the automaker has revealed further details of the joint venture (JV). The components will be developed within a unit under the name of Automotive Energy Supply Corporation (AESC), and ¥490 million (US$4.1 million) is to be initially invested in the operation, which will begin by the end of April. In April 2008, the standalone business will expand its focus on the mass-production and sale of its products, and by 2009 the batteries should be found in wide-scale automotive applications. The automaker is planning to have a hybrid vehicle using the component by 2010, said executive vice-president of Nissan, Carlos Tavares, in a statement.
Outlook and Implications
The failure to achieve this target will come as a blow to Ghosn, who has previously hit all the targets he set for Nissan when he took over as head of the firm following the alliance with Renault in 1999. Under both the original "Nissan Revival Plan" and the follow-up "Nissan 180" plan, targets were achieved either on time or ahead of schedule. The current "Nissan Value-Up" is the automaker’s first post-revival plan, and is designed to strengthen the company and achieve three key goals:
- Maintain the top level of operating profit margin among global automakers for each of the three years of the plan.
- Achieve sales of 4.2 million units by FY 2008/09.
- Reach an average of 20% return on capital investment over the course of the plan, excluding cash on hand.
It should not come as a surprise that the sales target may not be reached on schedule, following what Ghosn termed a "performance crisis" during the announcement of the company’s financial results for the third quarter of 2006/07, which showed a decline in profits and led to a downward revision of the full-year profit and sales forecasts. At the time, the executive added that, “On top of everything that is planned through Nissan Value-Up, additional actions will be taken to boost our performance during the coming months. We will provide specific details of those plans when we announce our year-end results in April”, and he followed this up by making 20 changes to the Japanese carmaker’s management team in March.
Nissan has suffered during the past year with stagnation of its product line-up in the United States and Europe, due to a gap in its replacement vehicle cycle. In an effort to jump-start this, the company launched six new models in the third quarter of 2006/07, including the Altima and Livina Geniss multi-purpose vehicle (MPV) for the Chinese market, the new Skyline in Japan, and the Qashqai cross-utility vehicle (CUV) for the European market. Nissan will follow this up during 2007 by releasing 11 new models, including the X-Trail sports-utility vehicle (SUV) launched at the Geneva Motor Show (Switzerland) last month, although it appears that this may come too late to stimulate sales further down the line.
Despite the fact that Nissan may not reach this sales target, a report by Asia Pulse at the weekend (14-15 April) suggested that the deadline for the goal will be extended by another 12 months to March 2010. This is a realistic assumption, with Nissan concentrating its efforts to further expand its exposure in more developing markets. It is already constructing a facility in Russia, and has recently announced that it will be the third partner in a Renault-Mahindra & Mahindra JV in India. Nissan will also import a re-badged version of alliance partner Renault's Logan low-cost vehicle from the French automaker’s Curitiba (Brazil) manufacturing facility, which is likely to be a big success for the company, having already built up a significant presence in the country.