latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/nissan-seeks-to-arrest-decline-with-new-mid-term-strategy-58741714 content esgSubNav
In This List

Nissan seeks to arrest decline with new midterm strategy

Blog

Post-webinar Q&A: Global Credit Risk Trends 2021 and Beyond

Blog

Shore Capital is Now Available in S&P Global’s Aftermarket Research Collection

Video

S&P Capital IQ Pro | Powered by Advanced Visualization

Video

S&P Capital IQ Pro | Unrivaled Sector Coverage


Nissan seeks to arrest decline with new midterm strategy

Nissan Motor Co. Ltd. on May 28 will announce a new medium-term strategy with which it aims to turn the page on a period marred by declining performance, management instability and corporate governance shortcomings.

Like its peers, the Japanese carmaker in recent years has navigated a downturn in the global automotive industry combined with fundamental and costly technological changes, most notably in the shift toward electric vehicles and mobility-as-a-service.

However, Nissan's pain has been more acute than many of its rivals. Sales, net profit, operating profit margin and market share have all dropped and the company's stock price has fallen significantly more over the past five years than the median of a composite index of global carmakers, S&P Global Market Intelligence data shows. Nissan's focus on compact cars at a time when SUVs have surged in popularity, its heavy discounting and "quantity over quality" approach in the U.S. and capital misallocation in emerging markets are among the factors contributing to the company facing a fourth consecutive year of operating profit margin decline, Julie Boote, analyst at Pelham Smithers Associates, wrote in an April 14 research note.

SNL Image

SNL Image

In addition to the plan, which reports suggest could include a 20% reduction in global capacity and 20,000 job cuts, Nissan also will announce what are expected to be challenging results for its latest fiscal year. At the outset of fiscal 2019, the company forecast net profit of ¥170 billion, a result that would compare unfavorably with the ¥319.14 billion reported in 2018 and ¥746.89 billion achieved in 2017. Several profit warnings later, Nissan on April 28 said it would report a net loss of up to ¥95 billion as pressures caused by the coronavirus pandemic dealt a further blow to already weakening sales. By contrast, domestic peer Toyota Motor Corp.'s net profit rose 10.3% to ¥2.076 trillion over the same period, while Honda Motor Co. Ltd.'s fell 25.3% but remained positive at ¥455.75 billion.

Nissan's previous midterm strategy was set out in 2017. Dubbed "M.O.V.E to 2022," it originally aimed for net revenue of ¥16.5 trillion and a consolidated operating profit margin of 8% by the end of the six-year period. The company later revised the goals to ¥14.5 trillion of revenue and a 6% operating profit margin in 2022, but meeting even these lower targets appears unfeasible at the current trajectory.

SNL Image

Nissan was thrust into the global spotlight on Nov. 19, 2018, when then-Chairman Carlos Ghosn was arrested in Japan for alleged financial misconduct, including misuse of company funds. Ghosn had been credited with saving Nissan from the brink of bankruptcy in the late 1990s and masterminding the company's cost-saving alliance with Renault SA and Mitsubishi Motors Corp. During his detention in Japan, Ghosn refuted all allegations and accused Nissan executives of a "plot" and "conspiracy." His escape to Lebanon in December 2019 and Japanese authorities' continuing calls for his extradition and prosecution mean Nissan will not be able to put the affair in its rearview mirror anytime soon.

Since Ghosn's removal from the company, Nissan has been beset by a series of regional and boardroom-level staff departures. The September 2019 resignation of CEO Hiroto Saikawa, who was found to have been overpaid as part of an investigation into the company's finances, ultimately resulted in the formation of a senior management troika comprising new CEO Makoto Uchida, COO Ashwani Gupta and vice-COO Jun Seki. Yet less than a month after taking up the new role, Seki announced that he would leave Nissan to join parts supplier Nidec Corp. as president.

SNL Image

Reports suggest that Nissan will seek to rebalance its geographic exposure with the new plan. That could mean closing plants and reducing models in Europe, where it would rely more on its alliance partner Renault, and increasing its focus on the U.S., Japan and China markets.

Kota Mineshima, analyst at Morgan Stanley MUFG, said in a May 15 research note "it would not be easy to shift to a positive view" of Nissan's European business as he had been expecting "an even more fundamental restructuring" than has been reported. "We believe Nissan's edge lies in its lead in [the] highly profitable China and Japan markets as well as EV," Mineshima said.

SNL Image

Regarding the reported measures, a spokesperson for Nissan said the company does not comment on speculation but added that it "remains fully committed to strengthening our product lineup in Europe as part of our ongoing efforts to make the business more competitive."

More positive, as Mineshima noted, is Nissan's early adoption of electric vehicle technologies. Its compact Leaf model first launched in 2010 and had sold 450,000 vehicles globally as of December 2019, making it among the best-selling EVs. With indications that the coronavirus pandemic could hasten the transition to EVs, Nissan's headstart in this expensive field gives it an edge on many of its rivals.

The devastating impact of the coronavirus on the automotive industry has only accentuated Nissan's need to change course. The company was able to rebound swiftly from the last global crisis thanks to factors including its alliance with Renault, a strong model lineup and a quick recovery in the Chinese market, according to Boote, but that is not likely to be the case this time around.

"The COVID-19 outbreak could scarcely have come at a worse time for Nissan," said Boote. "Not only is Nissan unlikely to benefit from the same positive developments it saw in 2009, but it is in a far worse starting position for dealing with the COVID-19 shock."

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.