As Profits Sink, Nissan Cutting North American Production Up to 20 Percent

author: Eric Walz   

As SUV, crossover and truck sales continue to climb in North America, it's putting a big dent in the sales of large and mid-size cars from most automakers. As a result, Japanese automaker Nissan is cutting production as much as 20 percent as its U.S. sales slide, which is the company's biggest market, Japan's Nikkei business daily reported on Monday.

Nissan announced it will cut production already at two assembly plants in the U.S., as well as three plants in Mexico. Nissan will not eliminate jobs at these plants, instead workers will stay home a few extra days a week. Output at the factories is expected to fall 10% to 20% on the year by summer.

Nissan's parts suppliers have been informed of the reductions, which are likely to temporarily impact their earnings. The cutbacks are expected to wrap up by September, when the redesigned Altima sedan launches.

Nissan's U.S. sales declined 9.5 percent in 2017, the first time in eight years Nissan's total car sales fell nearly 20 percent in 2017 from the previous year. Sales in April were down 29.1 percent over April of last year.

Nissan's entire line up experienced a decrease in sales in April with the exception of the electric Leaf, which grew 10.2 percent compared to April of last year, according to sales figures released by the Nissan Group.

The Japanese automaker previously focused on building up market share in the U.S., where demand steadily recovered since the 2008 global financial crisis. This approach included high-volume, low-margin sales to rental car companies, as well as generous sales incentives.

However, sales of SUV and trucks remain strong. The Rogue compact sport utility vehicle and larger Armada are among Nissan's best-selling models in the U.S. The Rogue crossover was Nissan's top-selling model with 403,465 sales, an increase of 22 percent. In 2017, Nissan trucks, SUVs and crossovers set an all-time record with 765,624 total sales, a 15 percent increase over the prior year. CYTD Armada sales are up 16.5 percent over last year.

The U.S. sales of these models accounted for 28% of Nissan's worldwide sales of 5.77 million units for the year ended March 31. The production cuts are projected to deflate U.S. sales by 3% to 1.55 million this fiscal year.

Nissan produces most of its passenger vehicles for the U.S. market at five American and Mexican plants, with some imported from Japan and elsewhere. It also assembles its Infiniti luxury vehicles in Mexico in a joint venture with Daimler.

Global auto sales climbed 2.7% to 96.22 million vehicles last year, according to Japanese market intelligence firm Fourin. Sales in China, the world's largest market, grew 3% to 28.87 million units. However, auto sales in the U.S., the second-largest market, slipped by 1.8% to 17.55 million, after peaking in 2016.

In addition, the U.S. market faces additional uncertainties as the Trump administration renegotiates the North American Free Trade Agreement (NAFTA) with Mexico and Canada. A 25 percent tariff on imported vehicles has been considered. An increase in the import tariff might increase the price of imported cars significantly in the U.S. market.

Nissan's move comes as rivals in the U.S. rework production targets amid stiff competition and declining demand for sedans. Ford Motor has announced plans to phase out traditional sedans in favor of trucks and the celebrated Mustang sports car, while Honda is reducing output of the Accord.

Eric Walz

Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.