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Nissan Motor Co is Looking to Become a Much Smaller Automaker, Sources Say

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【Summary】With the recent coronavirus pandemic and nosediving car sales across the board, the management of Nissan Motor Co has become convinced the struggling automaker needs to be a much smaller company. A restructuring plan due out next month would likely assume a cut of 1 million cars to its annual sales target, senior company sources said.

FutureCar Staff    Apr 10, 2020 3:00 PM PT
Nissan Motor Co is Looking to Become a Much Smaller Automaker, Sources Say

Japan's Nissan Motor Co Ltd. has had a rough three years. The company's former CEO Carlos Ghosn was arrested in Nov 2018 on allegations of under-reporting his earnings for years and misusing company assets to fund a luxury lifestyle, which led to his dismissal as Nissan's chairman.

Ghosn was famously smuggled out of Japan in Dec 2019 hidden inside a musical instrument case and boarded a flight headed to Lebanon, a violation of his bail conditions. It was one of the most intriguing cases involving a major company CEO in recent memory. 

Now with the recent coronavirus pandemic and nosediving car sales across the board, Nissan's management has become convinced the struggling automaker needs to be a much smaller company. A restructuring plan due out next month would likely assume a cut of 1 million cars to its annual sales target, senior company sources said. The plans were first reported by Reuters.

But Nissan's plans for restructuring through to March 2023 should be based on the assumption that it would only be able to return to annual sales of 5 million cars by then, two sources said, adding this would entail a large reduction in its manufacturing capacity.

That compares with a goal of 6 million cars for the same period outlined in July by then-CEO Hiroto Saikawa, who had already reduced the 8 million target under Ghosn. Nissan likely sold about 5 million cars in the past financial year but this year's outlook is bleaker due to the pandemic.

"For years, Nissan was looking for annual sales volumes around 7-8 million vehicles. The company has never managed to sell much more than 5 million or so," one of the sources told Reuters. "The company can no longer consider this sort of wishful thinking. The resizing issue is really being taken into account, it has a lot of consequences on operations for 2020-2022." 

In July 2019, Nissan said it was aiming to cut annual global production capacity to around 6.5 million vehicles. Shrinking its sales target by 1 million vehicles would equate to closing three to four more assembly plants and shedding thousands more jobs on top of already announced plans to cut its workforce by 10%. 

However, a third senior company source that spoke to Reuters said the figure could be even lower than 5 million given the impact of the virus, which caused car sales to nosedive around the world. The sources declined to be identified as details of the turnaround plan have yet to be finalized. The cutbacks would also ripple through Nissan's suppliers and network of dealers.

Nissan has requested a $4.6 billion commitment line from major lenders to cushion the impact of the pandemic while it seeks to engineer the desperately needed turnaround, people with knowledge of the matter have said.

Nissan declined to comment on its progress in devising a new mid-term plan. "The details will be shared in May," a spokeswoman told Reuters.

Ghosn's legal troubles have also tarnished Nissan's reputation. The disgraced CEO was re-arrested in Tokyo in April 2019 on new charges of misappropriations of Nissan funds. Days later Nissan shareholders voted to oust Ghosn from the company's board.

However, even before the spread of the coronavirus pandemic, Nissan's sales and profits had been slumping due to an aging model lineup. The company was burning through cash, forcing the automaker to scale back expansion plans that were spearheaded by Ghosn.

Meanwhile, a shift in consumer preferences in North America towards SUVs and crossovers have further eroded Nissan's car sales over the past few years.

Nissan's current financial troubles were not entirely caused by Ghosn however. When he first joined the company in 1999 while still the president of French automaker Renault, Nissan had a debt of more than $20 billion, with only three of its 46 models sold in Japan generating a profit.  

Then in March 1999, Renault purchased a 36.8% stake in Nissan and formed a strategic partnership between Nissan, Renault and Mitsubushi two months later. Ghosn maintained his chairman and CEO role at Renault and joined Nissan as its chief operating officer (COO) in June 1999, where he was instrumental in turning things around at the automaker. 

Shortly after taking over as Nissan's new COO, Ghosn implemented the "Nissan Revival Plan", which called for a return to profitability in fiscal year 2000, a profit margin in excess of 4.5% of sales by the end of fiscal year 2002, and a 50% reduction in the current level of debt by the end of fiscal year 2002. Ghosn boldly promised to resign if these goals were not met. 

Ghosn's Nissan Revival Plan called for cutting 14% of the automaker's workforce mostly in Japan, shutting five Japanese plants and reducing the number of suppliers and shareholdings.

Ghosn spearheaded other major corporate-culture changes at Nissan, including changing the company's official language from Japanese to English, and adding executives from Europe and North America.

Ghosn was named chief executive officer (CEO) of Nissan in June 2001 and the automaker's sales significantly increased in the first decade of his tenure. By 2005, Nissan

However, with the current state of the auto industry a change appears to be needed at Nissan, including preserving the company's cash as it weathers the coronavirus pandemic. Nissan's U.S. sales fell by 9.9% in 2019, the worst of any major automaker.

"At the very least, a downsizing is a given," the source told Reuters.

As of December, Nissan's automotive operations had negative free cash flow of 670.9 billion yen (US$6.1 billion), a more than 6-fold increase from a year ago.

"That's no longer at an acceptable level," said one of the people.

resource from: Reuters

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