Analysis: Nissan's troubles deeper than Renault's pockets

by Reiji Yoshida

Staff writer

Nissan Motor Co.’s long road to reconstruction and the ongoing realignment of Japan’s automobile industry is far from over — in fact it may have only just begun, according to auto industry observers.

Renault is expected to inject a hefty 500 billion yen into Nissan, and the financially troubled automaker will use the money to help reduce its huge interest-bearing liabilities, estimated at 2 trillion yen.

But even after Renault’s capital participation, the Nissan group will still be saddled with a large number of interest-bearing liabilities when it closes its books for fiscal 1998 on March 31. “What Nissan most fears now should be the possibility of its credit ratings falling, which would make it difficult for its group to raise funds,” said Nobuaki Yanachi, automobile analyst at Kankaku Securities Co.

After negotiations with German-U.S. auto giant DaimlerChrysler AG on a possible tieup broke up earlier this month, private credit-rating agency Moody’s Investors Services Inc. lowered the long-term debt rating of Nissan from Baa3 to the speculative grade of Ba1.

Yanachi said that the proposed Nissan-Renault deal would help Nissan regain the trust of the market, at least for the time being. But he also said that he does not expect much from the alliance in other areas right now. “If their cooperation steps into (realms such as) using the same platforms (on their vehicles) and sharing of facilities, it would help reduce costs. But at the moment I do not expect much from the direct effects of this deal in terms of marketing and production,” Yanachi said.

Yanachi also pointed out that Renault, whose balance sheets during the 1980s and early 1990s were stained with red ink, is still undertaking the process of restructuring and does not have money to burn. He said that observers are carefully watching how the French government, which owns 44.2 percent of Renault, supports the Nissan-Renault deal.

Nissan was once a powerful competitor, often trying to challenge industry leader Toyota Motor Corp. What led to the decline of the nation’s No. 2 automaker?

Talking to reporters earlier this year, Nissan President Yoshikazu Hanawa concisely answered that question. His reply: “It’s (the shortcomings in our) marketing (strategies).”

Most motor industry analysts agree that Nissan’s technologies have been top-notch, symbolized by such innovative ideas as the hyper CVT (Continuously Variable Transmission), which, when coupled with direct-injection gasoline engines, have brought about major improvements in auto fuel-efficiency and driving performance.

But Nissan had tried to churn out the same full product lineups as rival Toyota, simply for competition’s sake, despite its weak sales power and lack of aggressive marketing strategies, analysts said. “Nissan had to prepare the same kind of lineup despite having smaller budgets than Toyota, and produced many vehicles that did not sell well. The position of No. 2 spelled disaster for Nissan,” said Seiji Sugiura, an automobile analyst at the private think tank NRI Ltd.

Analysts also pointed out that Nissan was too late in entering the lucrative market for recreational vehicles that emerged in Japan this decade. “Nissan had so many models, and it was late in initiating efforts to begin consolidating them. Decision-making at Nissan is so slow,” Yanachi at Kankaku Securities observed.

In addition to these bunglings at home, Nissan has also suffered huge losses in overseas markets: severe battles in Europe were fought to make up for lack of brand power; the Mexican financial crisis dealt a crushing blow to local operations; and its auto leasing business proved a huge failure in North America.

Even after the alliance between the two firms kicks into gear, fierce global competition surrounding the Nissan-Renault group is expected to intensify.

According to DaimlerChrysler Cochairman Robert J. Eaton, the world’s automakers have excess production capacity of between 20 million and 23 million units annually, and this figure will not significantly change at least over the next three years. “I really believe consolidation and restructuring of the industry is inevitable,” he said during a visit to Tokyo in January, predicting that the stiffer competition will lead to more mergers.

How are other Japanese automakers coping with the competition in global markets? Toyota and Honda Motor Co. are taking different approaches from that of Nissan, which sought a global alliance.

Toyota is trying to strengthen ties among its affiliated companies within the Toyota group, including Denso Corp., one of the four biggest auto parts makers in the world.

Toyota President Hiroshi Okuda said that unit components makers under automakers are becoming more powerful than ever, with electronics and key technologies for environmental protection becoming more and more important. “If component makers become more powerful than auto manufacturers, that would have far greater impact (on the market) than that of global alliances (of automakers),” Okuda said.

Toyota officials say that they are now considering establishing a holding company to act as an umbrella for all Toyota group companies.

Honda President Hiroyuki Yoshino meanwhile has repeatedly said that his firm will go its own way without major foreign alliances, saying technology, not sheer volume of mass production, is the key to surviving global competition.

But no automakers have ruled out a partial alliance with foreign partners in key technologies for the 21st century, such as those for fuel cells and engines of clear exhaust gases, because these are expected to require huge research and development expenditures.

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