Business / Corporate

Nissan to slash 10% of global workforce after worse-than-expected 99% profit plunge

Bloomberg, Kyodo

Nissan Motor Co. doubled its planned job losses and unveiled new production cuts after reporting a 99 percent plunge in first-fiscal quarter operating profit, hurt by an aging product lineup and a slide in vehicle sales in the U.S. and Europe.

About 12,500 jobs will be eliminated at 14 loss-making factories overseas, including in Indonesia and Spain, by the end of March 2023, the Yokohama-based automaker said Thursday. That represents about a tenth of Nissan’s total workforce, and more than double the 4,800 reductions announced in May. The drop in operating profit far outpaced the 66 percent decline predicted by analysts, at ¥1.6 billion ($14.8 million) in the April-June period.

The dismal results are beginning to overshadow Nissan’s other big headache, the arrest in November of former Chairman Carlos Ghosn on alleged financial crimes. Sluggish profits, stuck near decade lows, also weaken the company’s position in a global carmaking alliance with Renault SA and Mitsubishi Motors Corp. After years of sales incentives that eroded margins, and pushing businesses to buy cars, Nissan needs to rebuild its brand image and focus on appealing to retail customers, according to Koji Endo, an analyst at SBI Securities Co.

“This is really a crisis,” Endo said. “Management is chaotic, there is a lot of restructuring pressure, and the most important thing here is to downsize. The company actually inflated too much under Carlos Ghosn.”

Nissan said it will also cut global production capacity by 10 percent by the end of fiscal 2022 and reduce its product lineup by “at least” 10 percent in that period to improve product competitiveness. “While some of these initiatives are already under way, the company expects that substantial improvements in its performance will take time,” Nissan said in a statement. The automaker, however, kept its fiscal full-year forecasts.

In May the carmaker issued an outlook for an operating profit of ¥230 billion on revenue of ¥11.3 trillion. Deteriorating business performance could make investors question whether CEO Hiroto Saikawa is the right person to lead Nissan out of its current struggles. Last month, corporate governance advisers urged shareholders to vote out the former Ghosn protege, who has faced internal strife over whether he’s the right executive for job, as well as questions over a pay package in 2013 related to a house purchase.

The surprise arrest of Ghosn, who led Nissan and Renault for more than a decade, exposed rifts over control and decision-making between Nissan and Renault. Currently out on bail, Ghosn has denied all charges against him, saying his arrest was due to a “dirty game” played by some Nissan executives. He is now preparing for his trial, which may start later this year or next year.

Nissan has an out-of-sync product cycle and its model lineup is aging. The firm saw U.S. vehicle sales drop 15 percent in June, bringing the decline this year to 8.2 percent. Deliveries in China, Nissan’s biggest market, dipped 0.3 percent in the first half.

In May, Nissan said it would spend ¥47 billion over the next three years to refresh all core models, introduce 20-plus new products and focus on American retail sales.

The carmaker recently revamped the Nissan Skyline with design changes and features to make it more appealing to the Japanese market, and is also betting that passenger cars, especially electric sedans, will help drive future sales in China, Latin America and other growing markets.

While Saikawa’s drastic job cuts are reminiscent of what Ghosn did in early 2000s to pull Nissan from the brink of bankruptcy, and also after the 2008 global financial crisis, Nissan’s situation today isn’t as alarming as it was then. The carmaker’s cash and equivalents have climbed 69 percent to ¥1.36 trillion in the past five years.

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