Nissan's profit plummeted by 90%, and poor performance led to layoffs

Perhaps Nissan can be saved, but not necessarily with its current leader.

Nissan has been facing a continued decline in profits due to the arrest of former chairman Carlos Ghosn.

Nissan Motor Co. warned on Wednesday that profits for the first quarter of fiscal 2019, ending June 31, 2019, will plummet by about 90%, marking one of the company's worst quarterly performances in nearly a decade, Reuters reported.

A bad scene

According to the financial report data for the first quarter of fiscal year 2019 (April 1 to June 30) released by Nissan Motor on July 25, Nissan's net revenue in the first quarter was 2.37 trillion yen, and its operating profit was 1.6 billion yen, or an operating profit margin of 0.1%. Net profit in the first quarter fell 94.5% to 6.4 billion yen. Nissan said profitability was negatively affected by reduced revenue and external factors such as raw material costs, exchange rate fluctuations and investments to meet regulatory standards.

Data showed that Nissan's total global sales in the first quarter fell 6.0% to 1.23 million vehicles, of which sales in the Japanese market fell 2.6% to 126,000 vehicles.

It is worth mentioning that in the first quarter, Nissan sold 344,000 vehicles in the Chinese market, with a market share of 5.7%, a year-on-year increase of 0.7%. Nissan said that this was mainly due to the Chinese market's demand for Nissan Sylphy, Qashqai, X-Trail and Dongfeng Qichen T60. In the US market, Nissan's sales totaled 350,000 vehicles, with a market share of 7.9%; sales in the European market fell 16.3% to 135,000 vehicles, and the overall sales share of the European market (including Russia) accounted for 2.5%.

In March this year, Nissan Motor predicted that its operating profit in fiscal 2019 would drop by another 28% to 230 billion yen (US$2.1 billion) compared with fiscal 2018, while its net profit would drop by nearly 47% to 170 billion yen (about US$1.53 billion). The operating profit margin would drop from 2.7% in fiscal 2018 to 2.0%.

In addition, Nissan plans to achieve an operating profit margin of 6% by 2022, instead of the previously set target of 8%; the revenue target is set at 14.5 trillion yen (US$130.84 billion), lower than the previous target of 16.5 trillion yen (US$148.89 billion).

In May, Nissan said it would launch a restructuring plan to boost performance, cutting 4,800 jobs worldwide over the next three years, most of which would be cut at overseas factories with underutilization, to generate 30 billion yen ($270.7 million) in gains.

In this announcement, Nissan also announced the layoffs that were rumored yesterday. In line with production optimization, the company will reduce the number of employees by about 12,500. This is equivalent to one-tenth of Nissan's total employees and more than double the layoff plan announced in May. Another source said that regions such as India and Brazil, where manufacturing capacity utilization is significantly underutilized, may be affected by layoffs.

Nissan also announced new production cuts after reporting a 99% drop in first-quarter operating profit due to an aging product portfolio and falling sales in Europe and the United States. Nissan said it will cut global production capacity by 10% by the end of fiscal 2022 and reduce its product portfolio by "at least" 10% during that period to improve product competitiveness.

Nissan declined to comment on the job cuts, but said the Nikkei report was "broadly accurate."

Not only that, Nissan is also working to improve weak profit margins in the U.S. market. "Deteriorating performance in the U.S. is a big problem for us," said Motoo Nagai, chairman of Nissan's newly formed audit committee, on Wednesday. "For a long time, we have been worried that sales would not increase and we were chasing numbers. Now is the time to improve the brand," he said.

"While some of the measures in the restructuring plan are already underway, the company expects it will take time to achieve substantial improvements," Nissan said in a statement.

The days of Hiroto Nishikawa

Nissan CEO Hiroto Saikawa blamed its poor performance on poor strategic decisions by its predecessor. He said, "Today we have hit the bottom. Most of the problems we are facing now are the negative impact left by our previous leaders."

The sharp drop in profits and massive layoffs have also put Saikawa under tremendous pressure. At Nissan's annual shareholder meeting last month, Saikawa retained his CEO position in a shareholder vote, fending off rare rebukes from top proxy advisory firms that urged shareholders to consider Saikawa's resignation.

At present, it seems unlikely that Saikawa's term at Nissan will be extended as the company has appointed a newly established nomination committee to find Saikawa's successor.

"We want to start the process of finding a successor to the CEO as soon as possible," said Masakazu Toyoda, Nissan's chief outside director and chairman of the new committee.

According to sources, since taking over from Ghosn, Saikawa has been wavering on his tenure, publicly announcing that he would leave soon, but then stating at a high-level company meeting that he would stay in office for at least three years. However, facing the current situation at Nissan, it seems that a new leader is needed to handle the current situation at Nissan.

At the previous Nissan shareholders' meeting, a new governance structure was voted on, including three board committees: the nomination committee, the audit committee, and the compensation committee, while Hiroto Saikawa continued to serve as Nissan's CEO. As the current CEO, Hiroto Saikawa neither gave a specific departure date nor nominated any successor.

Saikawa said: "I personally hope that the new nomination committee can speed up the search for my successor, and I will fully cooperate and give appropriate suggestions in the process. At the same time, I should also be responsible for the chaos in the company, and this responsibility is not easy at all." For this reason, he is willing to cut his salary in half in fiscal 2019. In fiscal 2018, Saikawa's salary was 400 million yen (3.7 million US dollars).

Currently, Saikawa lives in central Tokyo, speaks fluent English and owns a modified Nissan Skyline. He is married, but like most Japanese executives, his personal life is very discreet and has not been exposed. After graduating from the University of Tokyo in 1977, Saikawa worked in Nissan's purchasing department. He witnessed the rise and fall of Nissan.

In 1999, when Nissan was on the verge of bankruptcy, Renault offered a helping hand and formed the Nissan-Renault Alliance. In this context, Renault became the senior partner in the governance of the alliance, owning 43% of Nissan's shares, while Nissan only had 15% of Renault's shares and no voting rights. Saikawa has repeatedly tried to reverse this imbalance. In the previous negotiation agreement with Renault, he vigorously defended Nissan's interests.

Ghosn had previously considered Saikawa an important ally. In 2017, Ghosn recommended him to take over as CEO of Nissan, withdraw from the daily management of Nissan, and focus on leading Renault and promoting a broader alliance. According to sources, Saikawa opposed Ghosn's merger plan and publicly stated that the chances of success of the merger were slim. Ghosn rebuked Saikawa's remarks, believing that Saikawa's remarks damaged Nissan's credibility.

However, the most realistic problem facing Saikawa is that under his leadership, Nissan has achieved its lowest revenue in a decade and lost a quarter of its market value. At the same time, due to his failure to support Renault's merger plan with FCA, the relationship with Renault has become very tense, and he has also promised to achieve a recovery in the company's business within three years.

But at least for now, Saikawa's management of Nissan and his handling of the relationship with Renault are not too bad. However, the biggest problem facing Saikawa is the pressure of how to revive Nissan's weak financial performance. Consultants are worried that if Saikawa continues to run Nissan, Nissan will not be able to "completely break" with the Ghosn era.