Men walk past a Nissan logo at the company’s global headquarters in Yokohama, south of Tokyo, Japan. Picture: REUTERS
Men walk past a Nissan logo at the company’s global headquarters in Yokohama, south of Tokyo, Japan. Picture: REUTERS

Yokohama — Nissan says it has more work to do to rein in US vehicle discounts to improve profit in its key market, after it took a surprisingly big profit hit from sluggish sales as well as currency moves in the second quarter.

Japan's second-biggest vehicle maker and domestic rivals including Toyota  have struggled with low profit in North America for the past two years as they expanded discounts in an increasingly competitive US market, where vehicle sales have plateaued near record highs.

"Unfortunately we can't say that we've been able to lower incentives significantly," CFO Hiroshi Karube told reporters at an earnings briefing.

During the July-September quarter, the car maker eked out only a one percentage point improvement in incentives as a proportion of vehicle sales revenue, he added.

"We're still not there yet," Karube said. "We have a lot of work to do in the third and fourth quarters."

But Nissan was making progress in reducing stock of older models, he said, which would help it cut discount levels in the second half of 2019.

The car maker is betting that the latest version of its high-volume Altima sedan will boost overall US sales and help trim incentive spending following its launch in October, but the new model comes at a dire time for sedans.

Japanese car makers in the past two years have been struggling in the US to sell sedans, a bread-and-butter product offering, as driver preferences have shifted toward larger models like pickup trucks and sport utility vehicles.

For the quarter, Nissan posted an 8.4% slide in vehicle sales in North America. In an odd twist, operating profit in the region rose 12.5%, as selling less cars meant that the car maker was able to spend less on discounting.

Currency hit

Nissan posted a 21% fall in second-quarter operating profit at ¥101.2bn ($890.30m) due to lower sales in the US as well as Europe — where sales slumped 11.5% — along with weakness in emerging-market currencies like the Turkish lira.

Profit was lower than a ¥130.1bn median of nine analyst estimates compiled by Refinitiv, and the worst second-quarter performance since 2008. Still, Nissan kept its full-year forecast at ¥540bn, a decline of 6%.

The sluggish profit comes at a sensitive time for car makers, which are investing heavily to develop self-driving cars, electric vehicles and new transportation services.

One bright spot for Nissan has been China, where vehicle sales since January have increased 7.4% through September compared with the same period a year prior, so far bucking signs that the world's largest car market was slowing.

Nissan's overall vehicle sales in Asia rose 11.3% in the July-September quarter, while operating profit in the region rose 8.2%. Global vehicle sales were largely flat.

Reuters

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