Compounding Carlos Ghosn debacle, Nissan slashes profit outlook
The Japanese car maker expects operating profit for the year to end-March to drop 45% compared to 2018, citing Ghosn as part of the reason
Tokyo — Nissan slashed its full-year profit forecast to its lowest in nearly a decade due to weakness in the US, just as it adjusts to life without Carlos Ghosn and charts its future with alliance partner Renault.
The Japanese car maker expects operating profit for the year to end-March to drop 45% compared to the same period in 2018 to ¥318bn ($2.84bn), from a previous forecast for ¥450bn, on expenses related to extending vehicle warranties in the US, its biggest market.
Nissan also blamed the arrest of former chair Ghosn for tarnishing its brand and contributing to the decline in profit to the lowest since the year ended March 2010.
This is the second cut to the automobile maker’s operating profit forecast in two months, and adds pressure on CEO Hiroto Saikawa just as he works to draw a line under Ghosn’s legacy by overhauling corporate governance and seeking a more equal footing with Renault, Nissan’s biggest shareholder.
At its full-year results on May 14, the Nissan will book a ¥66bn provision for costs related to extending the warranty on its continuously variable transmission system installed in about 3-million Sentra and Altima sedans and Versa sub-compact models between 2012 and 2017 for the US market.
Following complaints that the key powertrain component made excessive noise and vibrations with age, the Nissan said it decided this week to extend their warranty to seven years from five in hopes of building brand loyalty in a market where it has been struggling for the past three years.
Falling profit has been a headache for Nissan since before Ghosn was first arrested in November on allegations of financial misconduct. Currently in jail after his fourth arrest, Ghosn, who denies wrongdoing, could learn as early as Wednesday whether he will be released on bail for a second time.
The once-feted executive has repeatedly accused Nissan executives of mismanagement since his ouster, which he has characterised as a boardroom coup. Now the car maker is saying that Ghosn’s arrest has hurt business.
“Everyday, there are many reports of the case,” Nissan CFO Hiroshi Karube said on Wednesday, referring to the scandal. “Non-Nissan users are hesitant to buy our cars.”
The biggest blow, however, to Nissan’s bottom line has come from the costly sales incentives in the US. For years it has relied on heavy discounting in its biggest market to sell its Rogue compact SUVs and Altima sedans to expand market share, under aggressive targets Ghosn set during his time as CEO.
Saikawa, who took over as CEO in 2017, has pledged to focus on improving profit margins, but it has been a slow process as Nissan continues to resort to discounting to shore up sales.
“Sales volumes were lower than expected, so we were unable to realise our cost-reduction plans,” CFO Karube said, adding that overall dismal US performance will wipe ¥43bn from Nissan’s bottom line in the year ended March. “We didn’t make as much progress on volumes and improvements to incentives as planned.”
Analysts warn that Nissan’s troubles could weaken its footing with partner Renault, which has been pushing for a closer merger, but which many at Nissan have opposed.
“To maintain its stance against closer ties with Renault, Nissan must improve its financial performance so it can hold its position,” said Satoru Takada, MD at securities research company TIW.
Nissan shares closed down 4% after the profit warning, while Renault shares shed as much as 5.5%.