Nissan CEO Hiroto Saikawa. Picture: REUTERS/ISSEI KATO
Nissan CEO Hiroto Saikawa. Picture: REUTERS/ISSEI KATO

Tokyo Carlos Ghosn’s arrest threw Nissan into a corporate tailspin with allegations of self-dealing, profligate spending and filing false statements. Now the carmaker’s profits are falling off a cliff, and successor Hiroto Saikawa may go down with them.

Troubled by slumping US sales, ageing models and a product cycle that is out of sync, the Yokohama-based company is on track to announce on Tuesday its lowest annual operating profit in a decade, raising the possibility of a dividend cut. The outlook for the current fiscal year to March 2020 probably will not be any more promising.

CEO Saikawa has yet to announce a turnaround plan since the arrest of former chair Ghosn in November, and people familiar with the matter say there is internal strife over whether he is the right executive to fix Nissan. Alliance partner Renault may not look too favourably on Saikawa’s reappointment if he continues to oppose a merger said to be backed by its own chair, Jean-Dominique Senard, who is also a Nissan director.

In addition, the alliance partner said it would block Saikawa’s reappointment if he did not agree to a merger — a request made by Renault’s new chair that Saikawa batted away, the Yomiuri newspaper reported in April.

“A new management team and strategy may be the answer,” said Michael Dean, a Bloomberg Intelligence analyst.

“We do not comment on rumours or speculation,” said Nicholas Maxfield, a Nissan spokesperson. “The company’s focus is on stabilising operations and strengthening its management structure, while addressing the weaknesses in governance that enabled this misconduct.”

The surprise jailing of Ghosn, who led both carmakers for two decades, exposed rifts over control and decision-making. Since then, Ghosn was released and detained once again. 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 in 2019 or in 2020.

A pending litmus test for Saikawa’s job security will come in June, when Nissan’s directors are set to formally adopt new corporate governance rules that include creating a more independent board. In an extraordinary shareholders’ meeting held in April to remove Ghosn from the board, Saikawa was peppered with questions about why he was not stepping down to take responsibility for Nissan’s poor governance.

Saikawa said there are many ways to take responsibility and he believed the right thing for him to do now is to help Nissan rebuild, signalling his intention to stay on. Even so, Saikawa needs Renault’s vote from its 43% stake to back his reappointment, especially given that about half of minority shareholders have voted against his appointment since 2017.

While the French carmaker agreed in 2015 not to interfere in the appointment of top Nissan managers, Nissan’s financial weakness could give Renault an opening to push harder for a merger.

Nissan clearly had very bad corporate governance and an atmosphere where few felt they could question  Ghosn. His departure will enable them to reboot, but it will take time to put a strong management team in place
Janet Lewis, an analyst at Macquarie Capital Securities (Japan)

The list of potential replacements include COO Yasuhiro Yamauchi, who sits on the board of Renault. His recent promotion preserves management ties between the carmakers, who along with Mitsubishi Motors form the world’s biggest car alliance.

A recent management shuffle also put the spotlight on executives who may also be in a position to lead the company. Hideyuki Sakamoto, in charge of manufacturing and supply-chain management, joined Nissan in 1980 as an engineer and has worked around the world, including the Nissan Technical Centre in North America, Nissan’s largest affiliate supplier in Japan and Renault in Brazil. Jun Seki, formerly Nissan’s China chief, is now senior vice-president overseeing “performance recovery”.

“Nissan clearly had very bad corporate governance and an atmosphere where few felt they could question Ghosn,” said Janet Lewis, an analyst at Macquarie Capital Securities (Japan). “His departure will enable them to reboot, but it will take time to put a strong management team in place.”

Nissan warned investors in April of bad times ahead as it cut preliminary profit for the year ended March to ¥318-billion ($2.8bn ), a 30% decline from the previous guidance, which itself had been lowered. That would mark the first time the Japanese carmaker earned less than Renault in a decade. An out-of-sync product cycle, ageing lineup and poor consumer reviews “will take years, not months to fix”, Lewis said.

Nissan also may announce that it is paring the targets in its plan for the six years through fiscal 2022, the Asahi reported, citing people it didn’t identify. Nissan will lower its fiscal 2022 revenue target to about ¥14-trillion from the existing target of ¥16.5-trillion and cut operating margin target to about 6% from 8%, according to the newspaper. Nissan declined to comment on the Asahi report.

Even lower mid-term forecasts would fall short of analysts’ projections. Operating profits likely will not recover to levels seen under Ghosn until 2023, meaning there will probably be no growth in the current six-year plan, according to estimates compiled by Bloomberg.

“The impact may persist this fiscal year,” said Koji Endo, a car analyst with SBI. “The downward revision it made in the past year wasn’t enough to push all the bad things out of its door.”