When Renault took a controlling equity stake in Nissan Motor in 1999, many were sceptical about the link-up of these two very traditional car companies with very different cultures. Carlos Ghosn was parachuted onto the Nissan board and the Nissan Revival Plan took shape. Yesterday’s financial results confirm a turnaround that has its roots in asset sales and cost savings. Rob Golding was at the press conference in Paris to hear the results.
Carlos Ghosn delivered profits to Nissan shareholders yesterday that were well above company predictions and analysts forecasts, and constituted an all time record for the group.
Much of it derived from asset sales, land sales and the sale of shareholdings in other companies, but that did not preclude the Renault-appointed president from forecasting more and better to come for the wounded Japanese car company.
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“Particularly daring was the forecast that the company would be debt free within four years.“ |
Particularly daring was the forecast that the company would be debt-free within
four years. Given that it was almost bankrupt two years ago before Renault bought
its 36.8 percent controlling stake and that debt peaked in 1993 at a phenomenal
2,866 billion yen, that would be some achievement. The transitional step, Ghosn
said at a press conference in Paris today, would be debt of 700 billion yen
next year.
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Carlos Ghosn has delivered unexpectedly high profits |
Asset sales still have some way to go. Ghosn expects to be able to raise a further 160 billion yen before the end of next year. The notable business sales so far have been the aerospace division, constant velocity joints and plastic tank construction. Trade buyers have included Ikeda, Johnson Controls and Valeo.
For 27 years Nissan has been losing market share in its home market and last year was no exception. While the market was up 3.6 percent, total Nissan sales in Japan were down by the same amount. That is the end of the decline, said Ghosn emphatically. This year Nissan will recover by a percentage point to 18.2 percent.
But that will not be at the cost of losing more money. Ghosn revealed that 80 percent of the cars sold in Japan last year were sold at a loss and that would stop. Around 28 percent of the costs had been in marketing and distribution and 300 of the retail dealers had been sold or closed in the drive for greater efficiency.
Nissan will enter the Japanese mini-car segment in Japan for the first time and is investing heavily in new models to repair the perception of the brand. For the core range, there will be seven new models a year for the next three years. One of the first significant new cars will be the Micra – to be built at the end of this year and available from the UK Sunderland plant at the end of next year. For the first time it will share a platform with Renault – creating significant cost benefit.
Challenged by one reporter from the US, he conceded that, in the first quarter of this year, Nissan sales in the world’s biggest market were still poor and that market performance was worse than that of both of its two main Japanese rivals – Toyota and Honda.
But he said: “We never said that the change in the perception of our cars could be quick. It takes time to do what we have to do in that respect”
Next year, he believes, he will get growth in the US. His company forecasts a decline in the US market size of 7.3 percent this year but he believes that he can force his total sales through three quarters of a million units for a market share of 4.8 percent and a year-on-year improvement of 2.4 percent.
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There will be seven new models a year for the next three years. One of the first significant cars to be involved will be the Micra – a car that will share a platform with Renault |
Europe is tougher. The recovery there is severely constrained by the relatively high cost of manufacturing because of the dependency on the UK factory with costs in pounds sterling. While the transition is made to components priced in euros, Nissan will have to continue to be cautious about European growth rather than risk unprofitable volume. Nissan’s sales will decline in line with the market, thinks Ghosn, and fall by two percent. Another bold forecast is that Nissan will be profitable in Europe this year despite the high level of sterling. Ghosn believes that sterling will ultimately join the euro – a significant assertion given that he met with UK prime minister Tony Blair before signing off the investment in Sunderland to build the new Micra.
Markets that are targeted for growth because customers are viewed as susceptible to the present range of products include Thailand and Indonesia. And, soon, Ghosn expects to be able to announce a deal to tackle the Chinese market.
“Nissan is out of the emergency ward. But is still in recovery.“ |
Ghosn was robust in defending his continued confidence in the recovery of Nissan which is still seen very much as an experiment in business and social change by the Japanese corporate community.
“Not many companies have been through the sort of restructuring that we have and in the same year trebled profitability.” The headline pre-tax profit was 282 billion yen compared with a small loss in 1999.
More impressive still were the operating margins – up from 1.4 percent to 4.75 percent. Ghosn sees it as settling above 5 percent this year which means a performance closer to the norm for the luxury car makers than to the volume rivals.
When will Nissan repay the compliment to Renault and buy a stake in that company to correspond to the Renault stake in Nissan? Not yet is the answer. “It is not an urgent matter although we could now afford to do so. We will get the timing right and base the decision on rational rather than emotional considerations.”
The confidence of the workforce has improved dramatically according to a survey of workers and despite the disappearance of 14,200 of the 133,800 jobs. The move to promotion by ability rather than seniority has had a dramatic effect on productivity and morale.
As the man said in his final sign-off, Nissan is out of the emergency ward. But it is still in recovery.
By Rob Golding
To view related research reports, please follow the links below:- The world’s car manufacturers: A financial and operating review |
