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Nissan hits “rock bottom” in wake of Carlos Ghosn drama, US underperformance

Nissan revealed its earnings report for the fiscal year of 2018. In short, CEO Hiroto Saikawa has declared that the company has officially "hit rock bottom."

Operating profit and net income have seen catastrophic nose dives Outlook for 2019 is not any better, with the company to see its weakest earnings in 11 years Underperformance in the US market, coupled with the Ghosn controversy and his "negative legacy", are being blamed

As ousted Nissan chairman Carlos Ghosn continues to suffer the turmoil of constant legal scrutiny, his company faces its own kind of trouble. 

The company released its earnings report for the fiscal year (FY) of 2018, and the results are far from comforting.

Numbers are plummeting

Released on Tuesday, and covering the 12-month period ending March 31, 2019, Nissan’s earnings report has not painted a favorable picture of the company’s financial performance. 

The company reported 11.574.2 billion yen ($105.5 billion) in revenues, down 3.2% from the previous year.

Operating profit was hit very hard. Nissan recorded a 318.2 billion yen figure ($2.901 billion), plummeting 44.6% from the previous year. 

Net income received a similar hit, dropping a whopping 57.3% to 319.1 billion yen ($2.909 billion). 

Chart: Nissan

The company said that it faced an unfavorable global business climate, and incurred short-term costs due to its initiatives to improve quality of sales in the U.S., as well as the implementation of a warranty extension campaign covering certain vehicles.

“Today we have hit rock bottom,” Nissan CEO Hiroto Saikawa told a news conference on Tuesday, Reuters reported. He added that he wanted the company to recover to its original performance level in next two to three years.

2019 outlook not much brighter

While Saikawa had better hopes for the upcoming years, the numbers did not reflect his optimism. 

Table: Nissan

Operating profit during the 12-month period ending March 31st, 2020 will sink again, some 27.7% to 230 billion yen ($2.098 billion). Reuters said that this represents its “weakest earnings in 11 years.”

Net income will suffer for another year, with Nissan forecasting a drop of 46.7%, down to 170 billion yen ($1.55 billion). 

Despite a 0.4% bump in retail volume, net revenue is expected to see a 2.4% drop during the upcoming year, to 11,300 billion yen ($103.19 billion). 

Shareholders will also have to bear the brunt of the upcoming year’s mediocrity. Full-year dividends are expected to drop to 40 yen per share in 2019, Nissan forecasts. This is approximately 30% drop when compared with 2018’s 57 yen full-year dividend. 

Chart: Nissan

So what, or who, is Nissan blaming for this lackluster performance? 

Nissan’s underperformance can be blamed on many things. Saikawa has attributed part of the blame to the legally embattled Carlos Ghosn.

“Most of the problems we are facing are the negative legacy of our old leader,” Reuters reported Saikawa saying in reference to Ghosn, adding that the company had been slow to move on from these problems.

The Carlos Ghosn influence ties into a key issue Nissan is facing: Its lackluster performance in the US. Sales in the market fell 9.3% to 1.44 million units in the FY 2018.

Infographic: Nissan“Under Ghosn’s leadership, Nissan aimed to boost market share in the U.S. market but spent too much on financial incentives aimed at bolstering consumer and fleet sales,” The Japan Times (TJT) said. “Nissan has acknowledged that this has hurt its brand image and profitability.”

“I think Nissan has pushed itself too much to market in the U.S.” amid fierce competition, said Katsuya Takeuchi, senior analyst at Mitsubishi UFJ Morgan Stanley Securities, interviewed by TJT. 

Speaking to TJT, Takaki Nakanishi, analyst and CEO of Nakanishi Research Institute, said that “Ghosn wanted to retain his post as Renault CEO in 2018, so he outlined an aggressive strategy and pushed Nissan to show that the alliance could achieve steady growth.”

Surprisingly, he said that he thinks “the result would have been the same even if Mr. Ghosn was still in charge.” 

As such, Nissan’s strategy in the US will now put less emphasis on sales and more emphasis on improving its brand image after the massive pump out of Nissan units into the American market. 

Nissan rebuffs Renault’s merger request

Nissan continues to give Renault the cold shoulder when it comes to merging their companies. 

According to sources from both companies, and as reported by Reuters, Renault is quietly pushing for a change of Nissan leadership as a prelude to merger talks. 

Jean-Dominique Senard, who replaced Ghosn as Renault chairman in January, sees current Nissan CEO Hiroto Saikawa as an obstacle to progress, several people told Reuters. Saikawa replaced Ghosn as CEO in 2017, and was long deemed to be his protégé. 

In recent months, and after being released on bail for the first time, Ghosn had recorded a video for the media in which he shares insight into his arrest, blaming a “dirty game” by certain Nissan executives to oust him.

At the time of his arrest, Ghosn was supposedly fast tracking talks that would lead to a merger between Nissan, Renault and Mitsubishi. He insinuated that these executives did not want this alliance to happen. 

This makes sense, as Renault owns 43% stake in Nissan, while Nissan only owns 15% of Renault. Worthy of note is that Renault is partially owned by the French government, at a 15% stake, which complicates matters further by throwing political undertones into the mix. 

At the moment, it seems that Renault has relented – for now. As we lead up to Ghosn’s trial in mid-2019, more details should surface regarding the future of this alliance.