Nissan plans to slash costs after first loss in 11 years

TOKYO (Reuters) – Nissan Motor Co (7201.T) outlined a new plan on Thursday to become a smaller, more cost-efficient carmaker after the coronavirus pandemic exacerbated a slide in profitability that culminated in its first annual loss in 11 years.

Nissan logo is seen amid the smoke rising from burning tires during a workers’ protest in front of the Barcelona factory against the possible closure of the plant at Zona Franca, during the coronavirus disease (COVID-19) outbreak in Barcelona, Spain, May 28, 2020. REUTERS/Albert Gea

Under a new four-year plan, the Japanese manufacturer will slash its production capacity and model range by about a fifth to help cut 300 billion yen ($2.8 billion) from fixed costs.

It will shut plants in Spain and Indonesia, leave the South Korean market and pull its Datsun brand from Russia as part of a strategy unveiled on Wednesday to share production globally with its partners Renault (RENA.PA) and Mitsubishi Motors (7211.T).

“I will make every effort to return Nissan to a growth path,” Nissan Chief Executive Makoto Uchida said, adding that the company had learned from its past mistakes of chasing global market share at all costs.

“We must admit failures and take corrective actions,” he said, adding that starting with top-level managers, the company had to break its inward-looking culture which in the past has stymied efforts to deepen cooperation with France’s Renault.

Uchida said improving cash flow was its biggest challenge, though the company expected to return to having positive free cash flow in the second half of the year, compared with a negative 641 billion yen in the year to the end of March.

With 1.1 trillion yen in net cash in its automotive business, untapped credit lines of up to 1.3 trillion yen and about 700 billion yen in new funding since April, the automaker said it had ample cash to cushion the blow from the coronavirus.

However, Uchida and Chief Financial Officer Stephen Ma acknowledged that more funding might be needed if the pandemic continues to weigh on sales in the coming months.

“We have plenty of liquidity at least for these few months,” Ma told reporters. “As things progress we will look at all the possible options, and we are open to pursue other avenues.”

Nissan declined to give any forecasts for its current financial year which started in April due to the uncertainty created by the pandemic. It also declined to give details on how many jobs it was cutting.

For an interactive graphic of Nissan’s goals, click on: tmsnrt.rs/3gwfvMw

PROFIT SLUMP

In what is Nissan’s second recovery plan in less than a year, Uchida pledged a return to profitability with a core operating profit margin above 5% and a sustainable global market share of 6%.

Nissan posted an annual operating loss of 40.5 billion yen for the year to March 31, its worst performance since 2008/09. Its operating profit margin was -0.4%.

The automaker said on Thursday that it sold 4.9 million vehicles last year, down 11% from last year.

Even before the spread of the novel coronavirus, Nissan’s slumping profits had forced it to row back on an aggressive expansion plan pursued by ousted leader Carlos Ghosn. The pandemic has only piled on the urgency to downsize.

Nissan, Renault and Mitsubishi Motors said on Wednesday they would work more closely on developing and producing cars to reduce costs and ensure their alliance’s continued existence.

Renault is due to announce its own restructuring plans on Friday which are expected to include job cuts despite resistance from the French government.

Nissan’s operating profit has tumbled for four consecutive years as its pursuit of market share, particularly in the United States, led to overcapacity at its car plants, steep discounting and a cheapened brand.

For an interactive graphic on Nissan’s performance, click on: reut.rs/2USzcFy

Slideshow (10 Images)

Spain said on Thursday that the closure of Nissan’s plant in Barcelona could cost the company as much as 1 billion euros and that investing in the factory would be a cheaper alternative.

Protesting workers burned tyres and blocked the entrance to the Barcelona factory following the announcement.

Reporting by Naomi Tajitsu; Editing by David Clarke

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