Nissan: Down but a Long Way From Out

Nissan: Down but a Long Way From Out

By Peter Nunn

Suddenly, the world is jumping on Carlos Ghosn and Nissan, and with reason. The six-year bull-run engineered by the iconoclastic business champion has now hit some unexpected bumps in the road.

Profits are down, sales are down. Nissan's management is reshuffling. And analysts and editors are asking tough questions of a CEO who has known almost nothing but success since he famously brought Nissan back from its near-death experience in 1999, earning huge plaudits from around the world in the process. It's a rare rebuke for "Le Ice Breaker."

How has this Nissan fall-off happened and, more to the point, been allowed to happen? The intensity of global competition, price wars and surging raw material costs aside, you could say a lot of it has to do with product, or the lack of it.

Ghosn's Revival Plan

When Ghosn came to Nissan in summer 1999, he famously created the Nissan Revival Plan (NRP), which totally restructured the way Nissan worked. The revival plan began in late 1999 and brought Nissan back into the black with a record consolidated net profit of $2.97 billion by 2002.

Then came Nissan 180, which kicked off in April 2002. These two plans generated a lot of new product, most of it geared to North America where Nissan also put down $1.4 billion to open a new plant in Canton, Mississippi, to build trucks and full-size SUVs.

As a result of a sharp U.S. sales decline, Nissan offered buyouts to employees at its two plants in Tennessee, including its Smyrna plant, its first North American assembly plant. Nissan announced last week that 775 workers -- or about 12.5% of its 6,200-employee workforce -- had accepted the offers. The offer included a cash payment of $45,000 plus $500 for each year worked by the employee opting for the buyout.

Product Flood, Product Drought

Insiders say the near brush with bankruptcy in 1999 had a harrowing effect on the company. A concerted effort was made to bring out as much new product as fast as possible to show that Nissan was alive and well. The move put Nissan back on track and drove up sales and profits.

Between 2000 and 2004, Nissan's pedal was fully to the metal but by the end of Nissan 180 in October 2005, the product pipeline had almost, but not quite, run dry. In the U.S., where Nissan generated most of its profits, there was a yawning gap before key new volume models -- Versa, new Altima and Sentra -- made it to the showrooms.

At the same time, the U.S. truck market went soft, a factor nobody could have predicted two years previously, and the incentive wars heated up. Slower large truck and SUV sales along with increased incentives prompted Nissan to lower its forecast.

Edmunds.com Analysis: Nissan in the U.S.

Nissan sales in the U.S. peaked in 2005, and then declined by 5.3% from 2005 to 2006. At the same time that sales decreased, Nissan’s inventories were climbing, prompting the automaker to boost its incentive spending, according to an analysis by Edmunds.com’s AutoObserver.

(TCI - True Cost of Incentives)

Nevertheless, despite the significantly higher incentive spending, Nissan sales did not improve. Decreases were particularly pronounced in full-size truck and sport-utility vehicle sales. Only the Nissan Frontier and Murano as well as the Infiniti M showed increases.

The picture is brightening this year with sales up 4.8 percent through the first two months of 2007 compared with the same period last year and despite a reduction in incentive spending. Edmunds.com predicts Nissan will sell 104,000 units in March 2007, up about 1.1 percent from March 2006. Nissan's market share is expected to be 7.0 percent in March 2007, up slightly from 6.8 percent in March 2006 and February 2007.

Nissan is seeing some sales improvements in several key models, including the redesigned Altima and Infiniti G35. The Nissan Murano and Infiniti FX crossovers continue to do well as the Nissan Versa. Sales of the heavily freshened Quest minivan are up as well.

Nissan: U.S. Outlook

Nissan’s outlook for the near future –- next 18 months –- is promising, thanks to new product. The Armada, Pathfinder and Titan are freshened in 2008. The Sentra V-Spec is new. The Altima Coupe and Nissan Rogue, nicknamed the “baby Murano,” are likely to do well. And next year’s much-anticipated Skyline will create some excitement as it fills a halo slot above the Z.

“If Nissan can maintain current market share on its large trucks and SUVs, which account for about 100,000 sales a year, the automaker will be in good shape,” said Alex Rosten, manager, Pricing and Market Analysis, Edmunds.com’s AutoObserver.

Other Markets Struggle

As Nissan struggled in the U.S., Japan has been desperately sluggish for Nissan while Europe remains flat but improving. China, though, is booming.

Not that the roof has quite fallen in just yet at Nissan's HQ on Tokyo's famous Ginza. Remember that Nissan is still a very considerable moneymaking operation. By April 2006, Nissan had delivered on its sixth consecutive year of straight profit, posting a net profit of $4.57 billion, a number that many in Detroit today would dream of.

Still, Nissan was leveling off (profit up "just" 1.1 percent) while its fellow members of the Japanese Big Three were storming ahead (Honda up 22.8 percent to $5.26 billion and Toyota was in another universe at $12.1 billion, up 17.2 percent).

So, too, were sales leveling off –- inevitably. Nissan sold 1 million extra cars from October 1, 2004 to September 2005, compared with its slump year of fiscal 2001. A leveling off was inevitable, note insiders, though critics jump on this fact as a point of weakness.

By February 2007, after a tough second half of the current business year, Nissan was ready to revise its global sales downward. Operating profits were set to fall 11 percent. Nevertheless, Nissan is expecting to post $6.67 billion with net profit at $3.96 billion, so hardly a basket case as some commentators would try to have us believe.

Ghosn's hectic global shuffling, splitting his time between Paris and Tokyo and running two companies simultaneously, has also come for comment for critics.

As part of the March 16 reshuffle, Ghosn will now relinquish part of his extraordinary workload, overseeing U.S. operations, to focus more on the broader strategies involving the Nissan-Renault alliance. Hiroto Saikawa, Nissan's 53-year-old executive vice president in charge of Europe, will now take over the Americas. He comes with a proven background, having turned Nissan Europe into a much leaner, more profitable operation.

Surely, even the most capable CEO on the planet would find this grinding schedule too much to be able to concentrate fully? Not so, say these insiders who point out that Ghosn was traveling just as much while based in Tokyo and "only" running Nissan.

Others disagree, saying the line of command was simply stretched too thin with the new regime and coincidentally, perhaps, a lot of Nissan's problems started to show up when Ghosn took over the top Renault seat in 2005.

The counter to that is that the internal situation that led to the product shortfall Nissan has been experiencing stems back to 2003-'04, when Ghosn was still at Nissan in Tokyo and ultimately overseeing the product cycle.

Nobody would argue, however, that the controversial Nissan U.S. headquarters move from L.A. to Nashville has disrupted things, but how much this actually accounts for recent deteriorating business results is open to debate. Some say lots, others not much at all.

Nissan's also had its well-documented quality problems, particularly in the U.S. on its full-size pickups and SUVs, and criticisms of its low-quality interiors. This, too, hasn't exactly helped drive up sales.

Nissan's negotiations with GM last summer? Did Ghosn take his eye off the ball too long while these decidedly curious talks went on? The talks lasted a relatively short time and in the end came to nothing so, in the big picture of what's happening now, can surely be discounted.

In Japan, meantime, where the market's depressed (and where even Honda and Toyota are struggling), Nissan has seen unit sales slide almost continually since late 2005. Part of the problem is it hasn't launched any truly big volume hitters like a new March (Micra) subcompact, which, if history is any guide, is not due for a full model change until 2012. Toyota, however, has the new Yaris and Honda's Fit is still definitely a player in that segment. Nissan definitely needs some new March action, and soon.

In Japan, the iconic Cube is still hot, and the Serena minivan is also holding up well. But Japan is a tough place to sell cars and make profits these days, and Nissan's not alone in having trouble turning the tide.

Even though it's moved more aggressively of late into Japan's unique, high-volume 660cc minicar market (the only cars that are really in demand these days in Japan), these are brought in from outside (from Suzuki and Mitsubishi) and overall sales have softened to the point where Nissan has now had to announce a series of production cuts at its two Oppama and Tochigi plants to adjust inventory.

So, what now? On April 26, Nissan will announce full year results for 2006-'07. At that time, it will unveil an updated program to boost sales and performance.

One thing's for sure, the product cycle, we hear, will be far more evenly balanced going forward, with none of the peaks and troughs of 2005 and 2006 in the models to come for 2008 through to 2010.

Nissan Value Up, the latest business plan, ends in March 2008. Nissan is still promising a top-level operating margin, a 20-percent return on invested capital and "significant progress" toward 4.2 million sales in 2008.

Yes, Nissan's had a wobble, and a bit of a wake-up call. But look at the bottom line, and there are companies around that would love to have its "problems."

Michelle Krebs and the Edmunds.com analysts and staff contributed to this story.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.