Nissan loses ¥671 bil. in FY19, posts worst results in 20 years

Nissan Motor Co. on May 28 announced a net loss of ¥671.2 billion in consolidated financial results for the year ended March 2020, compared to a net profit of ¥319.1 billion in the previous fiscal year.

It was the first net loss since the 2008 fiscal year, when the company was directly affected by the financial crisis triggered by the collapse of Lehman Brothers. The loss was also close to the level reached in the year ended March 2000, when former chairman Carlos Ghosn took drastic steps to rebuild the company.

Nissan revealed a mid-term management plan in which one of the pillars is a ¥300 billion reduction in fixed costs, including personnel expenses.

Sales were ¥9.87 trillion, down by 14.6% from the previous fiscal year. The company posted an operating loss of ¥40.4 billion, compared to ¥318.2 billion in operating profit the previous fiscal year. In addition to prolonged sluggish sales in areas such as North America and Europe, a decline in demand caused by the spread of the coronavirus aggravated its performance. Nissan did not reveal its earnings forecast for the year ending March 2021, saying that the future remains unclear.

Nissan will implement a major overhaul of its production and sales structures and accelerate a shift away from the expansion strategy championed by the automaker’s former Chairman Carlos Ghosn after booking its biggest annual loss in 20 years.

However, the carmaker also has been hammered by the new coronavirus outbreak, so it remains unclear whether the company can repeat the results of the business reconstruction it put in place 20 years ago.

Nissan President and Chief Executive Officer Makoto Uchida wore a stern expression during an online briefing held May 28 to explain the automaker’s new medium-term transformation plan and its financial results for the fiscal year that ended in March, including the net loss of ¥671.2 billion.

“To overcome this situation, we must admit our mistakes and correct our course,” Uchida said. “These are very difficult decisions. But these steps need to be taken decisively and without compromise.”

The four-year plan will cut fixed costs by taking steps such as closing manufacturing plants, mainly in Europe. It remains unclear how many jobs will be lost.

The largest factor behind Nissan tumbling into the red was its excessive manufacturing facilities, whose production outstrips demand. Nissan’s global production capacity is at least 2 million units more than its annual sales.

Nissan is making preparations to close its Barcelona plant. This is one of Nissan’s major production bases in Europe, along with the Sunderland plant in England, but it has become a symbol of unprofitability.

The Barcelona plant has an annual production capacity of about 200,000 vehicles, but in fiscal 2019 it made only about 55,000 units — fewer than half of the 125,000 vehicles churned out three years earlier. The optimal factory utilization rate is said to be 70% to 80%, but the Barcelona plant was operating at about 30%.

Nissan also is wielding the ax in Asia, where it has struggled to make profits outside of Japan and China. Nissan has decided to close its manufacturing facility in Indonesia and will withdraw from South Korea. The automaker intends to concentrate production in Asia at its Thailand plant.

Nissan has struggled to turn a profit in its European operations. However, its efforts to make reforms have languished due to concerns over triggering a backlash from senior employees from Europe, who make up a large chunk of the increasingly internationalized executive lineup. Many executives have experience in Nissan’s European operations, which made the region “untouchable.” Former Nissan President Hiroto Saikawa said, “It was a region that the company needed to start working on, but there was no chance to ever push through the resistance to this.”

In a strange twist of fate, the new coronavirus pandemic has become a tailwind for reform. Chief Operating Officer Ashwani Gupta, who was tasked with rebuilding Nissan’s stalling business, and other executives made inspection tours of facilities in Indonesia and Europe during February and March, just as the impact of the coronavirus was starting to spread around the world. These executives decided it was possible to cut costs through steps such as working closely on producing vehicles with alliance partner Renault, and a plan to include the closure of some plants in the midterm plan took shape.

Ghosn was arrested in 2018 for alleged financial misconduct. Nissan’s new business plan is the first since then to fully revise the company’s previous strategy.

In its financial results, Nissan logged “costs associated with restructuring and impairments” of about ¥600 billion. The overall loss was the automaker’s second-highest, behind only the ¥684.3 billion loss in the business year ended March 2000 — the year Ghosn launched the “Nissan Revival Plan.”

The automaker has now broken away from the expansionist strategy Ghosn spearheaded during his years at the helm, including entering the markets of developing nations, and seems to have braced itself to undertake painful reforms.