February 12, 2019 / 7:51 AM / 2 months ago

Rough ride: Nissan slashes outlook, unveils Ghosn-related charge

YOKOHAMA, Japan (Reuters) - Nissan Motor warned its annual profit will plumb six-year lows on waning global sales, underlining the challenges it faces as it also grapples with the fallout from the shocking arrest and ouster of its former chairman Carlos Ghosn.

The Japanese automaker, in its first results since Ghosn was detained in November, unveiled an $84 million (£65 million) charge linked to deferred compensation for the executive who has been indicted for under-reporting his salary at Nissan over 2010-2018.

The scandal has roiled global auto markets and created tensions between Nissan and its automaking partner France’s Renault, raising concerns about the future of the companies that Ghosn wanted to integrate.

The dour outlook indicates an urgent need for Nissan and Renault to strengthen their partnership, but ties have been strained since the Japanese automaker moved first to remove Ghosn as chairman after his Nov. 19 arrest in Tokyo.

Nissan wants to stabilise alliance operations, said CEO Hiroto Saikawa, who is scheduled to meet newly appointed Renault Chairman Jean-Dominique Senard this week in Japan as they look at ways to cement their partnership.

Ahead of that meeting, the Nissan CEO said he wanted both companies to better leverage their scale to be more competitive and efficient in areas including manufacturing and procurement, while respecting each others’ autonomy.

“In the past few years there’s been a lot of talk about ‘convergence’ of the two companies’ operations,” Saikawa said, referring to one of Ghosn’s key aims for the alliance. “While stabilising our operations, we need to re-examine whether investments (towards convergence) are the most efficient.”

This could mean a reassessment of the alliance’s growth targets through 2022, Saikawa said at a briefing on Tuesday.

Nissan, which is almost 60 percent bigger than Renault by sales, remains junior in their shareholding structure. Renault holds 43.4 percent of Nissan, whereas Nissan has just a 15-percent non-voting stake in Renault.

Japan’s second-biggest automaker projected an operating profit of 450 billion yen ($4 billion) for the year to March, down 22 percent from the previous year and 17 percent below an earlier forecast, hurt by a slowdown in global sales.

This would be Nissan’s lowest operating profit since 2013.

(For an interactive chart on Nissan's operating profit, vehicle sales, click on tmsnrt.rs/2POSji4)

SALES TO SKID

Nissan cut its annual global retail vehicle sales view by 5.5 percent and projected weaker sales in China, its biggest market, and the United States.

People walk past a dealer shop of Nissan Motor Co. in Tokyo, Japan, February 12, 2019. REUTERS/Kim Kyung-hoon

Saikawa said Nissan will avoid trying to meet sales targets by using discounts, a strategy which has hurt its profitability in North America, the world’s No. 2 auto market.

“We were only able to meet 60 percent to 70 percent of our (global) target for the year to the third quarter,” Saikawa said. “If we are not careful about how we make up for that shortfall in the fourth quarter we could find ourselves in similar situations we’ve seen in the past.”

“So we want to raise our performance by improving the quality of sales,” he added.

Nissan expects to sell 5.6 million vehicles worldwide in the year to March, versus a previous target for 5.93 million.

While it still sees sales growing in China, the world’s top auto market, it trimmed its forecast for the country to 1.56 million units from 1.70 million units.

In the United States, it now sees sales tumbling 8.6 percent on the year to 1.46 million units, from 1.55 million last year.

(For an interactive chart on Japanese automakers' vehicle sales in the U.S., China, see tmsnrt.rs/2RjnBuA)

Nissan and its domestic rivals, including Toyota Motor Corp, have struggled with sluggish sales and falling profit in North America. Their margins have been squeezed as they resorted to steep discounts to drive up demand in a competitive U.S. market where sales have plateaued near record highs.

While it has been able to repair some of its profits in North America as inventory reduction of older models enabled it to dial back on heavy U.S. discounting, falling demand will test Nissan’s ability to be disciplined with its incentives.

(For an interactive chart on Japanese automakers' annual global vehicle sales, see tmsnrt.rs/2RnFOr2)

GHOSN SALARY PROVISION

The bleak outlook comes as Nissan also grapples with the Ghosn scandal and the resulting scrutiny of its corporate governance.

Nissan said it had recognised around 9 billion yen in additional expenses linked to payments to Ghosn. This announcement comes after it was indicted alongside Ghosn with failing to disclose the compensation.

While it is possible that a Japanese court could order Nissan to pay Ghosn that amount, Saikawa said it was “unlikely” the expense would be realised.

Slideshow (2 Images)

This provision refers roughly to the amount Ghosn has been charged of under-reporting in his 2010-2018 salary at Nissan.

Ghosn has denied all charges against him.

Reporting by Naomi Tajitsu; Editing by Himani Sarkar

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