Nissan Motor: Ghosn with the wind

Carlos Ghosn's absence matters less than what he left behind, a collection of ineffective corporate alliances. Photo/ AP

COMMENT by Lex

Rumours that former Nissan Motor chairman Carlos Ghosn escaped Tokyo for Lebanon in a musical instrument case might make a good movie twist. It does nothing to alter the plotline for Nissan. For the Japanese automaker, it is far from the end for its reputational and financial issues. Mr Ghosn's absence matters less than what he left behind, a collection of ineffective corporate alliances.

More madcap comedy than epic thriller, Mr Ghosn gave the Japanese prosecutors and police the slip at the year end. Some will also smirk at local regulators who fined Nissan a mere $22m for allegedly knowingly understating Mr Ghosn's pay. But its operational issues are no laughing matter. Nissan has cut its operating profit forecast for the year ending March by more than a half and revised down sales forecasts in the US, its biggest market, by more than a tenth.

Already profitability is at a decade low. Third-quarter operating margins fell to 1.1 per cent. Only its auto leasing unit has offset the losses made from cars this year. Margins at home, which have historically been the highest, dropped more than 7 percentage points in the most recent quarter. Analysts do not expect Nissan to have positive free cash flow much before March 2022. All this will stretch the company's balance sheet.

Within a consolidating auto industry, Nissan and alliance partner Renault of France chastely huddle together, keeping one foot on the floor. Renault's newish chairman Jean-Dominique Senard, wants no more dramas with Nissan. He will not press for a merger.

Markets have booed. Share prices of the three partners in the Renault-Nissan-Mitsubishi alliance are down about a quarter in the past year. All have issued profit warnings in the past few months. In a scale-dependent business undergoing a shift towards electrification, Mr Senard and his opposite number at Nissan, Makoto Uchida, should consider all options.

Some of this bad news is priced in. Nissan trades at less than half its net asset value, the cheapest it has been since 2008. This, along with a dividend yield over 6 per cent - well above the industry average - seems to show the shares are good value. Yet a lack of free cash flow suggests a dividend cut may be in the offing.

Without an extradition treaty between Japan and Lebanon, the case against Mr Ghosn could well collapse. Unless the partners fully consummate their relationship, the denouement for Nissan's three-way alliance may be equally messy.

© Financial Times 2020