Nissan profit plunges 99 per cent, 12,500 jobs cut

Nissan workers are bracing for massive job cuts. Photo / Getty Images

Nissan more than doubled its planned job losses and unveiled fresh production cuts after reporting a 99 per cent plunge in earnings, hurt by an ageing product lineup and a slide in vehicle sales in the US and Europe.

About 12,500 jobs, mostly in manufacturing, will be eliminated globally, the Yokohama-based automaker said in a statement Thursday. That represents about a tenth of Nissan's workforce, and far exceeds the 4,800 reductions announced in May. The drop in fiscal first-quarter operating profit outpaced the 66 per cent decline anticipated by analysts.

The dismal results are beginning to overshadow Nissan's other big headache, the arrest in November of former Chairman Carlos Ghosn on alleged financial crimes. Sluggish profits, stuck near decade lows, also weaken the Japanese company's position in a global carmaking alliance with Renault SA and Mitsubishi Motors Corp.

After years of sales incentives that eroded margins and pushing businesses to buy cars, Nissan needs to rebuild its brand image and focus on appealing to retail customers, according to Koji Endo, an analyst at SBI Securities.

"This is really a crisis," Endo said. "Management is chaotic, there is a lot of restructuring pressure, and the most important thing here is to downsize. The company actually inflated too much under Carlos Ghosn."

Revenue fell 13 per cent to 2.37 trillion yen, the steepest drop since the global financial crisis a decade ago. Nissan sold 1.23 million cars in the quarter, a decline of 6 per cent.

Former Nissan Motor Chairman Carlos Ghosn leaves his lawyer's office. Photo / Getty Images

Nissan said it will also cut global production capacity by 10 per cent by the end of fiscal 2022 and reduce its product lineup by "at least" 10 per cent in that period to improve product competitiveness. "While some of these initiatives are already underway, the company expects that substantial improvements in its performance will take time," Nissan said in the statement.

The drastic job cuts and restructuring measures are reminiscent of what Ghosn did in the early 2000s to pull Nissan from the brink of bankruptcy, and also after the 2008 global financial crisis. The automaker kept its fiscal full-year forecasts; Nissan issued an outlook in May for operating profit of 230 billion yen on revenue of 11.3 trillion yen.

The deteriorating business performance could make investors question whether Chief Executive Officer Hiroto Saikawa is the right person to lead Nissan out of its current struggles. Last month, corporate governance advisers urged shareholders to vote out the former Ghosn protege, who has faced internal strife over whether he's the right executive for job, as well as questions over a pay package in 2013 related to a house purchase.

The surprise arrest of Ghosn, who led Nissan and Renault for more than a decade, exposed rifts over control and decision-making between the two companies. Currently, out on bail, Ghosn has denied all charges against him, saying his arrest was due to a "dirty game" played by some Nissan executives. He is now preparing for his trial, which may start later this year or next year.

Nissan, which has an out-of-sync product cycle and ageing model lineup, saw U.S. vehicle sales drop 15 per cent in June, bringing the decline this year to 8.2 per cent. Deliveries in China, Nissan's biggest market, dipped 0.3% in the first half. Nissan shares fell 2.1 per cent in Tokyo on Thursday before the results were announced. They've fallen 13 per cent this year, following a 22 per cent slump in 2018.

The carmaker recently revamped the Nissan Skyline with design changes and features to make it more appealing to the Japanese market, and is also betting that passenger cars, especially electric sedans, will help drive future sales in China, Latin America and other growing markets.

- Bloomberg