Adding to Ghosn woes, Nissan slashes profit outlook to near-decade low

By Naomi Tajitsu TOKYO (Reuters) - Nissan Motor Co slashed its full-year profit forecast to its lowest in nearly a decade due to weakness in the United States, just as it adjusts to life without Carlos Ghosn and charts its future with alliance partner Renault SA. The Japanese automaker expects operating profit for the year ended March to drop 45 percent versus a year earlier to 318 billion yen ($2.84 billion), from a previous forecast for 450 billion yen, on expenses related to extending vehicle warranties in the United States, its biggest market.

Reuters April 25, 2019 00:06:04 IST
Adding to Ghosn woes, Nissan slashes profit outlook to near-decade low

Adding to Ghosn woes Nissan slashes profit outlook to neardecade low

By Naomi Tajitsu

TOKYO (Reuters) - Nissan Motor Co slashed its full-year profit forecast to its lowest in nearly a decade due to weakness in the United States, just as it adjusts to life without Carlos Ghosn and charts its future with alliance partner Renault SA.

The Japanese automaker expects operating profit for the year ended March to drop 45 percent versus a year earlier to 318 billion yen ($2.84 billion), from a previous forecast for 450 billion yen, on expenses related to extending vehicle warranties in the United States, its biggest market.

Nissan also blamed the arrest of former Chairman Ghosn for tarnishing its brand and contributing to the decline in profit to the lowest since the year ended March 2010.

This is the second cut to the automaker's operating profit forecast in two months, and adds pressure on Chief Executive Hiroto Saikawa just as he works to draw a line under Ghosn's legacy by overhauling corporate governance and seeking a more equal footing with Renault, Nissan's biggest shareholder.

At its full-year results on May 14, the automaker will book a 66 billion yen provision for costs related to extending the warranty on its continuously variable transmission system installed in about 3 million Sentra and Altima sedans and Versa subcompact models between 2012 and 2017 for the U.S. market.

Following complaints that the key powertrain component made excessive noise and vibrations with age, the automaker said it decided this week to extend their warranty to seven years from five in hopes of building brand loyalty in a market where it has been struggling for the past three years.

Falling profit has been a headache for Nissan since before Ghosn was first arrested in November on allegations of financial misconduct. Currently in jail after his fourth arrest, Ghosn, who denies wrongdoing, could learn as early as Wednesday whether he will be released on bail for a second time.

The once-feted executive has repeatedly accused Nissan executives of mismanagement since his ouster, which he has characterised as a boardroom coup. Now the automaker is saying that Ghosn's arrest has hurt business.

"Everyday, there are many reports of the case," Nissan CFO Hiroshi Karube said on Wednesday, referring to the scandal.

"Non-Nissan users are hesitant to buy our cars."

U.S. WOES

The biggest blow, however, to Nissan's bottom line has come from the costly sales incentives in the United States.

For years it has relied on heavy discounting in its biggest market to sell its Rogue compact sport utility vehicles and Altima sedans to expand market share, under aggressive targets Ghosn set during his time as chief executive.

Saikawa, who took over as CEO in 2017, has pledged to focus on improving profit margins, but it has been a slow process as Nissan continues to resort to discounting to shore up sales.

"Sales volumes were lower than expected, so we were unable to realise our cost-reduction plans," CFO Karube said, adding that overall dismal U.S. performance will wipe 43 billion yen from Nissan's bottom line in the year ended March.

"We didn't make as much progress on volumes and improvements to incentives as planned," he added.

Analysts warned that Nissan's troubles could weaken its footing with partner Renault, which has been pushing for a closer merger, but which many at Nissan have opposed.

"To maintain its stance against closer ties with Renault, Nissan must improve its financial performance so it can hold its position," said Satoru Takada, managing director at securities research company TIW.

Nissan shares closed down 4 percent after the profit warning, while Renault shares shed as much as 5.5 percent.

($1 = 111.7900 yen)

(Reporting by Naomi Tajitsu and Chris Gallagher, additional reporting by Maki Shiraki, Chris Gallagher and Takashi Umekawa; Editing by Christopher Cushing and Himani Sarkar)

This story has not been edited by Firstpost staff and is generated by auto-feed.

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