Nissan restructuring may assume cut of 1 million cars to
annual sales target: sources
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[April 10, 2020] By
Naomi Tajitsu and Norihiko Shirouzu
TOKYO/BEIJING (Reuters) - Nissan Motor Co
Ltd's <7201.T> management has become convinced the struggling automaker
needs to be much smaller and a restructuring plan due out next month
would likely assume a cut of 1 million cars to its annual sales target,
senior company sources said.
Even before the spread of the coronavirus, Nissan's sales and profits
had been slumping and it was burning through cash, forcing it to row
back on an aggressive expansion plan pursued by ousted leader Carlos
Ghosn. The pandemic has only piled on urgency and pressure to renewed
efforts to downsize.
No new sales target has been finalised and it remains unclear whether
one will be formally disclosed.
But Nissan's plans for restructuring through to March 2023 should be
based on the assumption that it would only be able to return to annual
sales of 5 million cars by then, two sources said, adding this would
entail a large reduction to manufacturing capacity.
That compares with a goal of 6 million cars for the same period outlined
in July by then-CEO Hiroto Saikawa, who had already stepped back from
around 8 million targeted under Ghosn. Nissan likely sold about 5
million cars in the past financial year but this year's outlook is
bleaker due to the pandemic.
"For years, Nissan was looking for annual sales volumes around 7-8
million vehicles. The company has never managed to sell much more than 5
million or so," one of the sources told Reuters. "The company can no
longer consider this sort of wishful thinking. The resizing issue is
really being taken into account, it has a lot of consequences on
operations for 2020-2022." A third senior company source said the figure
could be even lower than 5 million given the impact of the virus, which
has hammered car demand around the world.
The sources declined to be identified as details of the turnaround plan
have yet to finalised.
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A Nissan logo is pictured during the media day for the Shanghai auto
show in Shanghai, China April 16, 2019. REUTERS/Aly Song/File Photo
In July, Nissan said it was aiming to cut annual global production capacity to
around 6.5 million vehicles. Shrinking its sales target by 1 million vehicles
would equate to closing three to four more assembly plants and shedding
thousands more jobs on top of already announced plans to cut its workforce by
10%. The cutbacks would also ripple through to its suppliers and dealers.
Nissan declined to comment on its progress in devising a new mid-term plan. "The
details will be shared in May," a spokeswoman said.
For interactive charts on Nissan's global vehicle sales and operating margins,
click on https://reut.rs/2USzcFy
The people said that a key metric of the recovery plan will be its operating
profit margin and new CEO Makoto Uchida is likely to keep Saikawa's target for a
margin of about 6%, one of the people said. In the third quarter, the margin was
just 0.9%.
"At the very least, a downsizing is a given," the person said.
By comparison, operating margins at top-selling automakers Toyota Motor Corp
<7203.T> and Volkswagen AG <VOWG_p.DE> before the coronavirus pandemic hovered
around 8%.
Another top priority will be the preservation of cash.
As of December, Nissan's automotive operations had negative free cash flow of
670.9 billion yen, a more than 6-fold increase from a year ago. "That's no
longer at an acceptable level," said one of the people.
For an interactive chart on Nissan's overall cashflow and net cash levels, click
on https://reut.rs/2VgkJSN
Nissan has requested a $4.6 billion commitment line from major lenders to
cushion the impact of the pandemic while it seeks to engineer the desperately
needed turnaround, people with knowledge of the matter have said.
(Reporting by Naomi Tajitsu and Norihiko Shirouzu; Additional reporting by Maki
Shiraki; Editing by Edwina Gibbs)
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