As Nissan Slows, Ghosn Feels the Heat

Some ugly 2006 earnings news has critics wondering if Nissan-Renault superboss Carlos Ghosn has stretched himself too thin

by Ian Rowley

Few chief executives in Japan can charm an audience like Nissan (NSANY) chief Carlos Ghosn. Whether delivering barnstorming speeches or fielding questions from the floor, it's rare—almost unheard of in Japan—to see a corporate leader so at ease in the limelight. Yet even Ghosn could be forgiven for not looking forward to the announcement of the Japanese automaker's annual results on Apr. 26.

After all, following six consecutive years of record profit, Ghosn will be announcing that Nissan's profits fell in the 12 months through March. If earlier projections prove accurate, Ghosn is expected to announce 11% declines in both operating and net profits to $6.5 billion and $3.9 billion, respectively.

Of course, the disappointing results have been expected. Nissan shocked the markets with a rare earnings downgrade at its last quarterly earnings on Feb. 2, wiping $4.7 billion off its stock price (see BusinessWeek.com, 2/5/07, "Nissan's Stock Gets Blindsided"). Yet news on Apr. 24 that Nissan will offer voluntary retirement to some Japan-based workers and the release of Nissan's unit sales figures for the financial year will provide Ghosn's critics with further ammunition.

Offering Early Retirement

In particular, Nissan's bad year will once again raise questions as to whether the charismatic executive can successfully combine dual roles at Nissan-Renault, where he has also been chief executive officer since April, 2005 (see BusinessWeek.com, 4/27/05, "Ghosn On His Double Duty").

While not on the same scale as the February earnings downgrade, the voluntary retirement packages in Japan mark Nissan's first domestic job cuts in eight years. Under the terms of the deal, Nissan will offer redundancy to non-management level employees over the age of 45 with a minimum of five years service with compensation based on years of service.

Reports in the Nihon Keizai, a Japanese business daily, suggest that around 12,000 employees will be eligible, although Nissan says that it expects about 1,500 employees to accept the offer. "The voluntary retirement package is primarily designed to balance staffing levels with assembly requirements, taking into account production mix and productivity gains," Nissan noted in a statement. The markets appeared to cautiously welcome the move. At close of Tokyo trading on Tuesday Nissan's stock rose 0.7% to $10.36 while the market as whole fell slightly.

One of the Worst Hit

The offer of early retirement in Japan reflects the tough domestic market. Sales numbers for the financial year, released today, show just how tough. Nissan's financial year sales in Japan, excluding 660cc minicars, slumped 17% in 2006 to 596,000 units, while its market share fell to 16.6% from 18.4% a year earlier. In March, sales dropped 15.6% year-on-year to 87,385 units.

While Nissan isn't the only one struggling—Japan auto sales touched a 20-year low last year—it is among the worst hit. One problem is that the only segments of the market growing are minicars and the luxury sectors—where Nissan isn't a strong competitor.

"I don't think the recent announcement of voluntary redundancies to employees is an answer," says Yasuhiro Matsumoto, an analyst at Shinsei Securities in Tokyo. "The market may want to hear something about more innovative, attractive new models to boost sales. We want Nissan to mean 'innovation'."

Trouble In North America/leadin> Just as worrying, the important North American market—which accounts for about 60% of Nissan's operating profits—also shed sales in fiscal 2006. In all, sales dipped 3.7% to 1.035 million units due to weak truck sales and a lack of new models during the first half. Nissan also offered an early retirement package at its auto and engine factories in Tennessee.

Added to weak sales at home, that means Nissan now is now unlikely to meet a commitment to sell 4.2 million units per year globally by March, 2009.