Nissan counts on SUV and EV product offensive to spark rebound in Europe

Nissan is struggling in Europe. It recorded the biggest sales drop for any mass-market automaker operating in Europe for the first 10 months, with volume falling nearly a quarter.

Its market share has fallen from a high of 3.9 percent in 2012 to 2.5 percent this year, according to industry association ACEA.

The brand has only recorded a single profitable year in its European operating region, including Russia, since 2013. It's cutting a shift at its giant plant in Sunderland, England, and is shedding up to 700 jobs at its Barcelona factory in Spain.

Earlier this year it announced it would stop selling its struggling Infiniti premium brand in western Europe.

Nissan has arguably the strongest roots of any Japanese automaker in the region and it also has a history of brilliant innovation. So how has it sunk so low?

The brand in Europe has been hit by a series of events that have knocked it off course. Nissan's global management was rocked by scandal 13 months ago when its transformative Chairman, Carlos Ghosn, was arrested in Japan.

Ghosn has denied the charges of financial misconduct and breach of trust, saying he was conspired against to prevent him from further integrating Nissan and its largest shareholder, Renault, which some executives at Nissan feared threatened the Japanese automaker's autonomy.

Ghosn's arrest publicly revealed and exacerbated the friction between Nissan and Renault.

Meanwhile, Nissan has the worst exposure of any volume manufacturer operating in Europe to the UK, which for the past three years has been hit by uncertainty about the country's future trading status with the European Union after the country voted in 2016 to quit the trading bloc.

Nissan's European r&d center, main assembly plant and design center are all based in England. This has left the automaker's executives to grapple with the potential consequences of operating outside the EU. These include tariffs, difficulty hiring and retaining European workers and border delays for parts.

Nissan Europe Chairman Gianluca de Ficchy has said the Sunderland plant would be "unsustainable" if the UK leaves the EU without a deal, triggering tariffs. Said Pete Kelly, managing director of LMC Automotive: "It has been a perfect storm, but like bad weather a number of these things are beyond their control. That is the tragedy."

Nissan Europe's reputation for innovation began with the Qashqai. Nissan practically invented the compact crossover sector after launching the first-generation Qashqai in 2006.

The car quickly won over customers because of its higher riding position and its looks, which were far more glamorous than the lackluster Almera that preceded it.

The Qashqai's smart design and shared technology with alliance partner Renault meant Nissan could charge as much for the crossover as the Volkswagen Golf, which has historically sold for a premium in Europe.

The success of the Qashqai, which was designed in Europe and built at Sunderland, helped Nissan to make a 1-billion-euro profit in Europe during its 2007 financial year.

Now in its second generation, the Qashqai was Europe's best-selling compact crossover last year in a sector that has grown to nearly 2 million units a year.

In 2010, Nissan used the same formula that made Qashqai a success with the Juke, which transformed the niche small crossover segment into a powerhouse with more than 2 million sales a year.

Also, in 2010 Nissan launched the Leaf battery-powered compact, which has topped Europe's electric vehicle sector nearly every year since. Like the Juke and Qashqai, the Leaf is built in Sunderland.

Outside of these models, however, Nissan has failed to find its feet.

The second-generation Note small minivan, hurt by a wider decline in Europe's minivan sector, was axed in 2017 after just four years.

The Pulsar's disastrous four-year run in the compact hatchback segment ended in 2018 after the car failed to reach even half the company's predicted annual sales of 64,000.

The fifth-generation Micra small hatchback, launched in 2017, is struggling in a competitive sector and was down 19 percent in the first nine months of the year at sales of just under 37,000, according to JATO Dynamics.

Nissan's decision to localize Infiniti output in Europe was perhaps its lowest point. The premium brand was launched in the region in 2008 and failed to gain traction against dominant premium rivals from Germany.

Hoping to reverse that, Nissan negotiated with Daimler to use its Mercedes-Benz GLA platform and systems as the basis for an SUV-inspired premium compact to be built in Sunderland starting in 2016.

Ambitious production targets of 60,000 for the Q30 and higher-riding QX30 were set, but never reached. In its best year, 2016, the entire Infiniti brand only managed 13,515 sales in Europe, according JATO. Nissan pulled the plug on Infiniti in Europe earlier this year.

Many of these decisions can be attributed to Ghosn's relentless desire to grow at all costs.

"One of Ghosn's aims was to become biggest automaker in the world. If that's your principle, you will chase volume at the expense of margin," said LMC's Kelly.

Starting in 2011, Nissan's goal in Europe was to surpass Toyota to become the region's top-selling Asian automaker by 2016.

"The objective was a rallying call for the company -- we needed to grow. At the time we were below 3 percent market share and we needed at least 4 percent in a very competitive market," Paul Willcox, Nissan Europe's former chairman, told Automotive News Europe in 2016.

Doing so would allow Nissan to invest in product, he said. It was classic Ghosn strategy, resulting in cars such as the Pulsar and Infiniti Q30. Now Nissan Europe has a 2.5 percent market share while Toyota Europe's is more than double that.

Nissan says that its grow-at-all-costs strategy is from a very different time. "We have been undergoing a significant transition for the last one-and-a-half to two years," de Ficchy told Automotive News Europe.

De Ficchy, the former head of the Renault-owned RCI Banque, replaced Willcox at the beginning of 2018 with the job of returning Nissan to profit and looking ahead to the age of electrification.

Rather than boosting sales, Nissan is now willing to accept a smaller share as long as it's making money. As a result, it has reduced its exposure to unprofitable channels such as rentals and other bulk fleet deals.

It has also cut self-registrations by around 100,000 since 2017, de Ficchy said. "Most automakers have been continuously pushing into channels such as rentals or fleets," he said. "I think the value of the brand is something we have to preserve for the future."

Nissan is still losing money, but that was to be expected, de Ficchy said. "During a transition phase you reduce your volumes, resulting in a lack of synchronization between your revenue stream and your costs," he said.

Plant problems

To address that, Nissan is slimming its footprint. As part of a 12,500-person global headcount reduction Nissan will cut up to 800 jobs at the Barcelona and Sunderland plants.

Between 600 and 700 of those are going at Barcelona, which is in flux after the Pulsar was axed last year and the combustion-engine NV200 compact van was discontinued earlier this year.

That leaves the e-NV200 electric van and three pickups -- the Nissan Navara and the related Renault Alaskan and Mercedes X class.

Daimler, however, is reportedly about to ax the X class, while Renault has struggled with the Alaskan, which accounted for just 837 sales in the first nine months of the year in Europe.

In the last financial year, Barcelona built just 88,679 vehicles at a plant with a 200,000-unit-a-year capacity. In the first half of this financial year, Barcelona production was down 32 percent to just 32,288. "That plant has been troublesome for them," Ian Fletcher, principal analyst for IHS Markit, told Automotive News Europe.

Nissan might be on the verge of trying to sell the Barcelona plant, according to an October report from Bloomberg. De Ficchy didn't deny the report but stated: "We do not normally comment on speculation."

He said that Nissan saw "enormous potential" for the e-NV200 electric van built there. Experts too said that selling the factory would be difficult. "Who would you sell it too? We could speculate one of the Chinese automakers, but I'm not sure who would want to take it," Fletcher said.

Meanwhile Nissan has dropped the third shift at Sunderland in response to falling demand. The move will only cost about 100 jobs because Nissan was able to shift staff to the Juke line to cope with the expected increase in demand for the new model.

Nissan cut hundreds of jobs at Sunderland in 2018. As a result, the plant's workforce has fallen to 6,000 people from a high of 7,000. In the last financial year, Sunderland built 415,364 cars, down from a high of 518,471 in 2016.

Despite Brexit, however, it looks like the new Qashqai will be made there, securing the plant in the midterm.

"The best solution is to produce the car in the UK because Sunderland is one of the most efficient plants we have," de Ficchy said.

More than 100 managerial jobs have gone too as part of a relocation of Nissan Europe's headquarters to the outskirts of Paris from its previous location in Rolle, near Geneva, Switzerland.

When Nissan put its European base in Rolle in 2008 the goal was to attract people who might have been put off by working in a Paris suburb, but the company started its return there in 2016 to save money.

Nissan is also addressing its aging range. The second-generation Qashqai, revealed in 2013, was down 14 percent in the first nine months of the year, according to JATO data, while the X-Trail midsize SUV, also renewed in 2013, was down 62 percent over the same period.

It also took Nissan 10 years to bring out the second-generation Juke. This not only cost the Juke its lead in the small crossover segment, it fell out of the 10 altogether.

Like many automakers, Nissan has suffered from the changeover to WLTP emissions regulations in September 2018 as it struggled to update engines to conform to the change.

The good news for Nissan is that its model pipeline is stuffed with new product. "The lineup will be completely renewed in the next year and a half," de Ficchy said.

Following the Juke will be the new Qashqai, new X-Trail and a new full-electric SUV previewed by the Ariya concept unveiled at the Tokyo auto show in October.

Sales of the second-generation Leaf in Europe began in early 2018 and the model returned to the top of the EV sales charts in the same year.

Just replacing the Qashqai and Juke will give Nissan a 10 percent sales bump by 2022, LMC's Kelly believes. "We expect to see a significant rebound just because they are refreshed," he said.

Electrification push

Nissan's new tactic is to go big on electrification, far bigger than it would need to in order to fulfill the new regulations. According to its midterm plan, Nissan assumed the overall electrified market in Europe will be about 20 percent to 24 percent by 2022.

However, Nissan wants its electrified sales to reach 42 percent in the region (excluding Russia) by the same date. Nissan sees this as both crucial to staying ahead of regulations and to building a brand.

"If you want a sustainable business model in Europe that meets both corporate and customer regulations, you need to be far above that average," de Ficchy said. "This gives us a presence in the market in a sustainable way, but also in terms of brand."

It would also help Nissan close a wide gap to Toyota in the electrified car sector. Gasoline-electric hybrids already account for more than half of Toyota's European sales.

Right now, Nissan has just the electric Leaf and the e-NV200 van but starting next year the Qashqai will be sold with Nissan's e-Power serial hybrid system that has been a sales hit in Japan.

De Ficchy also hinted that other SUVs will get the technology, likely the next X-Trail (which will be built in Japan, reversing Nissan's plan to bring it to Sunderland).

The boldest step will be the launch of the production version of the Ariya EV crossover, which according to one source with knowledge of the company's thinking will be launched at a price between 50,000 euros and 70,000 euros.

The idea is that that car will have the performance, range and technology levels, including Nissan's latest ProPilot semi-autonomous system, to be able to compete against premium brands.

Nissan won't be alone in offering electric vehicles far above its usual price range. Ford has announced its Mustang Mach-E SUV will sell for between 46,900 euros and 66,800 euros in Germany.

The Ariya could have been offered as an Infiniti before the brand was axed in Europe, but the reality is that battery cars are expensive and companies such as Nissan are going to have to find ways to get customers to pay more.

Making the brand more exclusive by reducing discounted sales is one way to do that. This "creates a really good brand position for the future," de Ficchy said, which helps lift prices.

However, pushing past 50,000 euros will be tough for any company. "Maybe they are hoping Qashqai and X-Trail owners will want to step up. But knowing the people who buy the Qashqai, if they are going to step up, they would be looking for a proper premium brand for that money," IHS's Fletcher said.

The path to profitable electrification lies in economies of scale, but it's unclear how Nissan and Renault will maximize their potential to achieve this. The two work relatively closely in some areas. Nissan uses Renault engines and sells rebadged Renault vans. Renault builds the Micra at its plant in Flins, France, and the automakers' newest models share the CMF platform.

Renault Interim CEO Clotilde Delbos, however, told analysts on a call in late October that Renault and Nissan weren't working closely enough. "We desperately need to work now on synergies and work better together so that we can secure the future," she said.

An example of a potential missed opportunity is that Nissan has its e-Power hybrid for the Qashqai while Renault will use a separate system called E-tech.

Nissan has said it will use Mitsubishi's plug-in hybrid technology, without giving a timeframe.

Having developed the Leaf and Renault Zoe electric cars separately, the two brands are reportedly working on a shared EV platform that will underpin the Ariya.

Doing so could signify a turning point. De Ficchy didn't comment specifically, but said: "I am strongly convinced that the alliance is a powerful opportunity that we have today and tomorrow."