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July 25, 2019 05:01 AM

Nissan will cut 12,500 jobs after profit plunges 99%

Hans Greimel
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    YOKOHAMA, Japan – Nissan CEO Hiroto Saikawa will cut 12,500 jobs worldwide as part of new plan to revive the automaker after reporting a 99 percent plunge in operating profit in the latest quarter on falling sales in every major market except China.

    Saikawa’s emergency overhaul comes as he tries to speed up a recovery plan running through the fiscal year ending March 31, 2023. He said earnings would gradually start to recover in the second half of this fiscal year, after a brutal first quarter he said was worse than expected.

    Operating profit was nearly wiped out, tumbling to 1.6 billion ($14.8 million) in fiscal first quarter ended June 30, the company said on Thursday in its quarterly results. Operating profit margin shriveled to a 0.1 percent, compared with 4.0 percent a year earlier.

    Net income dropped 95 percent to 6.4 billion ($59.3 million) in the April-June period.

    Nissan’s revenue slid 13 percent to 2.37 trillion yen ($21.97 billion) in the three months, as global retail volume declined 6.0 percent to 1.23 million vehicles.

    “The results were really more negative than we expected,” Saikawa said in a briefing here at Nissan’s global headquarters. “We thought the situation would be challenging. But the actual retail performance was slightly under what we expected. We have to admit that.”

    The earnings collapse adds to the sense of crisis enveloping Saikawa, who is simultaneously trying to reform corporate governance at Nissan and smooth relations with French partner Renault. Nissan’s house was thrown into disarray by last year’s arrest of former Chairman Carlos Ghosn for alleged financial misconduct during his time at the helm of the Japanese carmaker.

    Saikawa, now presiding over a post-Ghosn era in which Nissan’s U.S. profit engine imploded, wants to rebuild U.S. sales to 1.4 million vehicles in the fiscal year ending March 31, 2023.

    In May, he outlined plans to restore parent company operating profit margin to 6 percent in the fiscal year ending March 31, 2023. It finished last year at a meager 2.7 percent.

    At this week’s earning’s announcement, Saikawa fleshed out the blueprint with more details.

    Job cuts

    Chief among the measures is a plan to cut some 12,500 jobs worldwide by March 31, 2023.

    The losses encompass 4,800 job cuts Saikawa already announced in May and amount to about 9 percent of Nissan’s global workforce of roughly 140,000 people.

    Saikawa said July 25 that some 6,400 cuts are already underway at eight locations worldwide through the end of the current fiscal year ending March 31, 2020. They include:

    • 1,420 job cuts in the U.S.
    • 1,000 in Mexico
    • 90 in the United Kingdom
    • 470 in Spain through the suspension of a line
    • 830 in Indonesia through the suspension of a line
    • 880 in Japan
    • 1,710 in India

    Another 6,100 cuts are being planned through the spring of 2023, Saikawa said.

    Nissan declined to give details on those reductions but said they will happen at six locations.

    Saikawa said the cutbacks will focus on plants that are working below capacity, plants that make small cars and factories making Datsun products. Most of those will be factory jobs.

    “Loss-making overseas factories would be the main targets,” Saikawa said.

    The goal is cut Nissan’s global production capacity to 6.6 million vehicles a year, from 7.2 million in the fiscal year ended March 31, 2018, Saikawa said.

    Doing so will boost the global utilization rate to 86 percent from 69 percent, he forecast.

    Saikawa said that, through these reforms, parent company operating profit will more than double to 870 billion yen ($8.07 billion) in the fiscal year ending March 31, 2023. Improvements in U.S. operations will account for 40 percent of the 480 billion-yen ($4.45 billion) gain.

    Global sales by the end should hit 6 million vehicles, from 5.5 million last year.

    U.S. retail challenge

    Saikawa is trying to pivot Nissan away from profit-draining fleet sales and incentives in the U.S. in an attempt to shore up brand value and margins. In the first quarter, Nissan was able to trim U.S. incentive outlays by 3.0 billion yen ($27.8 million).

    “Not to push wholesale but to increase retail, that was the starting point of the plan,” Saikawa said. “In the first quarter, we were planting the seeds. We tried to reorganize the car flow.”

    As a result, retail sales outpaced wholesale deliveries and U.S. inventories shrank.

    “Normalization of sales is making progress,” Saikawa.

    Nissan Group dealers in the U.S. had a 56-day supply of vehicles as of July 1, unchanged from June 1 but lower than the industry average of 69 days, according to the Automotive News Data Center. Nissan’s backlog was 51 days in January.

    Worldwide wholesale shipments dropped 10 percent in the first quarter.

    Saikawa said he wants to boost profitability in the U.S. by raising the ratio of retail sales. His goal is to boost pure retail sales by 100,000 units during the current revival plan.

    “This is one of the key milestones we should be watching,” he said.

    Looking ahead, Nissan kept unchanged its previously announced earnings outlook.

    Operating profit is expected to erode 28 percent to 230.0 billion ($2.13 billion) in the current fiscal year ending March 31, 2020, while net income almost halves, dropping by 47 percent to an expected 170.0 billion ($1.58 billion). Operating profit margin will dwindle to 2.0 percent, from the 2.7 percent to recorded in the previous fiscal year ended March 31.

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