Nissan, alliance partners enter critical week, as future hangs in balance

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TOKYO – Renault and Nissan will try to jump-start their struggling alliance this week through a three-day rollout of revised midterm business plans expected to involve plant closures, layoffs and billions of dollars in cost cutting that will usher in a new era of smaller, sustainable operations.

The announcements begin Wednesday when the heads of the three automakers – Renault, Nissan and Mitsubishi – detail the new leader-follower strategy they hope reignites profitability across the alliance. Nissan follows on Thursday with its full fiscal-year earnings and a deeper look at its own midterm plan, and Renault rounds out the week with its earnings and plan on Friday.

The reset comes amid plunging earnings and sales at the three automakers, following the 2018 arrest of former alliance Chairman Carlos Ghosn. Mitsubishi reported a net loss for the fiscal year ended March 31, and Nissan has warned it will do the same. Nissan’s loss will be its first in 11 years. Meanwhile Renault, which France’s finance minister said could “disappear” without government aid, had its corporate bond rating slashed to junk status by Moody’s in February.

The three automakers were hurting before the COVID-19 pandemic hammered the global economy. But the ensuing shock of plunging demand, closed dealerships, suspended factories and disrupted supply chains piled new stress on top of their fragile balance sheets.

In fact, looming uncertainty about the ongoing pandemic weighs heavily on the midterm plans. Even as Renault, Nissan and Mitsubishi settle on new targets for the coming years, they do so knowing a second wave of COVID-19 shutdowns could throw even the best-laid plans off course.

“How the market will evolve is very difficult to assess,” said one person with knowledge of the strategy. “The question is, what will happen in the transition? And that requires a lot of care.”
 
Leader-follower

Since the arrest of Ghosn, each of the carmakers has installed a new leader, and the alliance as a whole is headed by Jean-Dominique Senard, the former Michelin CEO who now chairs Renault. Executives have said any talk about restructuring the complicated cross-shareholdings that weave the companies together is on hold until they get their houses in order.

A key element of the joint reboot will be cutting back bloated global production capacity in line with the new reality of lower sales. Production lines and even whole factories are expected to be closed, as the three carmakers reel in costs. The retrenching to a more manageable scale is a repudiation of the strategy pursued by Ghosn, which critics say overstretched the companies.

At Nissan, for instance, Ghosn pushed to conquer emerging markets such as Southeast Asia, India and Brazil. But those sales never fully materialized. Instead, the expansion drained resources and left Nissan with enough bloated global production capacity to build 7 million vehicles a year.

Nissan’s new plan will call for trimming annual capacity to about 5.5 million units – closer to actual sales.

Under the alliance’s new “leader-follower” strategy, Renault, Nissan and Mitsubishi will divvy up the world into spheres of influence where one company leads, to avoid duplication.

They also will divide responsibility for spearheading development of future technologies. Renault, for example, will assume the lead for commercial vehicles and diesel powertrain technologies. Nissan will be a leader in electrification and autonomous driving. Mitsubishi is expected to focus on plug-in hybrid technology, crossovers and minivehicles.
 
Nissan is key

Central to the plan’s success is Nissan, which will take the lead in the world’s three biggest auto markets: China, the U.S. and Japan.

As the group’s biggest automaker and the one endowed with the richest technology toolbox, Nissan is seen as a profit engine for the entire alliance. Indeed, Renault, which holds a 43.4 percent stake in Nissan, relies on Nissan for healthy dividend income.

Last month, Renault decided to end passenger-car sales in China, handing the market to Nissan.

Europe will be an important focal point for the restructuring. Nissan is expected to scale back its presence there as Renault takes the lead in its own backyard. Nissan may close its commercial vehicle plant in Barcelona, Spain, which long has been running far under capacity. Nissan will focus instead on crossovers and possibly make those for Renault at its Sunderland plant in Britain.

Meanwhile, Renault is considering closing component and assembly plants in France as part of a 2 billion-euro ($2.2 billion) cost-cutting plan, according to French media reports. Under scrutiny are the Flins assembly plant near Paris, which builds the Renault Zoe EV and Nissan Micra small hatchback, as well as the Dieppe factory in northwest France that makes Alpine-brand sports cars.

Two Renault parts factories in France may also be shuttered, French reports said.

The potential Renault closures could affect more than 3,000 workers.

Renault’s interim CEO, Clotilde Delbos, is expected to unveil Renault’s plan, but further details may have to be hammered out by her successor, Luca de Meo, who takes the helm July 1.

Nissan’s updated plan is being devised by COO Ashwani Gupta in conjunction with CEO Makoto Uchida. It is expected to entail cost cuts in tune with the ¥300 billion ($2.87 billion) announced last July, when then-CEO Hiroto Saikawa introduced the midterm plan in the face of plunging profits. Under the existing plan, Nissan targeted 12,500 job cuts worldwide. The new goal could be as high 20,000 workers, Japan’s Kyodo News reported.

A person familiar with the plan said much of the adjustment is likely to come through attrition and natural job rollover.
 
U.S. first

Rekindling the crucial U.S. business is Nissan’s top priority. The company announced a leadership shuffle for the region this month. Regional Chairman Jose Valls will leave the company June 15, and his duties will be assumed by Jeremie Papin, Nissan’s finance chief for North America.

“The U.S. is going to play a very important role,” Gupta said. “In addition to the leadership team, I’m going to oversee it myself personally to make sure that the U.S. gets all the attention which is needed, in terms of products, in terms of technology, in terms of resources.”

The U.S., as a target of future investment for growth, is expected to be spared much of the aggressive cutting under the new plan.

Nissan has been laboring to rekindle North America as an earnings center. But the regional business is dogged by strained dealer relations and sagging profitability as it tries to shift away from costly factory incentives and the heavy use of fleet sales.

Elsewhere in Nissan’s world, the Datsun brand, which Ghosn revived as an entry-level brand for emerging markets, is expected to be phased out, as Nissan scales back in Southeast Asia and hands that region to Mitsubishi. Nissan has already ended manufacturing at its plant in Indonesia.

Mitsubishi previewed its revised midterm plan while announcing its fiscal-year loss this month. It calls for saving ¥100 billion ($927.6 million) by slashing fixed costs 20 percent through the fiscal year ending March 31, 2022. Mitsubishi’s belt-tightening, led by CEO Takao Kato, will include costs associated with advertising, selling and administrative expenses. The company will also review capital expenditures and R&D outlays, and it will reallocate personnel resources.

Kato said he will give more details about Mitsubishi’s strategy later this summer.

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Saurabh Shukla

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