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Rough ride: Nissan slashes outlook, unveils Ghosn-related charge



YOKOHAMA, Japan (Reuters) – Nissan Motor has warned its annual profit will plumb six-year lows on waning global sales, underlining the challenges it faces as it also grapples with the fallout from the shocking arrest and ouster of its former Carlos Ghosn.

The Japanese automaker, in its first results since Ghosn, was detained in November, unveiled a $ 84 million charge linked to deferred compensation for the executive who has been indicted for under-reporting his salary at Nissan over 2010-2018.

The scandal has rooted global auto markets and created tensions between Nissan and its automation partner France's Renault, raising concern about the future of the companies that Ghosn wanted to integrate.

The dour outlook shows urgent need for Nissan and Renault to strengthen their partnership, but ties have been strained since the Japanese automaker moved first to remove Ghosn as chairman after his Nov. 1

9 arrests in Tokyo.

Nissan wants to stabilize alliance operations, said CEO Hiroto Saikawa, who is scheduled to meet newly appointed Renault Chairman Jean-Dominique Senard this week in Japan as they look at ways to cement their partnership.

Prior to that meeting, the Nissan CEO said he wanted both companies to better leverage their scale to be more competitive and efficient in areas including manufacturing and procurement while respecting each other's autonomy.

"In the past few years, there has been a lot of talk about the 'convergence' of the two companies' operations," Saikawa said, referring to one of Ghosn's key objectives for the alliance. "While stabilizing our operations, we need to re-examine whether investments (towards convergence) are the most efficient."

This could mean reassessment of the alliance's growth targets through 2022, Saikawa said at a briefing on Tuesday.

Nissan, which is almost 60 percent bigger than Renault by sales, remains junior in their shareholding structure. Renault holds 43.4 percent of Nissan, while Nissan has just a 15 percent non-voting stake in Renault.

Japan's second-largest automaker projected an operating profit of 450 billion yen ($ 4 billion) for the year to March, down 22 percent from the previous year and 17 percent below a previous forecast, hurt by a slowdown in global sales.

This is Nissan's lowest operating profit since 2013.

(19659013) Nissan cut its annual global retail sales by 5.5 percent and projected weaker sales in China, its largest market, and the United States.

The logo of Nissan Motor Co. Tokyo, Japan, February 12, 2019. REUTERS / Kim Kyung-hoon

Saikawa said Nissan will avoid trying to meet sales targets by using discounts, a strategy that has hurt its profitability in North America, the world's No. 2 auto market.

"We were only able to meet 60 percent to 70 percent of our (global) target for the year to the third quarter," Saikawa said. "If we are not careful about how we make up for that shortfall in the fourth quarter we could find ourselves in similar situations we've seen in the past."

"So we want to raise our performance by improving the quality of sales, "he added.

Nissan expects to sell 5.6 million vehicles worldwide in the year to March, versus a previous target of 5.93 million.

While it still sees sales growth in China, the world's top car market, it has cut its forecast for the country to 1.56 million units from 1.70 million units.

In the United States, it is now selling tumbling 8.6 percent on the year to 1.46 million units, from 1.55 million last year.

Nissan and its domestic rivals, including Toyota Motor Corp, have struggled with sluggish sales and falling profits in the US, China, see tmsnrt.rs/2RjnBuA

North America. Their margins have been squeezed as they have resorted to steep discounts to drive up demand in a competitive US market where sales have peaked near record highs.

While it has been able to repair some of its profits in North America as inventory reduction of older models enabled it to dial back on heavy U.S. discounting, falling demand will test Nissan's ability to be disciplined with its incentives.

GHOSN SALARY PROVISION

The ghostly outlook comes as Nissan also grapples with the Ghosn scandal and the resulting scrutiny of its corporate governance.

Nissan said it had recognized around 9 billion yen ($ 84 million) in additional costs linked to payments to Ghosn. This announcement comes after he was indicted alongside Ghosn with failing to disclose the compensation.

While it is possible that a Japanese court could order Nissan to pay Ghosn that amount, Saikawa said it was "unlikely" the expense would be realized.

Slideshow (3 Images)

This provision refers roughly to the amount Ghosn has been charged with under-reporting in his 2010-2018 salary at Nissan.

Ghosn has denied all charges against him.

Reporting by Naomi Tajitsu; Editing by Himani Sarkar

Our Standards: The Thomson Reuters Trust Principles

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