Monday, February 9, 2009

After Huge Loss, Nissan Plans More Layoffs

After Huge Loss, Nissan Plans More Layoffs

In recent years, Nissan (NSANY) chief Carlos Ghosn's reputation has taken a bit of bashing as the automaker's profit growth failed to keep pace with rivals Toyota (TM) and Honda (HMC). He won widespread acclaim in the late 1990s for rescuing Nissan from near bankruptcy, but now some critics wonder if Ghosn, who also leads France's Renault (RENA.PA), spreads himself too thin these days. Others have suggested his management style is better suited to turning around troubled organizations rather than taking solid performers to the next level.

Today, with automakers the world over troubled, those critics may be glad the charismatic Brazil native is still at the helm. For sure, Nissan's problems are mounting. On Feb. 9, Ghosn announced that Japan's third-largest automaker will report its first loss in nine years for the financial year ending in March. Faced with recession, the credit crunch, and a surging yen, Ghosn pulled no punches in announcing the size of the challenge. "The global auto industry is in turmoil, and Nissan is no exception," he told reporters at the company's headquarters in Tokyo's Ginza district. "In every planning scenario, our worst assumptions on the state of the economy have been met or exceeded."

The figures make for typically grim reading. For the year, Nissan now projects a net loss of $2.6 billion, vs. a profit of $1.8 billion forecast by the company last fall before auto sales began collapsing. Among Japanese automakers, only Toyota is expecting a greater loss (of $3.4 billion). Nissan now expects sales will fall 23%, to $80.6 million. "This is like no recession I've known," Ghosn added, when asked to compare the current crisis with Nissan's problems in the late 1990s and with the oil shocks of the 1970s. For the quarter ended in December, Nissan lost $810 million, vs. a $1.32 billion profit for the same period a year earlier. Sales fell 34%, to $17.65 billion. During that period, Nissan sold 731,000 vehicles, down 18.6% from a year earlier.

Emergency Measures

To ensure as swift a return to profitability as possible, Ghosn said Nissan is undertaking a series of emergency measures. For instance, the company will suspend its current business plan, announced last May; cut capital expenditure by 21%; and slash labor costs in line with falling sales. "Our goal is to have positive cash flow for 2009—by any means possible," he said.

The transition will be painful. To get back in the black, Nissan plans to reduce its head count by 20,000 employees, to 215,000 worldwide, by March 2010 and reduce labor costs in what it calls high-cost countries by 20%, to $7.8 billion. The pain will be spread throughout the company. Board member salaries will be cut 10% "until the situation clearly improves," and bonuses will be cut to zero. And the company aims to implement a work-sharing scheme by the end of March and step up cost-cutting efforts. Nissan has already cut travel costs by 75% and overtime by 30%; in the new financial year that starts in April, the carmaker will seek to cut overtime by an additional 75%.

Focus on Fuel Efficiency

Although Ghosn denied Nissan plans to close plants, the company will sharply reduce output, trimming production by 787,000 vehicles this year—about 20% fewer than originally planned. A new plant in India will proceed, but initially turn out fewer vehicles; Nissan will suspend participation in a new plant in Morocco, which it was to share with Renault, its alliance partner and major shareholder. It will also look for greater synergies with Renault, and tilt its lineup toward affordable and entry-level models. "Affordable, fuel-efficient cars are the right products for a time of global economic crisis, and we are stepping up plans to produce them," he said. The automaker plans to begin manufacturing a new low-cost small car in India and Thailand in early 2010, and hopes to sell more than 1 million a year in a total of 150 countries.

Like Toyota and Honda, Nissan will also continue to invest big in clean technologies. In Nissan's case, production of an electric car will still start in late 2010; the car will be mass-marketed globally by 2012. "Affordable, fuel-efficient cars are the right products for a time of economic crisis, and we're moving forwards rapidly with our plans to produce them," said Ghosn.

Nevertheless, funding of Nissan's electric car development could prove controversial. The company confirmed it is considering tapping funds the U.S. government is making available for the development of fuel-efficient cars. If successful in receiving support from the Energy Dept., Nissan could use the money to refit its Smyrna (Tenn.) plant, which already builds Altima hybrids, to make electric cars. The program gives preferential treatment to companies that use loans to refit plants that are at least 20 years old, which would include Nissan's Smyrna site.

Nissan officials confirmed the company is in negotiations but said that nothing has been decided. Ghosn, while not speaking directly about the Energy Dept. program, said Nissan is discussing incentives for plants and batteries with governments in several countries. "Developing technologies requires heavy investments of cash, and we're currently talking to various governments about securing grants to fund these important environmental advances," he said.

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