After booking its biggest annual loss in 20 years, Nissan Motor Co. will implement a major overhaul of its production and sales structures and accelerate a shift away from the expansion strategy championed by the automaker's former Chairman Carlos Ghosn.
However, Nissan also has been hammered by the new coronavirus outbreak, so it remains unclear whether the company can repeat the results of the business reconstruction it put in place 20 years ago.
Nissan President and Chief Executive Officer Makoto Uchida wore a stern expression during an online briefing held Thursday to explain the automaker's new medium-term transformation plan and its financial results for the fiscal year that ended in March. Nissan logged a net loss of 671.2 billion yen for the year.
"To overcome this situation, we must admit our mistakes and correct course," Uchida said. "These are very difficult decisions. But these steps need to be taken decisively and without compromise."
The four-year plan will cut an annual 2 trillion yen in fixed costs by taking steps such as closing manufacturing plants, mainly in Europe. It remains unclear how many jobs will be lost.
The largest factor behind Nissan tumbling into the red was its excessive manufacturing facilities, whose production outstrips demand. Nissan's global production capacity is at least 2 million units more than its annual sales.
Nissan is making preparations to close its Barcelona plant. This is one of Nissan's major production bases in Europe, along with the Sunderland plant in England, but has become a symbol of unprofitability. The Barcelona plant has an annual production capacity of about 200,000 vehicles, but in fiscal 2019 it made only about 55,000 units – fewer than half of the 125,000 vehicles churned out three years earlier. The optimal factory utilization rate is said to be 70% to 80%, but the Barcelona plant was operating at about 30%.
Nissan also is wielding the ax in Asia, where it has struggled to make profits outside of Japan and China. Nissan has decided to close its manufacturing facility in Indonesia and will withdraw from South Korea. The automaker intends to concentrate production in Asia at its Thailand plant.
Nissan has struggled to turn a profit in its European operations. However, its efforts to make reforms have languished due to concerns over triggering a backlash from senior employees from Europe, who make up a large chunk of the increasingly internationalized executive lineup. Many executives have experience in Nissan's European operations, which made the region "untouchable." Former Nissan President Hiroto Saikawa said, "It was a region that the company needed to start working on, but there was no chance to ever push through the resistance to this."
In a strange twist of fate, the new coronavirus pandemic has become a tailwind for reform. Chief Operating Officer Ashwani Gupta, who was tasked with rebuilding Nissan's stalling business, and other executives made inspection tours of facilities in Indonesia and Europe during February and March, just as the impact of the coronavirus was starting to spread around the world. These executives decided it was possible to cut costs through steps such as working closely on producing vehicles with alliance partner Renault, and a plan to include the closure of some plants in the midterm plan took shape.
Ghosn was arrested in 2018 for alleged financial misconduct. Nissan's new business plan is the first since then to fully revise the company's previous strategy.
In its financial results, Nissan logged "costs associated with restructuring and impairments" of about 600 billion yen. The overall loss was the automaker's second-highest, behind only the 684.3 billion yen loss in the business year ended March 2000 – the year Ghosn launched the "Nissan Revival Plan." The automaker has now broken away from the expansionist strategy Ghosn spearheaded during his years at the helm, including entering the markets of developing nations, and seems to have braced itself to undertake painful reforms.
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