Nissan to post 90% profit drop and cut thousands more jobs

— Nissan Motor is expected to report a more than 90% plunge in first-quarter operating profit on Thursday, Nikkei has learned, and will cut up to 7% of its global workforce as it braces for one of the worst years in a decade.

Operating profit in the April to June period will come in at less than 10 billion yen, down from 109.1 billion yen ($1 billion) for the same period a year earlier.

The Japanese automaker issued a statement saying that it expects the result “to be close to the figure reported” in the Nikkei article, which it described as “speculative.”

Sales in the U.S., one of Nissan’s biggest markets, continue to fall, while the costs of developing electric vehicles and autonomous driving technologies are weighing heavily on profits.

The company is now scrambling to reduce production capacity and intends to increase the planned 4,800 job cuts announced in May to more than 10,000 out of a 139,000-strong workforce.

Data from QUICK FactSet shows the automaker’s operating profit also fell below 10 billion yen for January to March. The last time Nissan’s operating performance dropped so sharply was in January-March 2009, when the company recorded a loss of 200 billion yen.

Nissan is scheduled formally to announce the first-quarter results on Thursday afternoon.

The carmaker is expected to show a significant decrease in overall sales from the same quarter of 2018, when it recorded turnover of 2.7 trillion yen. Autodata, a market research firm, estimates the company sold around 350,000 units in the U.S., down 4% on the year and greater than the 2% average decline across the American market.

Nissan is trying to wean itself off discounting as a means to boost sales in the U.S., and in April-June it decreased dealership incentives — in effect, raising prices. Yet the automaker is pushing a number of ageing models that have not had major revamps in years, making it harder to persuade drivers to swallow price hikes.

The company also suffered sales declines in Europe, where it was hit by tighter environmental regulations. In Japan, the Nissan brand has taken a major hit from the arrest of former chairman Carlos Ghosn for alleged financial misconduct. The executive denies any wrongdoing.

But in China, Nissan sales turned upward in June after year-on-year declines in the previous two months. Japanese brands have fared relatively well as the world’s biggest auto market has slowed. Chinese operations had no net impact on Nissan’s quarterly profit.

While sales are under pressure, Nissan is also being forced to invest more to meet new regulations and to develop next generation technology — connected, autonomous, shared and electric cars. The costs are eating into profit.

Higher costs of rare metals and other raw materials, as a result of the U.S.-China conflict, have also hurt the company, along with the impact of a stronger yen against the dollar.

Nissan in May had forecast a 230 billion yen operating profit for the fiscal year through March 2020, down 28% from a year earlier. Net profit was expected to come in at 170 billion yen, down 47%.

Along with the plunge in earnings, Nissan is expected tomorrow to announce a restructuring plan centered on job cuts and output capacity reductions. Management aims to free up resources — rendered scarce by Ghosn’s expansion drive — to concentrate on next-generation technology.

In May, Nissan announced 19 reform steps designed to reduce annual costs by 30 billion yen, including 4,800 job cuts in North America and other regions. The plan is to accelerate the layoffs by promoting early retirement and other measures. Capacity, mainly in emerging countries, is to be slashed by around 10%.

Nissan had a workforce of 139,000 as of March 2018, with 33 plants around the world. Annual production capacity stood at about 6 million vehicles, but its sales of 5.5 million vehicles in 2018 came in well below that.

The new restructuring plan is expected to include capacity cuts at around 10 plants worldwide.