Nissan will record a 90% drop in its operating profit

TOKYO – Nikkei has learned that Nissan Motor would record a 90% drop in operating profit for the April-June quarter.

This figure should only rise to several billion yen, against 109.1 billion yen ($ 1 billion) for the same period of the previous year.

Sales in the United States, one of the Japanese automaker's largest overseas markets, continue to fall, while the cost of developing electric vehicles and autonomous driving technologies weighs heavily on net income. The company is currently working to reduce its production capacity and intends to increase the number of planned job cuts to more than 10,000, against 4,800 announced in May.

QUICK FactSet data show that the builder's operating profit also fell below 10 billion yen for the period from January to March. The last time Nissan's operating profit fell so low was in January-March 2009, when the company recorded an operating loss of 200 billion yen.

Nissan is expected to officially announce the latest quarterly results on Thursday afternoon.

For the period from April to June, Nissan's overall business figure probably declined significantly compared to the same quarter in 2018, when it had recorded 2.7 trillion yen. Market research firm Autodata estimates that the company sold approximately 350,000 units in the United States, down 4% from the previous year, exceeding the average 2% decline in the US market.

Nissan wants to stop using discounts to boost sales in the United States and, from April to June, it has reduced incentives for dealers, raising prices. Still, the automaker is offering a number of aging models that have not been overhauled in years, making it more difficult to persuade motorists to swallow price increases.

The company also saw its sales drop in Europe, where it was hit by stricter environmental regulations. And in Japan, in particular, the Nissan brand has been hit hard by the arrest of former President Carlos Ghosn for alleged financial misconduct. The executive denies any wrongdoing.

While sales are under pressure, Nissan is also forced to invest more to comply with the new regulations and develop what the industry calls CASE vehicles: connected, autonomous, shared and electric cars. Expenses reduce profits per unit.

The high costs of rare metals and other commodities resulting from the US-China conflict also hurt the company, as did the impact of the strengthening of the yen against the dollar.

Nissan had previously forecast operating profit of 230 billion yen for the fiscal year up to March 2020, down 28 percent from the previous year. Net profit is estimated at 170 billion yen, down 47%.

The latest earnings announcement should come with a restructuring plan, focused on job cuts and production capacity reductions. The goal of management is to quickly ease the constraints of Ghosn's expansion, allowing Nissan to focus its resources on next-generation technology.

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

Nissan employed 139,000 people in March 2018, with 33 plants worldwide. The annual production capacity was about 6 million vehicles, but sales of 5.5 million vehicles in 2018 were much lower than these.

The new restructuring plan should include capacity reductions in around 10 plants worldwide.