TOKYO - Nissan Motor Co. was deep in negotiations with a potential buyer for its aerospace division earlier this month when the day arrived for a previously scheduled Japanese government satellite launch.
The launch of the satellite aboard a Nissan booster seemed to offer a golden opportunity for the company to highlight its technology for the potential buyer - and maybe buoy the division's selling price.
But the rocket failed after liftoff, and the satellite, designed to monitor X-rays in outer space, did not reach orbit. Although the division was sold, Nissan was more than a little embarrassed by the failure.
Some days, as the saying goes, you can't win for losing. And as the dud satellite launch illustrates, Nissan hasn't had many wins lately:
In Japan, its share continues to slide amid a market shift toward smaller, and less profitable, models
In Europe, unfavorable currency rates threaten to offset the potential boost of new products in a market now wide open to the Japanese
In North America, where U.S. buyers have reacted enthusiastically to Nissan's new models, a rise in incentives poses a threat to the company's fragile profits there
Standard & Poor's, the international debt-rating agency, lowered its ratings on Nissan's short- and long-term debt another notch to, respectively, BB+ and B because of 'continued weakness in Nissan's operating performance and the challenges the company faces in carrying out its restructuring plan.' The new ratings are deep in the so-called junk category.
Revival plan is `sound'
These factors, as well as concerns that the drastic restructuring plan crafted by COO Carlos Ghosn may be bogging down, have hammered Nissan's stock price on the Tokyo Stock Exchange. The stock was trading at ¥408, or about $3.65 a share, on Feb. 22 vs. a close of ¥686 on Oct. 15, the last trading day before the restructuring plan was announced.
'This year will be more difficult for Nissan than many people suspect, particularly in the domestic market,' observed William Nestuk, Tokyo-based auto analyst for WestLB Securities Pacific Ltd.
To be sure, Nissan's restructuring plan is only now beginning to take effect, analysts point out. Ghosn, who came from Renault after the French automaker acquired a 36.8 percent stake in Nissan, unveiled his plan on Oct. 18.
It calls for plant closures, job cuts and a $9 billion reduction in overall costs over three years.
'The market is implying there's no hope for the Ghosn restructuring plan. But I think the plan is sound, and Nissan has suffered from a long string of bad news,' said Christopher Richter, Tokyo-based auto analyst at HSBC Securities Japan Ltd.
Analysts have especially applauded Ghosn's efforts to rationalize the company's dealer network in Japan. The company plans to close 300 sales outlets and 'all will be within one kilometer of another Nissan store,' said ING Baring Securities (Japan) Ltd. auto analyst Howard Smith.
In addition, Nissan's planned expansion into South America alongside Renault and its rising output of Sentras at its Mexican plant are both good news, analysts said. But South America remains a medium- to long-term bet for Nissan. And the good news from Mexico assumes no surprises in the peso-dollar exchange rate.
A bright spot
One of the key bright spots at Nissan is expected to be the cost savings from purchasing. Under Ghosn's plan, which seeks to reduce costs by 8 percent, or between $900 million and $1.4 billion this year, Nissan has asked for major price cuts from its suppliers. Ghosn recently said that about 80 percent of Nissan's suppliers had offered price cuts in response to his request.
'The benefits of the revival plan and cost-cutting moves from procurement will begin to kick in as quickly as the next quarter,' said Stephen Usher, Tokyo-based auto analyst at Jardine Fleming Securities (Asia) Ltd. 'Cost cutting should produce a benefit straightaway.'
For now, though, those savings are not nearly as visible as the company's steadily declining Japan market share. Nissan's share of the total Japanese market, including minivehicles, fell to 13.4 percent in January from 14.5 percent a year earlier, and 16.1 percent in January 1998.
The erosion has been implacable. Nissan's share has dropped from a 1998 monthly range of 12.5 percent to 17.1 percent, to a 1999 monthly range of 11.2 percent to 15.3 percent.
With only four new models due this year, those numbers won't improve anytime soon.
Around July, Nissan should launch the luxury Cima, known in the U.S. market as the Infiniti Q45, into a Japanese market that favors budget-priced cars. WestLB's Nestuk predicted that two of the other three won't come to market until December, meaning that Nissan won't have much in the way of new iron to draw customers this year.
Fall to 3rd possible
'They're hemorrhaging share to Toyota,' said ING Baring's Smith. 'Given what Toyota has coming in six to nine months, the news here will be unmitigatedly awful for Nissan.'
In mid-February, with only six weeks to go in the fiscal year, Toyota was leading all makers with a total-market share of 28.3 percent. Nissan held a 12.8 percent share vs. 12.1 percent for Honda and 10.9 percent for Suzuki Motor Corp.
'If you include minicars in the market tally, they have a fairly good chance of falling to No. 3,' said HSBC's Richter. Neither Nissan nor Toyota makes minivehicles, which have engines smaller than 660cc. Strong-selling minivehicles now account for about 30 percent of the total Japanese market.
Excluding minivehicles, Toyota has said it wants 42 percent of the market this year. As Nissan takes a pounding, Toyota will make that target with ease, analysts said. 'I think they'll come out with 45 percent,' predicted ING Baring's Smith.
Although the overall Japanese market is showing signs of rebounding, most of the sales gains are concentrated on smaller cars.
'It's a strong market in unit terms, but the mix is getting worse for almost everyone but Honda,' which is benefiting from its new Odyssey minivan, said WestLB's Nestuk. 'You will see a big push on the lower end by Nissan to push these cars.'
After Nissan's sales fell in January despite a rise in the overall market, the automaker issued a warning that full-year operating profit would fall short of its earlier forecast of ¥90 billion, or $818 million at current exchange rates. But the company didn't set a new target.
Europe may help
Nestuk predicts that Nissan's worldwide operating profit will come in at about one-third of the original target, or about $273 million, 'with Europe falling deeply into the red and domestic earnings flat at best.'
After that, the new fiscal year beginning April 1 will be 'disastrous,' he said.
The news in Europe could turn positive for Nissan. In March, it will launch a new Almera, designed for the European market and built at its plant in England. Early reviews are favorable. Moreover, it replaces a model previously exported from Japan and thus shifts its cost base from yen to pounds.
'That's a source of momentum for Nissan that they didn't have last year,' Smith said.
It also will launch the Tino, built in Spain off the platform shared with the Almera, Sentra and Sunny. The Tino has not sold particularly well in Japan, but Smith noted that it was designed for European, rather than Japanese, tastes. He thought it would bring incremental sales to Nissan-Europe.
Other analysts said they had low hopes for the Tino because it will compete in a segment already crowded with the Mazda Premacy, Renault Megane, Opel Zafira and Peugeot Picasso.
Still, much depends on currency swings in Europe. And Europe shares a problem facing the North American market: Sales increasingly are being supported by incentives.
'I can say for sure that incentives aren't going to come down in Europe or the U.S.,' Nestuk said.
That leaves the U.S. market as Nissan's last best hope.
U.S. market is key
There, the news is good. For instance, Nissan's factories in Smyrna, Tenn., have been increasing output of the red-hot and highly profitable Xterra sport-utility. Total sales in the U.S. market were up 8.4 percent in 1999 and another 26.7 percent in January.
More important, Nissan is making more money on those sales.
'Twelve months ago, every product they had needed incentives,' Jardine Fleming's Usher said. 'Now they've gone to the bottom of the heap on incentive spending because of the success of their new products.
'If the market weakens and everyone starts to ratchet up incentives, they'll have to join. But they'll still be near the bottom of the heap on incentives in six months.'
Nestuk, meanwhile, figures that minor enhancements, such as a larger engine in the Frontier pickup, will allow Nissan to avoid profit-eating incentives - for now.
'I think Nissan will do very well in North America this year,' he said. 'It's the next year I'm concerned about.'