Nissan's planned global cutbacks may free up resources for North America

TOKYO — Just two months ago, as Nissan began devising a new midterm plan to get out of the profit-draining situation it has gotten itself into, CEO Makoto Uchida staked his job on a "no taboos" onslaught of cost cutting in North America.

But Uchida's determination to cut overhead in North America might have signaled the wrong message to outsiders: Nissan does not intend to give up ground in the U.S. market — it intends to redouble its efforts there.

People familiar with Nissan's soon-to-be-announced restructuring plan say the biggest operational cutbacks around the world will largely spare the critical U.S. market, instead targeting lackluster operations and lineups in other regions.

The strategy is to free resources from underperforming businesses so Nissan can eventually channel more — not less — into the core U.S. market, along with China and Japan, the people said.

Under the blueprint taking shape, the rest of the world's pain could be America's gain.

"We will be putting maximum energy into the U.S." one person involved with the planning said. "The problem is that we expanded too far everywhere else. If you look at it like that, it's very easy to rescale.

"It's about products," the person added. "Better products, new products and on-time products."

Nissan executives are putting the final touches on the long-awaited midterm plan for a way forward, allowing room for last-minute adjustments to account for developments in the COVID-19 pandemic.

Nissan was already reeling from plunging profits and tumbling sales when the global health crisis exacerbated its business problems and forced it to suspend production around the world.

Nissan gave a hint of the pain that's in store last week when it warned the company had slumped to an operating and net loss for the fiscal year ended March 31. Nissan's global alliance partner Mitsubishi warned it, too, will post a net loss, and handed its top executives pay cuts in penitence.

It has been a turbulent year for Nissan, one of the world's largest automakers through its cross-ownership alliance with Mitsubishi and France's Renault. Last week's profit warning was its third profit revision for the just-ended fiscal year.

Nissan's prior forecast predicted operating profit would fall 73 percent and net income would plunge 80 percent. But even that now-scrubbed guidance hoped for razor-thin profits.

Nissan will announce full details of its earnings May 28, about two weeks behind schedule, and it may unveil its new midterm business plan at the same time.

Key to Nissan's new plan is "right-sizing" the company around its current level of global sales — roughly 5 million to 5.5 million vehicles, said the individuals familiar with the plan. It will drop ambitious sales targets in the upcoming three-year plan, which runs through March 31, 2023.

"We need to resize fixed costs in line with revenue we can secure ourselves," said an executive involved with the planning. "We need to right-size globally. So instead of investing additional resources, we can refocus existing resources to priority spots."

One of those priority spots is the profit-rich growth market Nissan has counted on for a half-century: the U.S., said people familiar with the strategy.

"For the U.S., we are definitely not slowing down," the executive clarified. "Volumes might not be as big as in 2016, 2017 or 2018, but that doesn't mean we are shrinking. We want to enhance quality of sales."

Globally, the company is downsizing after years of aggressive expansion when it tried to compete in nearly every segment in nearly every market. Under former CEO Carlos Ghosn, for instance, Nissan embarked on a push to conquer emerging markets such as Southeast Asia, India and Brazil.

But sales in many of those markets never fully materialized and drained resources. And the efforts left Nissan with enough bloated global production capacity to build 7 million vehicles a year. They also spread the company's product development resources too thin, forcing engineers to handle everything from minicars and emerging-market runabouts to full-size pickups and electric vehicles.

"We overreached our resources," one person familiar with the new plans acknowledged. "The danger is a big imbalance between your ambitions and your manufacturing and engineering capabilities."

The results were predictable, he said: underwhelming product and delayed launches.

The approach now materializing may not include the deep cuts and radical business overhaul in the U.S. many outsiders have been expecting.

Uchida may have fanned those expectations at a February shareholders meeting in Japan when he invited investors to fire him if he failed to turn the company around. He also pledged "to reduce our expenses in North America with no taboos whatsoever."

Still, Nissan's U.S. operations aren't expected to emerge completely unscathed in the coming shakeup. Nissan is taking nothing off the table as it looks for places to make cuts and streamline product portfolios, one person familiar with the plan said. And the longer the pandemic-related business shutdown hampers recovery, the more severe the remedies will be, another person noted.

"If coronavirus conditions continue for another two or three years, it will be difficult," that person said.

Last week, Nissan shut down non-production facilities in Japan as part of its coronavirus countermeasures. Those sites included Nissan's global headquarters in Yokohama and certain operations at its global technical center in Atsugi. Some 15,000 employees were affected, with workers taking small pay cuts for the nonworking days.

Some analysts said Nissan's immediate priority should be weathering the COVID-19 market implosion by saving cash and preparing for the market's eventual rebound. That might even involve delaying launches of new products that might enter the market with little attention if showrooms are still shuttered and unemployed consumers have less confidence to buy new cars.

A new-generation Rogue, for example, has been expected to go on sale this fall — a time when some fear the marketplace could still be hobbled. That model is Nissan's bestselling product in the United States.

But delaying the introduction might instead allow it to catch the wave of swelling demand by rolling out when the market returns to normal, said Christopher Richter, lead auto analyst at CLSA Asia Pacific Markets in Tokyo. If the Rogue debuts in a down market, he warned, by the time demand reboots, the product may have grown long in the tooth.

"New cars are like sushi. They have a limited shelf life," Richter said. "The priority should be getting through this year and laying the groundwork for 2021."

One Nissan source familiar with management thinking said there will be adjustments in every market worldwide, including cuts to both factory and desk jobs. But Nissan will be more surgical about North America because that region is being cultivated as a pillar of future growth.

Nissan will be more inclined to abandon other markets to its alliance partners, Renault and Mitsubishi.

"There are markets, such as India or Southeast Asia, where there are more radical choices to be made," the person said. "But in North American, Japan and China, we will be extremely cautious and protect maximum opportunity for the future."