When chip crisis clears, can Nissan stick to incentive discipline?

TOKYO — Nissan Motor Co. is packing profits again, thanks to better pricing power and incentive control.

But the real test may come when the industry is out of the current semiconductor crunch and hungry competitors start firing up factory capacity to capture pent up U.S. consumer demand.

COO Ashwani Gupta pledges Nissan won't return to its old bad habits by splashing cash on the hood when the market finally returns to normal. In fact, Gupta said Nissan's improved discipline and flow of better products can actually help it boost market share.

"Yes, we can do better," Gupta said during the automaker's financial results announcement last week, where it reported a rebound to profit in the July-September quarter and lifted its outlook.

"Two years before, we had a problem of how to sell. But that's not a problem today; we have a good problem to solve," Gupta said. "The problem for us is how much we can produce. The more we produce, the more we sell, and the more market share we will gain."

In the July-September quarter, Nissan Group's U.S. market share advanced to 5.8 percent from 5.6 percent a year earlier while its U.S. sales sank 10 percent against the overall market's 13 percent decline. But Nissan brand deliveries retreated only 7.6 percent in the quarter.

Nissan was able to lift its fiscal year profit outlook, despite the decline in sales. It is welcome news for the troubled automaker as it digs itself out from the company's biggest-ever operating loss, in the last fiscal year.

Nissan now expects an operating profit of ¥180.0 billion ($1.61 billion) for the fiscal year ending March 31, 2022, wiping up the $1.35 billion sea of red ink it spilled the previous fiscal year.

Nissan is riding a wave of new products, including the redesigned Sentra sedan and Rogue crossover, that are winning market share and earning higher revenue per vehicle, Gupta said.

Overall revenue per unit was up 11 percent from the same quarter the previous year.

And offerings such as the Pathfinder SUV and Frontier pickup are chalking up sizable segment share gains, albeit from small bases. The Pathfinder's segment share rose to 1.3 percent from 0.7 percent thanks to a 45 percent sales surge, quarter on quarter. The Frontier climbed to 1.8 percent, from 0.9 percent.

Riding this updraft, Nissan North America was able to slash incentive spending 46 percent in the July-September quarter, compared with a year earlier. The reduction outpaced the overall industry's 39 percent decline, and the company's average outlay was also below the industry's.

Gupta said some of that improvement was due to Nissan's better performance, but he cautioned that some of it was due to overall market conditions as tight supply zaps the need for spiffs.

When the flow of microchips finally resumes, he said, Nissan needs to be ready to adjust.

"We should not expect that this crisis will be over and a new crisis will not be there," Gupta said. "Once the supply is there, definitely everybody will come back to the market to capitalize on the capacity everybody has got in the United States.

"We should be preparing."

Gupta said the semiconductor shortage is in a third wave of tight supply as the auto sector competes with surging demand for chips in other industries. Nissan expects conditions to improve this month, but the supply chain situation remains unstable and unpredictable, he said.

To secure better chip supplies, Nissan is overhauling its procurement processes to forecast demand for chips in industries beyond the auto sector and probe lower-tier players for supply.

One beneficial side effect of the supply bottlenecks is more responsive production management. Before the chip crisis, Nissan used to make three- or six-month production plans.

Now, a more nimble Nissan is making weekly production plans.

"We have achieved better operational efficiency in production as well as sales," Gupta said.

All this positive momentum helped power the parent company to a $567.8 million operating profit in its fiscal second quarter ended Sept. 30, reversing a $43.0 million operating loss from the year before. Nissan also bounced back with a net income of $484.5 million, from a $397.7 million net loss a year earlier.

The rebound came despite a 9.6 percent fall in global sales to 954,000 vehicles in the quarter.

Citing crimped production from the microprocessor pinch, Nissan lowered its worldwide sales forecast to 3.8 million vehicles in the current fiscal year. That is down from an earlier target of 4.4 million and below last year's finish at 4.05 million deliveries.

But because of ongoing cost control and profitability improvement measures, Nissan also lowered its break-even point to sales of about 3.7 million vehicles.