Nissan could pull next-generation Rogue production out of U.S.

Nissan Motor Co. has told suppliers it is considering moving U.S. production of the next-generation Rogue crossover to Japan if the automaker cannot lower its purchasing costs.

The Rogue, Nissan's bestselling U.S. model, is built in Smyrna, Tenn., and Kyushu, Japan. The compact crossover accounts for one-third of Nissan's sales in its largest market.

At a meeting at Nissan North America headquarters in Franklin, Tenn., on Jan. 11, the automaker told suppliers it expects a "significant reduction" in the cost of parts for the fourth-generation Rogue, scheduled to begin production in late 2026.

Nissan asked suppliers for an average 20 percent cut in parts pricing, people briefed on the matter told Automotive News. Some suppliers were asked to slash prices by up to 30 percent.

At the meeting, attended by Nissan Americas Chairperson Jeremie Papin, Nissan North America manufacturing chief David Johnson and Nissan Americas procurement boss Andrew Wareing, the automaker said it builds the Rogue for 20 percent less in Japan than in the U.S. Nissan said it has reduced its internal manufacturing costs in the U.S. by 18 percent.

"They told us that if we can't get closer to Japan's cost, they will move production [to Kyushu]," said a supplier who attended the meeting and asked not to be identified.

Nissan spokesman Brian Brockman declined to comment on the details of the supplier meeting but said that the automaker regularly engages in discussions with "stakeholders, including suppliers, to ensure competitiveness in our product offerings."

Losing the Rogue would be an enormous blow to Nissan's 6-million-square-foot Smyrna assembly plant, which employs 6,700 workers. The Rogue accounts for about 40 percent of the factory's annual output — or nearly 200,000 vehicles. Nissan sold 271,458 Rogue crossovers in the U.S. last year, a 46 percent increase over 2022.

Nissan is expected to pull U.S. production of another key model — the electric Leaf hatchback.

Nissan will not build the reincarnation of America's first volume EV in Smyrna, Automotive News reported late last year. U.S. production of the current-generation Leaf at the plant is scheduled to end in mid-2025.

Nissan's U.S. factories in Smyrna and Canton, Miss., currently at 52 percent combined capacity utilization, need volume products to operate profitably, said Sam Fiorani, AutoForecast Solutions vice president.

"Pushing the Rogue to Japan will add considerable red ink to Nissan's U.S. ledgers," Fiorani said. "Closing a plant could be in Nissan's future."

To make room in Japan for U.S. production, if it comes to that, Nissan could free up Rogue capacity at its southwestern Japan factory by shifting some production to China, sources said.

"That's a game changer," a supplier said. "It was considered an idle threat that Nissan could accommodate all the U.S. Rogue capacity in Japan. But if they are opening up capacity, that's a different story."

Nissan has asked suppliers to submit price quotes on the new Rogue by the end of this week. Nissan North America will present its manufacturing cost plan to Nissan Motor Co. executives by the end of January. In February, Nissan should determine whether the next Rogue will continue to be built stateside.

Original equipment manufacturers typically turn to suppliers first when trying to cut costs, said Daniel Rustmann, co-chair of the global automotive practice at Butzel Long.

"But I've never heard of [an original equipment manufacturer] asking for this magnitude of price reduction and threatening to move a whole vehicle production to another country," Rustmann said. "Nissan could be concerned about union organizing efforts increasing, and [it's] trying to find ways to cut their costs."

In January, Nissan hiked top wages for workers at its nonunion U.S. manufacturing plants by 10 percent after the UAW reached new and more generous contracts with the Detroit 3. A resurgent UAW has vowed to unionize the tens of thousands of workers at nonunion vehicle assembly plants scattered across the South, Midwest and California.

Automakers and their supply chains everywhere are combating inflation.

With the cost of goods sold running 10 to 20 percent above budgets on materials, energy and labor costs in 2022, automotive suppliers are under pressure, according to a Bain & Co. report.

Parts makers have had limited success in passing input cost increases to automakers, who are hunkering down as rising interest rates tap the brakes on new-vehicle demand.

Bain research shows that one-fifth of suppliers can recover about 70 percent of their additional costs from inflation, while the majority achieve lower cost pass-through levels of 40 to 50 percent.

A supplier said it is less expensive for Nissan to import the Rogue than it is for the company to build it here.

The automaker's cost reduction mandate took some suppliers aback.

"We are not going to sell parts at a loss; we're not going to lose money," a supplier said. "If that means we'll [lose the business and] have to downsize operations here, so be it."

Suppliers said material costs and wages are higher in the U.S. than in Japan, which is out of their control. "Steel is 20 percent cheaper, the labor rate is 50 percent lower" in Japan, one supplier said. Like other automakers, Nissan negotiates the price of its steel and aluminum — major input costs — on suppliers' behalf.

"Sixty percent of my quote is material," a supplier said. "I can't fix the material cost that Nissan and the steel companies negotiated."

Nor is the yen-dollar exchange rate helping U.S. suppliers' cost competitiveness relative to their Japanese rivals. The dollar has surged more than 40 percent against the yen since 2020, making U.S.-built parts more expensive than those produced in Japan.

"Is there something we can do to improve our cost efficiency? Absolutely," another supplier said. "But we can't arbitrarily just reduce our costs by 20 percent."

Leading up to the pandemic, auto suppliers' profit margins were, on average, 1 to 2 percentage points higher than those of their automaker customers.

But surging material and labor costs, a global microchip shortage and volatile production schedules have squeezed supplier bottom lines in recent years.

According to a Bain analysis, automakers had an average profit margin of 8.9 percent in the third quarter of 2023 — 3 percentage points higher than automotive suppliers' margins. Suppliers' average profit margins tumbled to 4.7 percent in 2022 from 8.1 percent five years earlier.

"This is a bad time for Nissan to be asking for price concessions of this scale because the supply base almost universally has been struggling under the weight of inflationary pressures and other factors increasing costs and driving down margins the last two years," Rustmann said. "There's no way that any supplier could reduce its cost by 20 percent — there'd be no margin left, they'd probably be selling at a loss."

Fiorani said that while the largest suppliers might have the balance sheet to withstand steep price cuts, hundreds of smaller suppliers could have to walk away from the Nissan business.

"If nobody can afford to provide a competitive part, the remaining manufacturers could control the market and work counter to Nissan's intentions," the analyst said. "Nissan requires a free market of companies helping to build the crossover."