Nissan Earnings Plunge on Lower Sales, Rising Warranty Costs

Ghosn problems force company to take $83 million charge.

by on May.14, 2019

Nissan Motor Corp. CEO Hiroto Saikawa delivered somber earnings news to the media and investors.

Nissan Motor Corp. officials earlier predicted that 2018 would be a difficult year for the company, and the final numbers show they were right to be worried as operating profit for the automaker dropped 57.3%.

The Japanese automaker was plagued with a variety of problems all at once, including a costly plan to improve “quality of sales” in the U.S. and the costs related to the implementation of a warranty extension effort for selected vehicles.

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Some of the issues the company faced it could have sold its way past, global unit sales fell by 4.4% to 5.516 million units. Sales in the U.S. fell 9.3% to 1.44 million units. The company is predicting a slight increase for 2019 to 5.54 million units worldwide.

Nissan generated an operating profit of 318.2 billion yen, or $2.9 billion, for the full year on net revenues of 11.57 trillion yen, or $104.2 billion, equivalent to an operating margin of 2.7%. Full-year net income decreased by 57.3% to 319.1 billion, or $2.9 billion, yen, from 746.9 billion yen.

(Nissan shoots down Renault merger proposal. Click Here for the story.)

CEO Saikawa offered a short bow by way of apologies to shareholders and customers.

“This is a very critical situation,” Nissan’s chief executive, Hiroto Saikawa, told reporters during the company’s earnings press conference at its headquarters in Yokohama, Japan.

The embattled CEO promised that Nissan’s business will turn around within the next three years. Saikawa blamed his predecessor, Carlos Ghosn, for some of the issues driving profits down, especially an overly aggressive sales growth strategy. Ghosn wanted the alliance to be the world’s largest automaker, a feat it accomplished two years ago and earlier than Ghosn predicted it would.

Saikawa apologized to customers and shareholders by giving a short bow. A longer, deep bow is offered by Japanese executives apologizing for corporate wrongdoing.

(Click Here to see more about Nissan slashing profit predictions — again.)

The results have only increased the pressure on Nissan executives to agree to a merger with Renault SA, the French automaker that currently owns 43% of the company. Saikawa has been pushing for a more equal partnership since he took over for Ghosn.

Former Nissan Chairman Carlos Ghosn said the current leadership of Nissan is to blame for the company's poor financial performance.

Ghosn, who’s imprisonment – and subsequent release on bail – during an investigation by Japanese prosecutors for several acts of financial malfeasance during his tenure as chairman of the Renault Nissan Alliance, and his alleged actions have hurt Nissan’s bottom line.

It logged 9.2 billion yen, or $83 million, in costs for the fiscal year through March from alleged underreporting of Ghosn’s compensation. Some analysts say the brand has been tarnished. Ghosn has maintained his innocence throughout the investigation.

(To see more about Ghosn being rearrested on new corruption charges, Click Here.)

In fact, the investigation took a new turn during Nissan’s reporting of its results. Tokyo prosecutors filed a request to revise the content of their indictment against Ghosn for aggravated breach of trust, providing further details on alleged cash transfers between Ghosn and a Saudi friend, Kyodo news reported.

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