How Nissan Hit the Wall

Nissan is taking tough medicine with rare layoffs at a Japanese automaker, cutting 9,000 jobs and 20% of its capacity. But it’s not as if the current losses, struggles and headcount reduction weren’t foreseen. Indeed, Renault, which reduced its stake in Nissan from 43% to 15% earlier this year saw it coming, reducing its exposure to Nissan’s projected operating loss and restructuring costs.

The restructuring of staff and operations and potential closure of factories doesn’t look that much different than moves General Motors, Ford and Stellantis have made. But in a country where job protection is sacrosanct, the move shows the level of dysfunction at Nissan.

Nissan also will sell off some of its stake in Mitsubishi after burning through ¥448.3 billion ($2.9 billion) in cash in the past six months.

CEO Makoto Uchida, who’s forfeiting half his compensation starting this month, told investors Nissan has been affected “not only by external challenges, but also by our specific issues,” referencing the fast growth of Chinese automakers and Nissan previously setting unrealistic and ambitious sales targets.

“Meeting our sales goals will be a challenge,” Uchida said. “We need to rebuild our strength so that we can pivot toward a more positive direction.”

Nissan saw its operating income plunge to just $986 million (¥150 billion) in the fiscal year ending in March, down 70% from its previous forecast. Management also lowered its revenue outlook by more than 9%, meaning it expects no growth for the year.

How broken do investors view Nissan? As of Nov. 1, the automaker has experienced a total shareholder return of approximately -57.53% over the past five years. That compares very poorly to the 81% shareholder return for Honda over the same period.

Nissan’s woes start with inefficient production capacity. As of November, Nissan's global manufacturing capacity is approximately 5 million vehicles annually. This represents a 20% reduction from the previous capacity of 7 million units in 2020, aligning with the company's restructuring efforts so far. But the company only sold 3.37 million vehicles in 2023. And in terms of production efficiency related to headcount, Nissan produces about 24 vehicles per employee, lower than 29 for Toyota and well short of GM’s 37.

“Nissan is the weakest (Japanese automaker),” said James Hong, an analyst at Macquarie Securities Korea. “The only way for the company to improve sales is through price cuts.”

The U.S. is Nissan’s most important market. And its culture has long been driven by sales and pricing, rather than marketing, brand or innovative product development. In the third quarter of 2024, Nissan’s average incentive spending per vehicle in the U.S. was about $2,500. In comparison, Honda’s average incentives were around $1,800 per vehicle, while Toyota’s were about $1,200 per vehicle.

Its North American operation holds a market share of 5.6%, while spending heavily on discounts to prop it up, compared with 7.9% five years ago. Nissan’s sales in China this year are tracking for fewer than 500,000 vehicles, compared with 1.55 million vehicles just five years ago.

As of November, Nissan’s global market share is approximately 5.5%, down from 6.2% in 2015.

Nissan has had flashes of success in its niche model designs (Z, GT-R and Leaf), but it has also had a lot of misses for a company that considers itself a mass-market brand. The Rogue compact CUV is the company’s best-selling model both in the U.S. and globally.

But in a time when SUVs and CUVs are king, Nissan’s model strategy looks inefficient, and pales next to rival Toyota. As of November, Nissan has sold approximately 50,000 Murano units in the U.S., and 52,000 Pathfinders. Toyota, meanwhile, has sold 50,000 Grand Highlanders, 77,000 Highlanders and 92,000 4Runners. And while Toyota and Nissan have both tried to crack into the fullsize truck category dominated by the Detroit 3, Nissan has folded its efforts on the poor-selling Titan, while Toyota has maintained sales of the Tundra most years above 100,000 units.

Infiniti luxury brand suffers from two decades of neglect, poor management.

And then there is Nissan’s longtime ineptitude managing the Infiniti luxury brand. Infiniti sold 67,000 vehicles in the U.S. last year, compared with 330,000 Lexus vehicles and 146,000 Acura vehicles. This year Infiniti has an average of $4,500 in discounts, compared with $3,000 at Lexus and $2,500 at Acura. Infiniti entered the U.S. luxury market 35 years ago, a year earlier than Lexus, but has bollixed the strategy, product planning and marketing ever since.

Japanese automakers, including companies like Nissan, Toyota and Honda, often avoid staff reductions due to a combination of cultural, economic and operational reasons. In Japan, companies traditionally value long-term employment and loyalty. Lifetime employment, especially in large corporations, is a strong cultural expectation. Reducing staff is often seen as a last resort.

There have been rumors that Honda, which struck a joint-venture agreement with Nissan last March, would be interested in acquiring a stake in the automaker to replace the minority stake still held by Renault. This week’s announcement did not reference such a possibility, but Honda would do well to let Nissan burn off some of its restructuring losses before it made such a move. As is, the two companies are expected to co-develop electric vehicles and battery platforms and combine purchasing efforts over time – with or without an equity stake.