Analyst Says Nissan Making All the Right Moves

In “Catch Me If You Can,” a new, 16-page CLSA Asia-Pacific Markets report, analyst Chris Richter writes that “Nissan is in the passing lane. It has gained market share in the U.S., seen the best Chinese growth of Japan’s Big Three auto makers, reached a leading position in Russia, started a business in India, revitalized its Southeast Asia franchise and more.”

He concludes that good planning by Japan’s third-largest and the world’s sixth-largest auto maker has been bearing good fruit.

Nissan Versa subcompact, built in Mexico.

“Focusing on small cars and the interior of China has made it one of the fastest-growing auto makers there. A small-car focus and local manufacturing of its most inexpensive cars has not hurt Nissan in the U.S., either, as it stands poised to pass rival Honda there. Luck also counts, as Nissan’s disaster recovery is faster than its rivals,” explains Richter.

Nissan’s global sales are expected to increase 23% to 3,888,000 units in the 2011 fiscal year that ended March 31 – three weeks after the earthquake and tsunami disaster hit Japan.

His sales projections for the company’s global sales as the disaster recovery continues call for an increase of 11.1% to 4,321,000 units in fiscal 2012, a rise of 5.3% to 4,551,000 units in fiscal 2013 and a 6.5% jump to 4,850,000 units in fiscal 2014.

The market mix is changing.

Over the next four fiscal years, Richter foresees the Japanese share of Nissan’s global sales declining from 14.7% to 9.8%. The European share holds steady at about 17%, North America continues to account for about one-third, and the share in the rest of the world edges steadily upward from 35.1% to 39.5% of the total.

“Nissan’s hand is strengthened by manufacturing its North American subcompacts like the Versa in Mexico, giving it a cost advantage over rivals Toyota and Honda, which import their smaller cars, the Yaris and Fit, from strong-yen Japan,” Richter says. “Importing from Japan has probably stunted the growth of Nissan’s rivals in these segments.

“The quick bounce back in Nissan’s Japanese production following the earthquake stands out in contrast to Toyota and Honda, which are lagging,” he adds.

Richter reports positives for Nissan in several overseas operations:

Nissan is aiming for 80% to 90% local procurement in Thailand, China and India. Richter feels the low-cost suppliers the company is nurturing in those countries could be tapped to help lower production costs in developed markets.

He characterizes Nissan’s new business plan, dubbed Power 88, as “a guiding light, not a catalyst.” But he cautions that its 6-year horizon, challenging goals and fierce competition among global auto makers may blunt Nissan’s ambitions.

“Nissan has two main targets, an 8% global market share and an 8% operating margin, and the latter will be easier to attain than the former since no competitor wants to give away share. Yet the company has been grabbing market share in America, China, Thailand and a few other important places and has ambitions in Brazil, so the target is not inconceivable,” concedes Richter.

Richter is upbeat about Nissan’s operating profits, despite a projected 20.4% dip year-on-year to ¥427 billion ($5.33 billion) in fiscal 2012 ending next March 31. He revises his forecasts upward in calling for an increase of 76% to ¥752 billion ($9.4 billion) in fiscal 2013 and an 8.9% improvement to ¥819 billion ($10.23 billion) in fiscal 2014.

He expects North America to remain Nissan’s main cash cow, but acknowledges the growing importance of the world’s emerging markets to company earnings.

Richter foresees healthy growth for the overall global automotive market, jumping from sales of 66,991,000 units in fiscal 2011 (which ended March 31) to 85,700,000 in fiscal 2015.