Nissan Proves Comeback With Soaring Earnings

Nissan Motor Co.’s draconian restructuring, which turned Japanese business practices topsy- turvy, received its official validation Thursday as the company posted a $2.7-billion profit for fiscal 2001, the best financial results in its history.

It was a stunning reversal of fortune for Japan’s No. 2 auto maker--which last year posted a $6.4-billion loss--and was significantly higher than Nissan predicted last October.

The earnings were bolstered by a strong financial performance from Nissan’s Torrance-based North American unit, but came at the cost of thousands of jobs--layoffs and plant closings in Japan over the last 18 months that stunned a nation steeped in the concept of lifetime employment.

The “Nissan Revival Plan” authored by former Renault executive Carlos Ghosn--Nissan’s president since the French auto maker acquired a 36.8% controlling interest in 1999--has rescued a company once mired in $19 billion of debt and written off by other potential suitors, including a now-faltering DaimlerChrysler, as a hopeless case.

“Ladies and gentlemen, Nissan is back,” a smiling Ghosn said in announcing the financial results at a Thursday morning news conference in Tokyo. Among other things, he said, Nissan’s consolidated debt has dropped to $7.7 billion, its lowest level in 15 years.

Sales of $49 billion were up 1.9% from the previous year.

But the turnaround has only just begun. “We have moved from the emergency room to the recovery room,” said the Brazilian-born Ghosn, nicknamed “le cost killer” for his successful campaign to curb costs at Renault.

Indeed, while analysts generally have applauded Nissan’s remarkable recovery, most have noted that it so far has been achieved by aggressive cost containment.

“If this is sustainable it is really impressive, but the issue now is just how sustained the cost cutting can be, and how Nissan will add revenue,” said Michael Flynn, director of the University of Michigan’s Office for the Study of Automotive Transportation.

Ghosn’s plan for Nissan is rooted in launching strong new products globally after making significant operating changes in Japan, including dismantling the company’s intricate system of suppliers that has been based more on personal and business relationships than competitive pricing. Last year, he told suppliers they will lose Nissan’s business if they do not cut prices by 20% over a three-year period.

So far, Nissan has cut the number of suppliers to 810 from 1,145, has sold off $2.8 billion of assets, laid off 14,100 workers--including 1,000 in the U.S. and Canada--and closed three factories in Japan.

Ghosn said Nissan plans to introduce 22 new vehicles worldwide by 2006 and intends to boost annual global sales by 1 million units by then. It sold 2.6 million cars and trucks in the last fiscal year ended March 31.

Nissan’s U.S. unit emerged early in Ghosn’s tenure as the company’s most profitable operation and was a major contributor to the 2001 results, said Jed Connelly, head of sales and marketing at Nissan North America.

Nissan’s recovery depends in large part on a U.S. recovery plan aimed at restoring Nissan’s reputation for powerful, well-engineered vehicles.

Ghosn “is relying on the continued strength of the North American market, fueled by our U.S. performance, and on a return to the strength of the Japanese market,” Connelly said.

In the last two years, Nissan cut its reliance on costly incentives in the U.S., slashing marketing costs 40% by introducing vehicles like the Xterra sport-utility vehicle, which has sold well without discounts.

Ten new or substantially revised vehicles will be introduced in the U.S. by Nissan and its Infiniti luxury brand over the next three years, including a new full-size pickup truck and two full-size sport-utility vehicles, the redesigned Nissan Z sports car and a car-based sport-utility or “crossover” vehicle for Infiniti.

And despite its Japanese factory closings, Nissan began building a $930-million assembly plant in Mississippi this year for those new pickup trucks, minivans and sport-utility vehicles.

In Japan, where it competes against rivals Toyota Motor Corp. and Honda Motor Co., Nissan has been losing market share for the last 27 years. Toyota this week reported net income of $3.8 billion, a 16% gain from fiscal 2000, while Honda said profit dropped 11% to $1.9 billion despite record sales.

Globally, Nissan sales were up 5.3% in North America and 3.5% in Europe and down 3.6% in Japan.

For its fiscal 2002 ending next March 31, Nissan is forecasting $2.7 billion in net income on $51 billion in sales.

Nissan’s American depositary receipts closed at $14.05, up 16 cents on Nasdaq.