Nissan to cut production by 20pc after losses: CNN

Nissan Motor Co’s Chief Operating Officer Ashwani Gupta, in an interview with CNN Business, has said that the multinational automobile manufacturer’s biggest mistake had been “Global expansion. To do everything, everywhere”.

Nissan Motor Co’s Chief Operating Officer (COO) Ashwani Gupta has said that the multinational automobile manufacturer’s biggest mistake had been “Global expansion. To do everything, everywhere”.

In an interview with CNN Business, Gupta, while explaining the reasons for the company revealing its large net losses for the 2019 financial year, said that the main three factors that had contributed most to the company’s 2019 net losses were “excessive fixed costs, the Covid-19 virus, and financial impairment”.

He confirmed that there would be closures of two plants, one in Indonesia and one in Barcelona. And that the scope of the Barcelona plant closure would be 3,000 jobs. He counterbalanced however by saying that headcount would increase in other parts of the world including Japan and the US. Gupta told CNN “we are going to launch 8 new products in next 28months so obviously we need production and we need people”.

Gupta explained that Nissan can't guarantee long term job security for its 10,000 workers in the US, now furloughed during the coronavirus lockdown. However, those workers are beginning to return to their factories “Now we are ramping up the plants, and they are coming back,” Gupta said he was looking at 93 per cent production utilisation in the US.

He said that the company would “absolutely not” be closing its UK plant, but explained that “Nissan is going to focus on US, China and Japan. And the rest of the regions which are also important, we will take the strength from Renault and also Mitsubishi.”

He expanded: “US, China, Japan are the top three markets for us in terms of market share. But Europe is very important for us because we are the ones who created the crossover SUV. We are going to focus that in Europe, focusing that in Sunderland. At the moment there is no line closures in Sunderland.”

Here’s the full transcript of the CNN interview:

You announced today that you are downsizing production by 20 per cent, can you do that and keep the workforce that you have now?

“So, we are downsizing our production capacity, using two main things. Number one is 7.2 million is based on three shifts- to have the more efficient cost of operation we are bringing down to two shift basis which is 4600hours which makes the plant much more efficient and the cost of operation. So, this is the first major change we are taking. Which is just elimination of the third shift which is nothing to do with the headcounts that we have in the plants. The second step we are taking is the real capacity cut which includes the two plant closures, the first one in Indonesia- which is roughly 250,000- and the second one which we intend to close is Barcelona- which is again 250,000. In addition to that we will be rightsizing some of the capacities around the world, and all put together as we announced before, it is 12,500 which we announced a few months before… but that is not the only thing. Most important thing is that we are focusing on new technologies and the new products, because of which we are also increasing our headcount in other parts of the world. Which means in Japan, in United States Silicon Valley, where we are focusing on autonomous driving. So, net-net we are trying to increase in line with the business needs.”


The Spanish government has today announced that 3,000 jobs will be lost in Barcelona, can you confirm that?

“We intend to close and obviously we will get into the local regulation process of the closure and obviously the scope of the discussion is 3000 employees, but that is part of what we announced before as 12500.”


Are you saying you can achieve a downsize of 20 per cent production, by only losing 12,500 jobs? You’re saying there will be no additional cuts?

“No. So basically it is part of that, and at first to shift from the three shift to the two shift that does not involve the manpower. What it involves is the impairment and that’s why when today we announced our financial results for FY19, we have done the impairment in our results of FY19 which takes out all the empty capacities we have as a financial one shot treatment but from now onwards we will have the maximum two shifts which gives the best efficiency in the operations.”


During the 2008 financial crisis you made cuts of 20,000 people. We are being told this crisis is going to be bigger, will you need to make cuts along those lines?

“I am sorry, where did you get this figure, we never cut 20,000. I think what you need to understand is that Nissan was the very first to secure the safety of the people, and we went much before the government asked us to close the plant. We were the first ones to close the plants, starting from China, going to Europe, coming to US and so on. The first thing which we did was people’s safety. The second thing we did was to support our community with masks, face shields, aprons and so on. Now the figures you are talking about please do understand that every country has got their own law. We just follow the law. For example, in the United States you have furlough, so obviously the plant is closed but there is furlough, so the people are eligible to get the government support. But in addition, what we did was to keep the Nissan medical assurance system because for us people are most important, and we have to make sure that when we are ramping up the plant, they are back with us.”


Are you scaling back even further than those announced last July?

“I think what we announced today is 5.4 million capacity. This 5.4 million capacity has a logic to it. At first with this 5.4 capacity on two shift bases will bring the maximum efficiency which is 87% production utilisation across the world- that’s the first key point. The second key point is that we believe in 2023 if the global automotive market is 90million and if we have a market share of 6 per cent, we are at 5.4million and this is how we are aligning our capacities”.


Which certain markets might you exit from?

“As of today, we are not thinking… when we look at markets, we have to see markets from brand perspective and from manufacturing perspective. As far as a brand perspective we will not exit the market. For example, in Indonesia we will be in Indonesia only thing is we will change our way of doing business from manufacturing and selling, to import and selling. When it comes to Spain, we will keep our brand. Only thing is we intend to close is Barcelona as a manufacturing facility. As far as exiting the market we have no plans to exit the market because the customer exists today in those markets.”


Are there any changes afoot in the Sunderland (UK) manufacturing plant?

“Absolutely not, and when we prioritised our markets, we have four things to consider. Number one is market size, number two is our market share, number three is profitability and number four is capability and obviously US, China and Japan are the top three markets for us in terms of market share. In Europe we have a 2.7 per cent market share … Europe is very important for us because we are the ones who created the SUV crossover with Qashqai and Juke. Focusing on Sunderland where the plant utilisation ratio will be around 75 per cent, but rest of the products like A segment, B segment and the LCV vans where the Renault is more strong we will buy from them and this is how we will manage the scale of economies by managing priories and focus in European market.”


No line closures in the UK or the US?

“At present in the UK there is no line closure. In the US what we are trying to do is to right size Smyrna and Canton. In Smyrna we are going to focus on DSUV and CSUV and in Canton we are going to focus on trucks but we will transfer the Altima from Smyrna to Canton so that both become 93 per cent production utilisation and this is how we are going to align based on the production between the two plants and we will keep these two plants.”


How many in the Unites States have you furloughed and how many have you brought back on, as of today?

“The number we have today in the United states are close to ten thousand and obviously they are furloughed but now we are ramping up the plants and they are coming back. Absolutely when we look at our market share today and when we look at our product launches which we have in US… our production utilisation will be 93 per cent.”


Is the intention to rehire those you’ve furloughed?

“When we are going for higher market share, and when we are going for new product launches, we need more. And when we are going for 93 per cent production utilisation in Smyrna and Canton we need more. And just for your information we are going to launch 8 new products in next 28 months so obviously we need production and we need people.”


How can you make plans beyond that, when you say that you don’t have fiscal visibility for this year?

“I think today nobody has the crystal ball to anticipate what will be the automotive market except China and we believe that China is coming back and our market share in China is growing and in the month of April, we sold more than in April of last year. So, we anticipate that the global automotive market in 2020 will be 71 million which is down by roughly 21 million with respect to FY18. When we look at the Unites States, we anticipate that in the US will be 12 million which is four to five million less than last year. So that’s why we are not giving any projection this year because nobody knows how the recovery will come back”.


Does this 12 million projection factor in a potential second or third wave in the pandemic?

“We have no thermometer to check how this is going to link with the economic growth or economic recession or whatever you can call it, so we are not able to give the full year forecast. On the other side US is doing great by opening up the markets so what we are doing now is the weekly business plan and this is the first time we are doing a weekly business plan and monitoring that week by week. So, we believe in July or August we will come to know much more about what will happen in the rest of the year, but I think we have to wait until July.”


Has there been any discussion amongst your alliance members about changing the levels of cross shareholdings?

“No. As we said yesterday we believe that the alliance is a tool not an objective, and alliance is an enabler to improve the performance of each company and that’s why we have got into the next era of alliance which will bring more efficiency and more performance for each company while each keeping the distinctive brands we have across the alliance and this is what we confirmed yesterday. Having said that, Nissan is going to focus on US, China and Japan. And the rest of the regions which are also important, we will take the strength from Renault and also Mitsubishi.”


What do you think are the biggest mistakes Nissan has made over the years?

“Global expansion to do everything everywhere. But as a result we invested in 7.2million capacity but maybe much more in the dreams of the people and this projection was made based on two things number one 8 per cent market, but number two all the automotive market in the world will grow exponentially and both did not happen, and we landed up in 4.9million. So, this excess capacity but also excess ambition in the mindset of people. I think this is something which we did, and now we have reset, and we are going not for volume but for value.”


FY19 will be the biggest net loss since 1999. Do you wonder what all this 20yrs was for?

“FY19 is a combination of many things and I think we need to look at it, really look at it, based on three things the first one is the FY19 is the continuation of absolving excess fixed costs with relatively less revenue. Obviously, we don’t have profit. Number two is FY19 we saw coronavirus which killed us in February and March which are the peak months to drive the performance. Having said that we still achieved 5.75 per cent of market share. Which means we were very much on our path to getting on to the FY19 financial results but because of corona we could not. And because of first line our base line was low and because corona came in our baseline went below. So, this is Nissan specific these two things. The number three, because we want to do the restructuring, and to do the restructuring we have to do the financial impairment, and to do the financial impairment we have to put the losses in FY19 and that’s why the third category in FY19 are the impairment. That’s why I think when we look at FY19 results of Nissan, as far as the market share is concerned its 5.75 per cent which means that still there are 4.9million customers around the world who believe in Nissan. Nissan products and Nissan brand. However, three reason- number one excessive fixed costs, number two the corona virus and number three the financial impairment and that’s why we have these net losses.”


How would you characterise morale at your company now?

“Nissan has gone through crisis, but the history has also shown that Nissan has come out of the crisis in a big way.” --TradeArabia News Service