TOKYO -- Nissan Motor's aggressive expansion pursued by former chief Carlos Ghosn continues to burden the Japanese automaker, with hefty sales incentives promoted under his leadership resulting in a precipitous drop in North American earnings for the first half.
The Japanese automaker said Tuesday its North American business generated an operating profit of 36.5 billion yen ($334.7 million) during the six months ended September, down 57% from the year-earlier half. Overall operating profit plummeted by 85% during the same period.
Having abandoned the pursuit of scale after the disgraced chief's exit, the Japanese automaker aims to boost earnings via aggressive new-vehicle launches. But the company, to be led by Makoto Uchida from Dec. 1, could face a challenge in doing away with the discounts that have driven sales in North America.
"We are already starting to see improved quality of sales in the U.S. which is our primary focus right now," said Corporate Vice President Stephen Ma, who will become the new chief financial officer next month, at an earnings announcement.
The road to recovery will be bumpy. Nissan's operating margin in North America in the first half, at 1.4%, pales in comparison to those of rivals. Margins at both Toyota and Honda recovered to the 4% range for the first time in three years.
Nissan downgraded its North American sales outlook for the year ending in March to 1.71 million vehicles from 1.78 million units.
Nissan's sales incentives averaged $4,218 per vehicle during the first half, according to U.S. industry data. That exceeds Toyota Motor's incentives by 68%, and double the incentives provided by Honda Motor.
Nissan offered aggressive discounts in the mid-2010's under Ghosn to expand its market share. Sales incentives have remained high since then.
Ghosn was removed as the company's chairman after his arrest in 2018 for alleged financial wrongdoing.
"Unlike in the past, we are not chasing market share, we are not chasing volume, we are really primarily focused on sustainable long-term growth," Ma said. Yet, shaking off the brand image associated with discounts will likely take time.
Starting in fiscal 2017, Toyota embarked on a three-year new product blitz at an annual pace of 10 new models. The company also moved to improve finances by cutting sales incentives.
Toyota's example shows that it is imperative for Nissan to expand its thin lineup of new vehicles. The latest Versa compact is the only noteworthy rollout of late in the U.S. market. It has been six years since Nissan's popular X-Trail sport utility vehicle was fully redesigned.
Nissan's average model age is 5.1 years. The number is up 0.7 year from two years earlier, and is well above the industry average of roughly 4 years.
Nissan is now starting to turn the clock back on its vehicles. The car company will start introducing electric vehicles, as well as vehicles equipped with autonomous driving and other advanced technology. There are at least 20 such models forthcoming, and the average model age is expected to shrink to 3.5 or less by March 2023.
Behind Ghosn's pursuit of scale in the North America is Nissan's bungled investments in emerging markets. During the peak period around 2013 and 2014, the company built factories in nearly 10 countries, including Thailand, Indonesia and China.
But sales did not rise as anticipated, and the factories now appear plagued by overcapacity. Nissan plans to raise factory utilization rate to 86% in fiscal 2022, up from 69% in fiscal 2018.
That will require cutting or shutting down production lines in 14 locations worldwide. Overall capacity will shrink to 6.6 million units from 7.2 million units. When asked about the progress of downsizing, Ma offered little in response except to say the new leadership team will deliberate structural reforms.
