ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter

Nissan to cut North American production by up to 20%

Automaker puts profit ahead of market share as US sales stall

Nissan expanded its U.S. share by offering generous sales incentives. (Photo by Masahisa Yuzawa)

TOKYO -- Nissan Motor is slashing production as much as 20% in North America to cope with a U.S. automobile market where sales declined for the first time in eight years in 2017.

Cuts are already afoot at two assembly plants in the U.S. and three in Mexico. Workers will stay home an extra two or so days a week. Lines will slow to the point where output drops roughly 10% to 20% on the year by summer.

Employees will not be let go, and production lines will not be completely halted. But parts suppliers have been informed of the reductions, which are likely to temporarily impact their earnings. Nissan's cutbacks are expected to wrap up by autumn, when the redesigned Altima sedan launches.

The Japanese automaker previously focused on building up market share in the U.S., where demand steadily recovered since the 2008 global financial crisis. This approach included high-volume, low-margin sales to rental car companies, as well as generous sales incentives. Nissan's incentives apparently averaged at least $4,000 per vehicle in the previous term, above the industry average of $3,600.

The corporate sales and discounts boosted short-term turnover but would harm brand value and weigh on business in the long run. Starting this fiscal year, Nissan will reduce volume corporate sales along with incentives, shifting from a scale-based strategy to one focused on profits.

The Altima and the Rogue sport utility vehicle are among Nissan's best-selling models in the U.S. The company holds the sixth-largest share there, behind the likes of General Motors and Japanese peers Toyota Motor and Honda Motor.

The U.S. accounted for 28% of Nissan's worldwide sales of 5.77 million units for the year ended March 31. The production cuts are projected to deflate U.S. sales by 3% to 1.55 million this fiscal year.

Nissan produces most of its passenger vehicles for the U.S. market at five American and Mexican plants, with some imported from Japan and elsewhere. It also assembles Infiniti luxury vehicles in Mexico via a joint venture with Daimler.

In the triple alliance of Nissan, Renault and Mitsubishi Motors, each company more or less rules its own domain. French member Renault is strong in Europe and South America, while Japan's Mitsubishi Motors is flourishing in Southeast Asia. But the alliance's sales capabilities have faltered in the U.S., where Nissan plays the alliance's leading role. Whether American sales pick up will likely impact the alliance's international strategy.

Global auto sales climbed 2.7% to 96.22 million vehicles last year, according to Japanese market intelligence firm Fourin. The world's largest market, China, grew 3% to 28.87 million units. But the U.S., the second-largest market, shrank 1.8% to 17.55 million. American demand had risen since the financial crisis but apparently peaked in 2016, and future growth prospects are slim.

The U.S. market faces additional uncertainties as the Trump administration renegotiates the North American Free Trade Agreement with Mexico and Canada. A 25% tariff on imported autos, in the name of national security, has been floated. Such a duty risks jacking up U.S. vehicle prices.

Nissan's move comes as rivals in the U.S. rejigger production structures amid stiff competition and waning demand. Ford Motor has announced plans to phase out traditional sedans in favor of trucks and the Mustang sports car, and Honda is reducing output of the Accord.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more