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Nissan-Renault alliance

Five things to know ahead of Nissan's fraught shareholders meeting

Investors up in arms over automaker's weak global sales and coronavirus turmoil

Makoto Uchida, who has been Nissan's CEO since December, will be officially welcomed to the board during the company's extraordinary shareholders meeting on February 18. (Photo by Takaki Kashiwabara)

TOKYO -- Nissan Motor is expected to confront harsh criticism from investors at an extraordinary shareholders meeting Tuesday, as the automaker has cut its net profit outlook for the current fiscal year twice. It now forecasts a $65 billion yen ($592 million) net profit, an 11-year low, for the year ending March.

The automaker has also lowered its annual dividend to 10 yen per share, its smallest payout since 2011. Nissan's stock price slipped below 500 yen on Monday morning, also an 11-year low.

Nissan had hoped to mark the end of the Carlos Ghosn era at the shareholders meeting by officially welcoming new executives to the board, including Makoto Uchida, who has been CEO since last December, and by officially removing former CEO Hiroto Saikawa.

But it is becoming clear that during the company's struggle with former Chairman Ghosn -- who was arrested on charges of financial misconduct in November 2018 -- structural problems that had been hurting the company's performance were neglected.

Here are five things to know ahead of the meeting.

Why has Nissan performed so badly?

Nissan is battling sluggish car sales worldwide, particularly in North America, where the carmaker has relied heavily on dealer incentives. This strategy, pushed hard by Ghosn, aimed to increase Nissan's market share. But it undercut profitability and cheapened the brand, leaving it unable to move cars off the lot without massive discounts. Dated models compared with those of its competitors have put off dealers and customers alike.

"Sales have been falling below expectations," said Uchida at a news conference held last week to announce earnings for the April to December 2019 period. He added that the company's struggles are likely to continue in the coming fiscal year. Previously Nissan had said earnings would bottom out this year.

Nissan is plagued with overcapacity, particularly in emerging markets, where the company has expanded for nearly a decade. The carmaker can produce just over 7 million vehicles a year, but its sales are in the 5 million range. Last July, it announced plans to cut its payroll by 12,500 by fiscal 2022 but Uchida said the company "needs to go one step further."

Are there any bright spots?

The Chinese market gives Nissan cause for hope. It sells 30% of its cars in China, which is now the company's largest market, ahead of the U.S. at 25%. China is also a key production base for Nissan.The Japanese automaker is the No. 4 overseas manufacturer in China by unit sales, and first among Japanese brands, according to Fitch Ratings.

But the recent coronavirus epidemic has clouded Nissan's outlook, given its heavy reliance on China. The company has a plant operating under a joint venture in Hubei Province, whose capital, Wuhan, is at the heart of the outbreak. Nissan has temporarily halted operations at a plant in southwestern Japan due to a break in the flow of parts from China.

The company's earnings forecast for this fiscal year does not take into account the effects of the supply chain disruption, as it is still unclear how long it will last. The longer the plant shutdowns and China's economic hiccups continue, the greater the risk of a steeper earnings decline.

Has Nissan's corporate governance improved since Ghosn's dismissal?

Nissan has set up nomination, remuneration and audit committees chaired by and composed mainly of outside directors, in an effort to keep too much power from falling into one set of hands -- one of the major shortcomings of Ghosn's reign.

Some observers say the reforms have worked. Saikawa, who took over the top spot at Nissan after Ghosn's arrest, was asked by the board to step down as CEO in September 2019, after it was revealed that his pay had also been improperly inflated.

But his successor, Uchida, has had a shaky start. As of December, Nissan's top executives consisted of Uchida, who has a trading company background, Chief Operating Officer Ashwani Gupta from Mitsubishi Motors and Gupta's deputy, Jun Seki from Nissan.

The reshuffle was aimed at balancing the global alliance, which also includes French carmaker Renault. But Seki announced just one month later that he was stepping down to join electric motor manufacturer Nidec, where he will serve as president starting April 1. The instability casts further doubt on Nissan's upper management.

What is the future of the alliance?

Nissan's lackluster earnings have also hit Renault, which is the Japanese carmaker's biggest shareholder, with a 43.4% stake. Renault announced last week a net loss of 141 million euros ($153 million) in fiscal 2019, the company's first net loss in 10 years. Nissan's revival is vital to the French automaker as well.

The Renault-Nissan-Mitsubishi alliance fell to third place in the 2019 global auto sales ranking, overtaken by Toyota Motor. Lower profits at the alliance may further diminish its global presence, as a lack of capital could hamper its ability to develop new technology.

Ties between Nissan and Renault were strained following Ghosn's dismissal, with the French auto company pushing for a merger. With Nissan's senior management in disarray, if Uchida is unable to gain the full support of Renault and its chairman, Jean-Dominique Senard, the rift may deepen, adding to Nissan's troubles.

 How is Nissan dealing with Ghosn's escape from Japan?

The Japanese government has asked Lebanon to extradite Ghosn, following his illegal flight from the country at the end of last year. It remains unclear whether Ghosn, who has Lebanese citizenship, will ever stand trial for his alleged crimes.

Nissan announced last week that it has filed a civil suit against Ghosn, seeking to reclaim 10 billion yen ($91 million) from him for what it called "his years of misconduct and fraudulent activity."

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