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Business

Nissan braces for heavy cost of regulatory shortfall

Automaker to spend $220m or more to recall 1.21 million cars

Nissan Motor CEO Hiroto Saikawa briefed reporters on the scandal at a Oct. 2 news conference.

TOKYO -- Nissan Motor is scrambling to initiate a recall equivalent to more than double its annual domestic sales volume following the revelation of a grave regulatory oversight, prompting concern over the harm to its brand image and sales.

The scandal involves final inspections at factories, a necessary step before vehicles are allowed on public roads under Japanese regulations. Automakers carry out the checks on behalf of the government.

Since the issue is about a breach of regulatory compliance and not a problem with the vehicles, it does not concern export models manufactured in Japan and vehicles made overseas, Nissan said. The company will continue to deliver vehicles produced after late September, since the problem has now been corrected.

The scandal was uncovered during the course of on-site probes by the transport ministry since Sept. 18. CEO Hiroto Saikawa deeply apologized for the breach of duty at a news conference Monday.

"The final inspections are a process entrusted to us by the government," he said, adding that letting unqualified workers do the checking is an infringement that "should never happen in manufacturing."

But the infraction was discovered at all of Nissan's six vehicle assembly plants in Japan, including the Oppama facility, its so-called "global mother plant" in Yokosuka, Kanagawa Prefecture. On Friday, the carmaker suspended delivery of inventory needing reinspection. The registration process for delivery is expected to resume on Tuesday, as soon as equivalent inspections are completed by group dealerships.

The recall, to be filed with the ministry this week, will affect as many as 1.21 million vehicles across 24 models, which were produced between October 2014 and September 2017. Nissan sold 557,000 vehicles in Japan in fiscal 2016. The company is bracing for recall-related costs in excess of 25 billion yen ($222 million), Saikawa said.

"One big problem is that workers did not adequately understand the point of the process," he continued. "We would like to thoroughly investigate over the next month the causes, underlying factors and workers' awareness, among other things, and draw up countermeasures."

Nissan stock fell as much as 5% Monday, pushed down by bulk sell orders from the start of the session. Shares then rebounded somewhat, ending 2.69% lower at 1,084.5 yen.

Investors had been rather harsh on Nissan stock even before this latest problem came to light. Shares have dropped 1% over a month and half since the company's first-quarter earnings release. Nissan's growth has hit a ceiling in the key market of North America. As the company has boosted sales incentives amid intense competition, its profitability has declined.

By contrast, Toyota Motor shares have risen 9% over a comparable time frame. Honda Motor and Suzuki Motor have seen their stock prices climb 11% and 7%, respectively.

Monday marked tha release of Nissan's new Leaf electric vehicle. Dealerships, excited about the expected boost in sales from a fresh iteration of the carmaker's signature model, are now disappointed that the scandal is throwing a wrench into the works.

(Nikkei)

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