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Nissan's Ghosn crisis

Nissan's profit sinks below Renault's for first time in 10 years

Weak earnings alter power balance and offer partner a chance to pounce

Nissan Motor plans to lower its dividend for the first time in a decade this fiscal year as a speedy earnings turnaround looks unlikely.   © Reuters

TOKYO -- Nissan Motor's profit dropped below that of French partner Renault for the first time in a decade last fiscal year, a development that risks weakening the Japanese automaker's position in their alliance.

Nissan's operating profit sank 45% to 318.2 billion yen ($2.91 billion) for the year ended in March, earnings released Tuesday show -- less than the 3.61 billion euros ($4.06 billion) reported by Renault for 2018. It also logged the smallest operating margin of the alliance's three members, at 2.7% to Renault's 6.3% and Mitsubishi Motors' 4.4%.

With little in the way of new models in the works, prospects for a turnaround remain uncertain. Nissan indicated it will lower its annual dividend for the first time in 10 years, to 40 yen per share from 57 yen in fiscal 2018.

The poor showing and the dividend cut are likely to change the dynamic in the alliance, in which Nissan's outsize contribution to earnings had allowed it to fend off pressure from Renault, its largest shareholder with a 43.4% stake. With Renault renewing its calls for the two automakers to merge, Nissan, which seeks to retain its independence, finds itself in a more precarious position.

Nissan's troubles last fiscal year stem mainly from the U.S., a massive market accounting for 30% of global auto sales. Faced with competition from rivals such as Toyota Motor and General Motors, Nissan offered deep discounts to move more units, but these incentives proved costly. The automaker racked up over $4,000 in promotional costs per vehicle sold, 10% more than the U.S. average.

Discounts became the norm under former Chairman Carlos Ghosn, with his focus on volume above all else. This both cut into margins and cheapened the brand's image, creating a vicious cycle of deterioration. Nissan's operating profit margin in North America sank 1.9 percentage points to 1.2% last fiscal year.

For fiscal 2019, Nissan expects group net profit to tumble 47% to 170 billion yen. That would represent its worst performance since fiscal 2009, in the aftermath of the global financial crisis.

Renault has in recent weeks ramped up pressure on Nissan for a long-sought merger. Nissan President and CEO Hiroto Saikawa told reporters Tuesday that he is not open to the idea, saying it would have a "major negative impact" on the Japanese company.

Renault Chairman Jean-Dominique Senard wants to integrate the two automakers, but such a move "could harm Nissan's ability to generate value," Saikawa said, though he acknowledged that "there has been discussion of the capital structure" of the alliance.

Saikawa stated that Nissan will cut the operating margin target in its medium-term plan through fiscal 2022 to 6% from 8%. The annual revenue goal will be lowered by 2 trillion yen to 14.5 trillion yen, as the automaker shifts gears from growing sales to improving profitability.

The Nissan chief also said global production capacity will be trimmed by 10%. Under Ghosn and his volume-first mindset, capacity swelled to 6 million vehicles, well over the 5.51 million sold last fiscal year. Nissan will cut this to 5.4 million.

Despite the retrenchment, Saikawa continues to stand firm against a merger with Renault. "There are many Nissan directors who also oppose integration," he said.

But the French automaker's status as Nissan's largest shareholder may make it hard to keep this up. Should Nissan's earnings remain sluggish for too long, Renault could turn up the pressure on its Japanese partner's management and try to forge ahead with a merger regardless.

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