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Nissan's Ghosn crisis

Nissan shares down 30% since Ghosn's arrest for slow progress

Market punishes automaker as earnings tumble and Renault alliance frays

Nissan Motor's earnings and valuation have sputtered in the year since then-Chairman Carlos Ghosn's arrest.   © AP

TOKYO -- A year after the arrest of then-Chairman Carlos Ghosn, Nissan Motor continues searching for a new course while navigating a power struggle with alliance partner Renault -- and investors have shown their displeasure with the pace of recovery.

Shares in both Nissan and Renault have plunged by nearly one-third since Nov. 19, 2018, when Ghosn was arrested at Tokyo's Haneda Airport on financial misconduct charges.

Nissan's market capitalization stands at 2.9 trillion yen ($26.7 billion) -- two and a half times higher than when the partnership with Renault began in March 1999, but less than half the peak value achieved in 2006.

Ghosn's arrest and the ensuing leadership turmoil "have definitely tarnished consumers' image" of the Japanese automaker, an executive at a Nissan dealership said. The company remains mired in fifth place in its home market.

Nissan downgraded its full-year net profit forecast last week, projecting a 66% drop to 110 billion yen on weak sales in the crucial U.S. market. The forecast puts the operating profit margin for fiscal 2019 at 1.4% -- around the level as in fiscal 1999, when Ghosn arrived to turn around the automaker stricken by crisis.

Renault has grown increasingly frustrated as the collective leadership system formed in the spring by the two companies and fellow alliance member Mitsubishi Motors fails to yield meaningful results.

Renault and Nissan agree that the latter's declining earnings need to be addressed before anything else.

Nissan needs to bolster its share price for any hope of persuading Renault to reduce its 43% stake and rebalance a capital relationship the Japanese automaker considers unfair. Renault spent 400 yen per Nissan share in 1999 and in 2002, but the French automaker is believed to have revalued its stake since then, and the company may take a loss if it sells at Nissan's current share price of around 690 yen.

Meanwhile, Renault depends heavily on Nissan's earnings, which made up a majority of its consolidated net profit in 2017. At the French automaker, the contribution from its Japanese partner fell by roughly half in 2018, and a further decline is expected this year.

Nissan is taking action to improve profitability, including scaling back annual production capacity by 600,000 vehicles to 6.6 million units.

The problem lies in its next steps. The company was once a trailblazer with the electric Leaf, but has ceded the lead to others. Nissan has invested far less than its rivals in technology for the next generation of vehicles, including electrification and autonomous driving.

Nissan spent 520 billion yen on research and development in fiscal 2018, an increase of about 300 billion yen from nearly two decades earlier. But Toyota Motor boosted its R&D investment by 560 billion yen in the same period to just over 1 trillion yen, while Honda Motor more than doubled its amount to 820 billion yen. Toyota also has lined up allies with investments in Subaru and Suzuki Motor.

Nissan's management "has little sense that they've squandered the last year," an outside director at the automaker said.

"The Japanese-French alliance is a good combination, but over the past year, they haven't talked about using each other's [strengths] to distinguish themselves -- it's a waste," said Satoshi Nagashima, managing partner at the Tokyo office of consulting firm Roland Berger.

Nissan finally gains stable post-Ghosn leadership on Dec. 1 when Makoto Uchida, now head of China operations, takes over as CEO. But the automaker still seems to lack a figure who can play the sort of transformative role that Ghosn did 20 years ago.

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