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Japan-Update

Nissan lowers core earnings outlook again

Inspection scandal and soft US market take toll

Joji Tagawa, corporate vice president at Nissan, speaks with reporters Thursday.

TOKYO -- Nissan Motor slashed 80 billion yen ($735 million) from its forecast for annual operating profit as last year's inspection scandal and sales incentives in the U.S. weigh heavily on earnings.

Group operating profit for the year ending in March is expected to sink 24% to 565 billion yen, the Japanese automaker said Thursday, making its second downgrade this fiscal year.

The company expects global sales volume to rise 3% to 5.78 million vehicles, 50,000 less than previously forecast. Nissan lowered its target for Japan, the heart of the scandal involving unauthorized employees conducting final inspections, as well as for North America and Europe.

The automaker attributes 30 billion yen of the downgrade to production and export delays tied to the scandal.

"We aim to normalize operations by the end of March," said Joji Tagawa, corporate vice president.

Nissan will take a 40 billion yen charge tied to reducing inventory in its main U.S. market and elsewhere. The automaker has stoked demand with aggressive sales incentives such as price discounts.

The automaker rode the U.S. recovery from the financial crisis, focusing on expanding its share of sales in the country. Nissan's U.S. sales rose 2% to 1.59 million cars in 2017 while overall demand in the country fell 2%. But the company's incentives averaged over $4,000 per car last year, far higher than the industry average in the upper-$3,600 range. Nissan now faces the consequences of pursuing short-term gains and overly ambitious sales growth.

The Japanese automaker had shown signs of charting a different course amid deteriorating profitability.

"We want to look at U.S. sales volume cautiously rather than overreach," Hiroto Saikawa, president and CEO, said at the company's first-half earnings announcement in November.

"We will concentrate on sales quality rather than quantity over the next two years," he elaborated at a news conference Thursday. The company plans to reduce fleet sales to rental car companies and other bulk buyers.

Yet Nissan lifted its net profit forecast by 170 billion yen, predicting a 6% increase to a record 705 billion yen. Accounting adjustments from the lower U.S. corporate tax rate are seen providing a 207.6 billion yen boost.

Nissan's subsidiary for U.S. sales and financing includes on its balance sheet deferred liabilities for future tax payments. The reduction in the American corporate tax rate to 21% will shrink those future liabilities, raising Nissan's current profit.

Nissan's sales for the nine months through December rose 3% to 8.52 trillion yen, while net profit jumped 40% to 578.1 billion yen.

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