NSANY Nissan Motor Company Ltd (PK)

By Sean McLain and River Davis 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 25, 2019).

YOKOHAMA -- Nissan Motor Co. issued its second profit warning this year, weighed down by a warranty extension for vehicles in the U.S. and efforts to unwind a U.S. sales strategy by former Chairman Carlos Ghosn.

Operating profit for the year, which ended March 31, is expected to decline 29.3% to Yen318 billion ($2.8 billion) from its previous projection of Yen450 billion estimated in February. The company's operating margin, a measure of how much it makes from selling cars, is expected to fall to 2.7%, down from the already slim projection of 3.9% set in February.

Nissan's continued struggles are a challenge to Nissan Chief Executive Hiroto Saikawa. He has said he wants to fix past mistakes made by his predecessor, Mr. Ghosn.

Mr. Ghosn has taken issue with that characterization, saying in a recorded video statement that it was the Nissan executive team's inability to fix the problems they flagged that led to the profit declines.

The former Nissan chairman is in jail awaiting a decision on his bail. Mr. Ghosn was originally arrested on Nov. 19 in Tokyo, and was out on bail for a brief period before being arrested again. He faces criminal charges related to alleged financial misconduct -- but he denies any wrongdoing. Mr. Ghosn was stripped of his chairman title following a board meeting on Nov. 22 and on April 8 shareholders voted to remove him from Nissan's board of directors.

Nissan has blamed falling profitability in the U.S. -- where it earns the lion's share of its profits -- on an overly aggressive play for market share instigated by Mr. Ghosn. Company executives say it led to an overreliance on thin-margin sales to rental-car fleets and overly generous financial enticements for car buyers.

As Nissan trimmed spending on those financial incentives, sales have fallen. U.S. sales declined about 9% for the fiscal year ended Mar. 31. In the January-March quarter alone, Nissan's U.S. sales declined 12%.

Mr. Saikawa has said the falling sales are a necessary side effect of his plan to increase profits, and that it will take time for sales to rebound.

The company's Europe sales have also declined amid a backlash against diesel vehicles that hammered sales for many car makers. Nissan plans to stop producing its luxury brand Infiniti vehicles in its U.K. plant in Sunderland and abandoned a plan to produce a Rogue SUV at the plant. The decision was driven by falling demand for diesel-powered vehicles, a Nissan spokesman said.

Sales have also fallen short of expectations in Japan, as a scandal related to improperly conducted vehicle inspections at factories continues to keep new customers away, Nissan Chief Financial Officer Hiroshi Karube said. In China, sales are sluggish but may rebound at the end of the current year, he said.

The company also will book a charge related to a planned offer of a seven-year warranty on Nissan vehicles in the U.S. affected by an issue with its continuously variable transmissions. As the cars age, the transmissions create noise and vibrations, said Mr. Karube. The problem affects about 3 million vehicles and will result in a Yen66 billion reduction in operating profit, he said.

There was one positive sign in the financial outlook laid out by Mr. Karube. In February, Nissan created a reserve of more than $80 million for deferred pay for Mr. Ghosn that forms the basis of a criminal charge against the former chairman.

Nissan expects it won't need to set aside that much, Mr. Karube said.

Write to Sean McLain at sean.mclain@wsj.com and River Davis at River.Davis@wsj.com

(END) Dow Jones Newswires

April 25, 2019 02:47 ET (06:47 GMT)

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