Nissan Says Fewer Than 20 Suppliers Are in Critical State

Nissan Motor Co. President and CEO Carlos Ghosn
Nissan Motor Co. President and Chief Executive Officer Carlos Ghosn. Photographer: Tomohiro Ohsumi/Bloomberg

Nissan Motor Co. Chief Executive Officer Carlos Ghosn said fewer than 20 suppliers are still in a critical situation, down from 40 in March, after Japan’s record earthquake halted factories and crimped domestic sales.

“Much less than half” of the suppliers have yet to recover, allowing Nissan to forecast that global production will return to normal levels by October, Ghosn said yesterday in an interview in Yokohama, Japan. “We’re closing down on these cases and there’s a very collaborative effort that is taking place.”

To prevent future disruptions to production, Nissan, Japan’s second-largest automaker, will ask second- and third-tier suppliers to implement “alternate sourcing” of components, which they currently lack, Ghosn said. That may mean suppliers, particularly semiconductor makers, may be able to produce the same component in multiple factories around the country, he said.

Nissan yesterday said it boosted fourth-quarter profit even as Toyota Motor Corp. reported a 77 percent drop in earnings after the 9-magnitude temblor in March damaged parts factories and power plants, causing shortages of components and electricity. Ghosn has said the current quarter will be tougher for the carmaker and its Japanese rivals as they recover from the plunge in sales and factory disruptions that followed the disaster.

“If Nissan can go back to full production in October, that is fast,” said Tadashi Usui, an analyst at Moody’s K.K. in Tokyo. “The loss from the earthquake is smaller for Nissan as its domestic output level is only half of Toyota’s.”

Beating Estimates

Nissan’s net income was 30.8 billion yen ($380 million) for the three months ended March 31, compared with an 11.6 billion yen loss a year earlier, beating the 23 billion yen average of five analysts’ estimates compiled by Bloomberg. Sales rose 10 percent to 2.35 trillion yen, the Yokohama-based company said.

Toyota, the world’s biggest automaker, posted 25.4 billion yen in fourth-quarter net income earlier this week. Nissan built 25 percent of its vehicles in Japan last fiscal year, compared with 45 percent at Toyota. Third-ranked Honda Motor Co. made 26 percent of its cars at home.

Toyota said earlier this week that 30 parts are in short supply, down from 150 in April and 500 in March. Ghosn declined to comment on the number of individual components made by the suppliers in recovery.

U.S. Inventory

Nissan moved production of its March small car to Thailand from Japan in July, partly because of the yen’s gain, and imports the model to Japan. Helped by demand for the compact model, Nissan’s domestic sales drop last month was limited to 37 percent, while the decline was 69 percent at Toyota.

In a letter to U.S. dealers yesterday, Nissan said it has more inventory than Toyota and Honda and its plants haven’t been as severely disrupted by the earthquake. Nissan, sixth in the U.S. by sales volume, began May with a 64-day supply of cars and light trucks, compared with 48 days for Toyota and 36 days for Honda, according to the letter.

“We are in very good shape and have a competitive advantage over our main rivals going into May, and one that is only likely to get stronger as we go through the summer,” Al Castignetti, Nissan’s vice president of U.S. sales, said in the letter.

Production in Japan

Ghosn said yesterday the automaker maintains a commitment to make 1 million vehicles a year in Japan. The company produced 4.15 million vehicles globally last fiscal year.

“The March 11 earthquake in Japan significantly disrupted our operations,” Ghosn said in a statement.

Nissan lost production of 55,000 units in Japan in March, compared with the company’s original plan. The carmaker will initially face a “significant” market-share loss globally because of the earthquake and plans to catch up in the second half of the fiscal year, Ghosn said.

Nissan plans to prioritize China and the U.S., the world’s two biggest auto markets, to stem market-share losses and still plans to increase full-year sales, he said.

Renesas Electronics Corp., the biggest maker of microcontrollers used in cars, mobile phones and cameras, suffered damage from the earthquake at its plant in Ibaraki prefecture. A shortage of microcontrollers was a major reason for automakers’ inability to build cars. Renesas expects to resume production at the plant in early June.

Nissan Engine Factory

In addition to disruptions at suppliers, a Nissan engine factory in Fukushima prefecture was damaged in the earthquake and was shut until April 17. Apart from its Kyushu plant in southern Japan, all of Nissan’s car-building factories were shut until March 23.

In April, Nissan’s production volume in Japan was at about 40 percent of last year’s level, and output this month is at about 50 percent, the company has said. Production has also been halted periodically from April at factories in Mexico, the U.S. and the U.K. In China, plants are halting weekend and overtime shifts.

To overcome power shortages, Nissan is considering more nighttime operations and additional in-house electricity generation, and possibly changing days of operation, Ghosn said.

Shares in the carmaker rose 11 yen, or 1.4 percent, to 795 yen at the 3 p.m. close of trading in Tokyo yesterday, before the earnings announcement. The stock has dropped 2.6 percent since March 10, the day before the earthquake.

Vehicle Sales

In the fourth quarter, Nissan booked 39.6 billion yen as an extraordinary loss, the company said.

Nissan’s global vehicle sales rose 16 percent to 1.17 million in the three months ended March 31. The gain was led by North America and Asia excluding Japan.

Sales at home fell 22 percent to 162,000 after the earthquake and the end of a government subsidy program that encouraged sales of fuel-efficient models. Sales in North America rose 22 percent to 354,000 and in Asia, excluding Japan, deliveries surged 29 percent to 353,000.

Net income for the 12 months ended March 31 was 319.2 billion yen, more than seven times what the automaker reported a year earlier. Sales gained 17 percent to 8.77 trillion yen, Nissan said yesterday.

Operating profit rose 73 percent to 537.5 billion yen, even after a stronger Japanese currency cut the figure by 148 billion yen, the company said.

Electric Car

Nissan also began selling its battery-powered Leaf electric car in Japan, the U.S. and some countries in Europe in December. Nissan and partner Renault SA plan to have capacity to build 500,000 electric cars a year by 2012.

Like Toyota and Honda, Nissan declined to provide an earnings forecast for the fiscal year started April 1, citing the impact of the earthquake on production. Nissan plans to announce a midterm plan before its annual shareholders meeting in June, Ghosn said.

The carmaker may post a 48 billion yen net loss for the six months ending Sept. 30, according to the average of 11 analyst estimates.

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