Nissan to Beat China Growth for First Time Since 2011
Nissan Motor Co. (7201) forecast its growth in China will outpace industrywide sales in the country for the first time in three years as consumers in the world’s largest auto market return to Japanese brands.
“Next year, we should see our sales increasing, probably a little bit more than the industry,” Chief Financial Officer Joseph Peter said in an interview yesterday at the company’s headquarters in Yokohama, Japan. “Fortunately to date, we haven’t seen the recurrence of the uproar in demonstrations and the violence targeting Japanese companies that happened in September of last year.”
Nissan was among the hardest-hit companies last year when a territorial dispute between Asia’s two biggest powers spurred boycotts against Japanese products. While the diplomatic row that resurfaced last month hasn’t triggered the consumer backlash seen in 2012, the periodic bouts of tensions between the two Asian neighbors underscore the vulnerability of Japanese companies in the world’s second-largest economy.
“The islands issue is a fatal problem to Nissan and other Japanese companies and also a problem they absolutely have no control over,” said Cao He, a Beijing-based auto analyst with China Minzu Securities Co. “There is no way for them to plan or predict what the political environment will be. What they can do is simply sell as many cars as they can when the political situation is stable, so that they have enough strength to make it through when bilateral relations go south.”
This time last year, Nissan was bracing for an unprecedented fourth-straight drop in monthly China sales after the Japanese government purchased a group of uninhabited islands in the East China Sea, known as Senkaku in Japan and Diaoyu in China, from their private owner. The move triggered protests across China, with some demonstrators torching dealerships and vandalizing cars associated with Japan.
Last year’s demonstrations set back Nissan from its midterm China targets by 1 1/2 to 2 years, Peter said.
Toyota Motor Corp. (7203), the world’s largest carmaker, saw six straight months of declines in 2012, resulting in its first annual drop in China sales. Honda Motor Co.’s sales fell four straight months, including a 53 percent plunge in October of that year.
Today, the squabble is back after China created an air-defense area covering the islands, though the boycotts aren’t. Japan’s three-biggest automakers have seen three straight monthly gains and Nissan, which sells the most cars in China among them, predicts its sales in the country will climb to a record next year, as long as tensions don’t escalate.
“No one knows what’s going to happen or what incident will exacerbate the situation that we found ourselves in September of last year,” Peter, 50, said.
Nissan, which is targeting to capture 10 percent of the Chinese market from 6.2 percent in 2011, said in November it expects China deliveries to rise 7.5 percent to 1.27 million units this year.
For investors, the contrast in the economic fallout between last year’s diplomatic row and this year helps illustrate the unpredictability of Japanese companies’ business prospects in the world’s second-largest economy, placing them at a disadvantage against other foreign brands that have gained market share at their expense.
Nissan has stepped up spending on advertising, promotions and incentives to win back Chinese customers in the wake of the consumer backlash, said Peter, who was recruited by Chief Executive Officer Carlos Ghosn in 2009 from General Motors (GM) Corp., where he was CFO for international operations based in Shanghai.
“It’s very important for us to recover our China business as quickly as possible,” he said. “If we just wait it out, and just sit, not try to be proactive in terms of bringing customers back, that would hurt us in the long term.”
At stake is a market that IHS Automotive predicts will surpass 30 million vehicles a year in sales by 2020. China’s passenger-vehicle deliveries rose 15 percent to 14.5 million units in the first 10 months of this year, according to the China Association of Automobile Manufacturers. Total industrywide sales, including commercial vehicles, will probably exceed 20 million units this year, the association said.
To sharpen its focus on China, Nissan broke out the country as a separate region earlier this year as part of a reorganization of the company’s operations and management. In the overhaul, the company reorganized its operations to six regions from three and scrapped the position of chief operating by splitting the role into three.
“What we need to do is separate out and create more regions to have very specific management focus on the larger number of key regions,” Peter said. “We felt the time we could manage the company with these large regions kind of came to an end.”
In the U.S., Nissan’s largest market this year, the company expects “strong” industry demand for the next few years, Peter said. The company’s U.S. sales rose 11 percent in November, helped by increased deliveries of Altima sedans and Sentra cars.
Nissan rose 1 percent at 9:15 a.m. in Tokyo trading, while the Nikkei 225 Stock Average fell 0.1 percent. Still, Nissan has only gained 9.6 percent this year, making it the worst-performing stock among Japan’s five-largest automakers after slowing demand in emerging markets and a recall led the company to cut its full-year profit forecast last month.
At a time when the weaker yen is supposed to benefit Japanese exporters, the forecast revision led analysts from Credit Suisse Group AG to Deutsche Bank AG and Goldman Sachs Group Inc. to lower their investments ratings on Nissan, Japan’s second-largest carmaker. Peter said the “fair value” of the yen is for the currency to trade at 100 to 105 against the dollar. The yen has fallen about 19 percent in the past 12 months and traded at about 102 today.
To help bolster profitability, Peter said Nissan is considering tightening expenses. For example, while the company would typically increase incentives to meet volume targets last year, Nissan plans to be more prudent and consider whether such pricing is sustainable, he said.
On wages, Peter said he expects wages in general to rise in Japan as the government seeks to end deflation and achieve an inflation rate of 2 percent.
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