Nissan Is Back In The Mud

The carmaker has restructured. Yet it's losing money. Why?

First we break even, then we make a profit. That was the simple plan of Yoshikazu Hanawa, president of Nissan Motor Co. In 1997, Japan's No.2 carmaker posted a loss of $122 million on worldwide sales of $57 billion--and many investors hoped that the worst was over. He had ambitious plans to cut administrative staff, build more models on fewer chassis, and streamline research and development. Good news seemed in sight.

Not so fast. Instead of reaching breakeven, Nissan now risks a 1998 loss much larger than last year's figure. Japan's stock market slide, marketing setbacks, and recessions in Japan and Asia are all combining to thwart Hanawa and deal him another setback. He says he's satisfied with Nissan's progress. But Nissan's problems may be so deep-rooted and Japan's financial crisis so severe that a healthy rebound may elude the company.

Nissan is now in its sixth year of trying to turn itself around. Problems started in the mid-1980s. In Japan, Nissan's engineers simply lost touch with what consumers wanteD, rolling out dowdy sedaNs that didn't sell. In the all-important U.S. market, Nissan repatriated profits while Toyota And Honda reinvested them.

DEBT DILEMMA. Hanawa, who has been president since 1996, has done a lot. To raise cash, he has sold shares in subsidiaries unrelated to Nissan's core business of making cars and has even sold off Nissan's crown jewel--a swank 16-story headquarters in the chic Ginza district of Tokyo--for $125 million. To cut costs, he has slashed inventories by 100,000 vehicles in North America.

But that won't be enough. The company is saddled with $22 billion in debt and is running ouT of banks to borrow from. Meanwhile, Nissan sales are dropping. On Nov. 10, the parent company is expected to announce a $289 million net loss for the first half of the fiscal year ending next March. According to some analysts, Nissan's losses could reach $626 million for the full year.

Ironically, the same cross-shareholdings that once propped up Nissan are starting to choke it. If not for the stock market crash, Nissan would have turned a profit in the first half. But the tumbling Nikkei blindsided Nissan with $661 million in securities-valuation losses from its holdings, including stakes in struggling Fuji Bank Ltd. and Industrial Bank of Japan Ltd. "If share prices continue to go down, it's a huge problem for Japan, not just Nissan," says Hanawa.

Yet the root of Nissan's problems remains unchanged: marketing. Nissan's failure to meet consumer preferences in the U.S. is a case in point. Last year, the U.S. operation lost $787 million, which pulled the parent company into the red. Nissan's U.S. sales are down 18% for the first nine months of this year, to 475,000 vehicles, while Toyota's are up 7% and Honda's have risen 8%. While Toyota and Honda are offering little by way of rebates, Nissan is giving back $2,000 on all models.

Nissan's greatest lost opportunity may be at home, however. To do it, the company has new models on the way. In October, Nissan launched its $13,565 Sunny sedan, outfitted with a safer frame; buyers can also choose one of several fuel-efficient engine options. The company plans to use the same chassis to roll out 10 other new models of cars and minivans worldwide.

IMAGE WOES. Nissan is not in immediate danger of collapse, of course. But still, Hanawa may have to make some painful decisions. Nissan closed one of its plants in 1995 and may have to close more. It's now operating below the critical threshold of 70% capacity. "Unless they shut down a plant, no matter how much debt they reduce, they can't make money," says Koji Endo, auto analyst at Schroders Japan Ltd.

For now, the company suffers from an image problem so severe that Japanese newspapers have run satirical poems from readers poking fun at the once-treasured carmaker. Investors are losing faith, too. Since Hanawa unveiled his latest restructuring plan, Nissan's share price has tumbled to $2.71 from $4. Hanawa's goals seem to grow more elusive every year.

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