Postponing the Pain at Nissan

When Toyota Motor (TM) is closing a U.S. factory and delaying opening another, you'd expect lesser players to follow suit. Yet Nissan Motor (NSANY) has no plans to reduce its manufacturing capacity in the U.S. "I've absolutely no worry about using our capacity in the U.S. in the short term," says Chief Executive Carlos Ghosn.

That optimism—some would say hubris—could come back to bite the company. Nissan can produce 950,000 vehicles in the U.S., but with sales in the tank the automaker is on pace to build 360,000. In other words, Nissan has slowed its U.S. plants so that it's using just 44% capacity. Nissan wouldn't comment on those numbers. "Nissan really ramped up, and at one point it looked like they needed it," says IHS Global Insight analyst Rebecca Lindland. "It's now obvious that they don't."

When times were good, Ghosn was eager to grab market share in the U.S. He aggressively expanded the number of models Nissan fielded and six years ago opened a second U.S. plant, a sprawling facility in Canton, Miss.

Ghosn's greatest overreach may have been trying to crack the market for pickup trucks, minivans, and big SUVs—long dominated by Detroit. Even when auto sales were robust, Nissan's trucks, minivans, and SUVs missed their sales targets. This month, the company stopped producing the Quest minivan in Canton, and it plans to stop making the Infiniti QX56 large SUV there next year. Nissan also can build as many as 515,000 Altima and Maxima sedans at Canton, according to CSM Worldwide, a research firm. But Global Insight forecasts that Nissan will sell only 433,000 of the two models in 2014, when the U.S. economy should be healthier.

Big Bets on the Future Given the capacity overhang, why does Ghosn seem optimistic? In the short term, he says a weak U.S. dollar may allow Nissan to export some of its American production to other markets, including countries in the Middle East which traditionally have received Nissans built in Japan. Longer term, Ghosn wants to keep plenty of factory capacity online for a couple of big bets he is making on the future.

The Nissan chief figures electric cars will account for 10% of global auto sales over the next decade and he plans to build Nissan's Leaf electric car at a plant in Smyrna, Tenn. Nissan also is pushing hard into the commercial truck business. Starting next year, it will build medium-duty commercial trucks in Canton, going up against the likes of Ford (F) and Daimler's (DAI) Freightliner unit.

Both the electric and commercial truck bets are highly risky. Most industry watchers believe that Ghosn's projection for electric cars is way too optimistic. When Nissan launches its commercial truck next year the market will be able to absorb only 125,000 vehicles, says Steve Tam, vice-president of the commercial vehicle sector for ACT Research. Nissan will be able to build 50,000 a year, which means it will have to steal a lot of market share to keep the factory busy. "Their target is unbelievably ambitious," Tam says.

Big ambitions are what got Nissan into this pickle. A better bet, says Michael Robinet, vice-president of CSM, may be to build some of its smaller, crossover SUVs in the U.S. because those models are selling well. Otherwise, Nissan may have to follow Toyota with the kinds of cuts that the company has so far avoided.

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