Commentary: Carlos Ghosn is the least of Nissan's woes

Commentary: Carlos Ghosn is the least of Nissan's woes

Nissan's business challenges are no laughing matter, says the Financial Times' Leo Lewis.

FILE PHOTO: Carlos Ghosn, Chairman and CEO of the Renault-Nissan-Mitsubishi Alliance, attends the T
FILE PHOTO: Carlos Ghosn, Chairman and CEO of the Renault-Nissan-Mitsubishi Alliance, attends the Tomorrow In Motion event on the eve of press day at the Paris Auto Show in Paris, France, October 1, 2018. REUTERS/Regis Duvignau

TOKYO: Rumours that former Nissan Motor chairman Carlos Ghosn escaped Tokyo for Lebanon in a musical instrument case might make a good movie twist.

It does nothing to alter the plotline for Nissan. For the Japanese automaker, it is far from the end for its reputational and financial issues.

Mr Ghosn’s absence matters less than what he left behind, a collection of ineffective corporate alliances.

More madcap comedy than epic thriller, Mr Ghosn gave the Japanese prosecutors and police the slip at the year end.

READ: 'I did it alone,' Ghosn says of Japan escape

READ: Ghosn seen on security camera leaving Tokyo home alone: Media

Some will also smirk at local regulators who fined Nissan a mere US$22 million for allegedly knowingly understating Mr Ghosn’s pay.

NISSAN’S POOR PROSPECTS

But its operational issues are no laughing matter. 

Nissan has cut its operating profit forecast for the year ending March by more than a half and revised down sales forecasts in the US, its biggest market, by more than a tenth. 

then Renault-Nissan Chairman and CEO Carlos Ghosn gestures
In this file photo taken on Sep 15, 2017 then Renault-Nissan Chairman and CEO Carlos Ghosn gestures as he addresses a press conference in Paris. (Photo: AFP/Eric Piermont)

Already profitability is at a decade low. Third-quarter operating margins fell to 1.1 per cent. Only its auto leasing unit has offset the losses made from cars this year.

Margins at home, which have historically been the highest, dropped more than 7 percentage points in the most recent quarter.

Analysts do not expect Nissan to have positive free cash flow much before March 2022. All this will stretch the company’s balance sheet. 

Within a consolidating auto industry, Nissan and alliance partner Renault of France chastely huddle together, keeping one foot on the floor.

Renault’s newish chairman Jean-Dominique Senard, wants no more dramas with Nissan. He will not press for a merger.

A MESSY THREE-WAY PARTNERSHIP

Markets have booed. Share prices of the three partners in the Renault-Nissan-Mitsubishi alliance are down about a quarter in the past year. All have issued profit warnings in the past few months.

In a scale-dependent business undergoing a shift towards electrification, Mr Senard and his opposite number at Nissan, Makoto Uchida, should consider all options.

READ: Commentary: Nissan saga makes Japan Inc look ever more of a myth

The Renault-Nissan alliance is looking to reboot after the Carlos Ghosn episode
The Renault-Nissan alliance is looking to reboot after the Carlos Ghosn episode AFP/Behrouz MEHRI

Some of this bad news is priced in. Nissan trades at less than half its net asset value, the cheapest it has been since 2008.

This, along with a dividend yield over 6 per cent - well above the industry average - seems to show the shares are good value. Yet a lack of free cash flow suggests a dividend cut may be in the offing.

Without an extradition treaty between Japan and Lebanon, the case against Mr Ghosn could well collapse.

Unless the partners fully consummate their relationship, the denouement for Nissan’s three-way alliance may be equally messy.

Source: Financial Times/sl

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