(Bloomberg Opinion) -- If you’re looking for a metaphor for how politics has swamped decision-making at Nissan Motor Co., look no further than reported plans to restructure its cratering global business.
Nissan doubled its planned job losses to 12,500 and unveiled new production cuts after reporting a 99% plunge in fiscal first-quarter operating profit Thursday. The Japanese carmaker is considering reducing production in Southeast Asia and Latin America, people familiar with the matter earlier told Ma Jie and Masatsugu Horie of Bloomberg News.
The logic of pulling out of sub-scale markets is a mainstay of car manufacturing, and certainly applies to some of its smaller Asian units. Plants in Indonesia, the Philippines and Taiwan produce just a few thousand cars apiece. Still, it’s bizarre for Nissan to be so fixated on these motes when the biggest problem with its business lies at home, in its outsize Japanese export business.
Japan isn’t known as a low-cost manufacturing center, yet more than half the cars produced in Nissan’s local factories are shipped overseas, with almost a third of the total going to the U.S. alone. Those volumes have remained remarkably consistent since 2015, in spite of falling U.S. sales, Trumpian rhetoric around the risks of imported automobiles, and a roughly 10% strengthening of the yen against the greenback.
It’s worth considering the resilience of that trade in the context of the dismissal and arrest of Nissan’s former Chairman Carlos Ghosn. A merger like the one Ghosn was pursuing between Nissan and its alliance partner Renault SA would inevitably have resulted in cuts to the least productive parts of the business, but it can be fiendishly difficult to work out what these are in a global carmaker of Nissan’s size.
On paper, the company’s labor productivity in Japan is about as strong as at any of its divisions. That’s complicated, though, by the fact that almost half of Nissan Japan’s revenue comes from selling vehicles and parts to overseas units at opaque prices. As a result, it’s hard for outsiders to tell whether foreign segments are unprofitable because of local weaknesses, or because they’re paying too much to support the home team.
There's telling evidence out there, all the same. The steepest discounts on Nissan cars in the U.S. are all for the Infiniti – and only one model in the luxury line is manufactured in America. Labor productivity in aggregate is also suggestive: Less than a fifth of Nissan’s workforce is in the Asian and Latin American regions where the reported job cuts will be concentrated. So this metric is driven mostly by Japan, which has about 42% of employees, followed by North America (including Mexico) and Europe, with 26% and 12% respectively.
At one time, productivity was a point of pride for Nissan. When the Renault alliance was founded in 1999, it stood at $5,460 of operating income per employee, close to the worst among the major volume carmakers. Three years later, Nissan had the best productivity among its peers, at more than $50,000 per employee.
Things have changed dramatically. Just over two years ago, productivity was still running around the $50,000 mark. Since then, plummeting sales and overspending on incentives in the U.S. mean that Nissan for the first time in two decades is now one of the worst performers. The $20,667 income per employee in the year through March was only narrowly ahead of Renault’s $19,279.
Fixing that has to involve sorting out the North American business, Nissan’s biggest division. One way to do this would be to upgrade its U.S. plants to produce more high-margin SUVs and luxury marques, and let Mexico supply the declining sedan market. The trouble is that such an outcome would involve savage cuts to export volumes from Japan.
The path of least resistance in these nationalistic times is to protect the home front, and sacrifice the periphery. Nissan’s road may be predestined, but investors shouldn’t be surprised if it takes them to an unprofitable destination.
To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
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