Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Twenty years ago Nissan squeezed suppliers, now it needs their help

Stock MarketsDec 23, 2020 09:05AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Nissan Motor Corp. displays its new Ariya all-battery SUV during a press preview in Yokohama

By Tim Kelly and Maki Shiraki

Tokyo (Reuters) - When Carlos Ghosn arrived at Nissan (OTC:NSANY) in 1999, suppliers took the brunt of cost-cutting that helped revive the automaker. Two decades later, his successors are trying for another turnaround without the ability to pressure parts makers.

Nissan Motor Corp, like rivals, has been hit as the pandemic sapped global demand. But Japan's No.3 automaker has another problem: an ageing line-up out of step with changing tastes, including growing appetite for sport utility vehicles in the United States and luxury brands in China.

Ghosn's relentless pursuit of chasing volume resulted in a focus on price and incentives, rather than new designs. Under Ghosn, Nissan halved its suppliers to 600 firms. Those that remained had to lower costs, but benefited from more orders as Nissan's global market share went from 4.9% to 6.6%.

Ghosn, who also ran alliance partner Renault SA (OTC:RNLSY), was arrested in Japan two years ago on charges of financial wrongdoing, which he has denied. He has since fled to Lebanon.

In recent years Nissan has lost its way and new management is once again looking to cut costs, but can't offer increased volume to suppliers. Nissan plans to reduce production capacity and model types by a fifth to trim costs by 300 billion yen ($2.88 billion).

"Cost-cutting is a no-brainer," Chief Operating Officer Ashwani Gupta told Reuters in an interview, acknowledging that suppliers may take some persuading.

"We need to have a logic to convince both internally and externally that this is why we want the rationalisation."

Adding to the challenge is the increased "regionalisation" of the auto market, Gupta said. Automakers face a number of different standards and regulations around the world, forcing them to sell cars in different regional versions.

Under Ghosn, Nissan was able to use fewer suppliers and increase economies of scale for components - now it needs to use more suppliers.

TECHNOLOGY BATTLE

Nissan also faces an intensifying technological battle in electric vehicles and connected autonomous driving against competitors with deeper research and development pockets such as Toyota Motor (NYSE:TM) Corp, Volkswagen AG (OTC:VWAGY) and General Motors (NYSE:GM), as well as new rivals such as Tesla (NASDAQ:TSLA) Inc.

"We would appreciate an increase in sales volume, otherwise it means the development costs become a bigger burden," an official at one of Nissan's suppliers told Reuters.

Nissan is planning to revamp the ageing vehicle line-up, with 12 new models over the next few years. Pulling that off will mean working more closely with parts makers.

That is the main difference between Nissan's turnaround plan now and 20 years ago, Gupta said. "The working with suppliers is a more technological partnership at a very early stage to achieve design to cost," he said.

Examples of such collaboration include designing night vision rear view mirror displays with Panasonic (OTC:PCRFY) Corp and an agreement with Chinese company Sunwoda Electric Vehicle Battery Co to study battery development for its e-Power hybrids, a Nissan spokeswoman said.

"In their dealing with us they have become very polite and more humble," said an official at a second Nissan parts maker, who also asked not to be identified.

Nissan's search for technology has already extended its traditional supplier base, including to companies that work for rival Toyota Motor Corp.

Nissan now buys around a tenth of its parts, particularly electronic components, from Toyota suppliers because they are large-volume producers and therefore cheaper, said William Nestuk, an analyst at Pelham Smithers Associates in London.

"Nissan cannot currently fund the development of next-generation technologies without input from either the Renault (PA:RENA) side and/or from Toyota suppliers," Nestuk said in an email.

That competition will heap further pressure on Nissan suppliers already trying to adjust to declining output.

"I am concerned that even if we try to work with them the business relationship won't last," said the official at the second supplier.

($1 = 104.0500 yen)

Twenty years ago Nissan squeezed suppliers, now it needs their help
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email