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Nissan shuts down factories in Indonesia and Barcelona; India under scrutiny

The company's operations in the ASEAN region will see substantial changes as part of the plan. Nissan would shut down its factory in Indonesia and rely on Thailand as its sole production base while it will also exit the South Korean market

twitter-logoSumant Banerji | May 28, 2020 | Updated 19:39 IST
Nissan shuts down factories in Indonesia and Barcelona; India under scrutiny
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Japanese automobile major Nissan Motor Co on Thursday unveiled a global four-year plan that involves reducing capacity by 20 per cent by shutting down factories in Indonesia and Barcelona and withdrawing from markets like South Korea as it attempts to slim down and turn sustainably profitable. The company did not make any announcement on its struggling India operations but dropped enough hints that it could be under serious scrutiny.  

The company's operations in the ASEAN region will see substantial changes as part of the plan. Nissan would shut down its factory in Indonesia and rely on Thailand as its sole production base while it will also exit the South Korean market. More restructuring is on the anvil.

"We will reduce the size of our business in some ASEAN markets," the company said. "In line with the new business footprint we will revise our management structure in the region to increase efficiency. Although we are unable to provide details at this point in time, Nissan will systematically right size operations or exit some of the markets as we prioritise and focus."

A lot was left unsaid to be read between the lines. If the logic behind shutting down production in Indonesia is anything to go by, India could be the next domino to fall in the region. Nissan had achieved a 6 per cent share in the Indonesian market at one point in time and had set a target of achieving 10 per cent share. Instead, it regressed and currently commands just 1 per cent share which led to its decision to cease production.

"We are in a position that we are no more able to operate that plant," said Ashwani Gupta, chief operating officer, Nissan Motor Corp.  

It is much worse off in India. In fiscal 2020, Nissan sold less than 5000 units in India registering a 34 per cent decline over the previous year. Sale of Datsun also halved to just 13,101 units which gave the group cumulative sales of under 18,000 units, an over 50 per cent decline during the year. Its market-share is a miniscule 0.65 per cent. It exported far greater number of cars from India at nearly 80,000 units, a growth of 38 per cent over fiscal 2019.   

Nissan India did not respond to a detailed questionnaire on the company's operations in the country. In India, the company has been under pressure for quite sometime. In mid 2019, it laid off 1700 employees in India as part of a global exercise where it fired 12,500 workers.

The Renault Nissan alliance has a 480,000 unit per annum factory in the outskirts of Chennai. The French carmaker had a much bigger domestic sales tally at 89,534 units, which gave it an over 3 per cent market share. It was also one of the few companies in the industry to post a growth in 2019-20. The Indian passenger vehicle market declined by 17 per cent to 2.77 million units in the year. The alliance had a capacity utilisation of just 42 per cent in the country.   

Globally, Nissan Motor Corporation has been in a state of turmoil ever since it alleged embezzlement of funds by alliance chairman Carlos Ghosn in 2018. It reported a $ 6.2 billion loss for the year ended March 2020 as it took a one time knock of $ 5.6 billion in restructuring costs and impairment losses. The scope of the new plan has been clearly laid down to achieve a 5 per cent operating profit margin and a sustainable global market share of 6 per cent by the end of fiscal year 2023, including proportionate contributions from its 50 per cent equity joint venture in China.

"Our transformation plan aims to ensure steady growth instead of excessive sales expansion," said Makoto Uchida, CEO, Nissan Motor Corp. "We will now concentrate on our core competencies and enhancing the quality of our business, while maintaining financial discipline and focusing on net revenue per unit to achieve profitability. This coincides with the restoration of a culture defined by 'Nissan-ness' for a new era."

Plagued with an overcapacity in a global market which is only likely to aggravate as coronavirus ravages the world economy, Nissan wants to reduce its overall capacity from 7 million units currently to 5.4 million units by 2023. The intention is to achieve a capacity utilisation of over 80 per cent, which makes the factories financially viable. But that would mean shutting down plants in Barcelona in Western Europe besides the one in Indonesia.

Going forward, its key focus would be on markets like Japan, China and the US including Mexico while for the rest of the world including Europe, it will leverage assets that it shares with alliance partner Renault of France.

"Nissan must deliver value for customers around the world. To do this, we must make breakthroughs in the products, technologies and markets where we are competitive. This is Nissan's DNA," Uchida said. "In this new era, Nissan remains people-focussed to deliver technologies for all people and to continue addressing challenges as only Nissan can."

At the same time, the firm would also trim its global portfolio of cars by 20 per cent. Its entry level Datsun brand, a pet project of Ghosn, would also be discontinued in Russia. Besides Indonesia and Russia, India is one of the four markets that includes South Africa where the Datsun brand was relaunched in 2014. With Ghosn gone, the fate of Datsun itself is in the balance.

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