Japan’s Nissan Now Need Help From Its Suppliers To Stage A Turnaround

The Japanese automaker Nissan’s revival under the leadership of Carlos Ghosn in 1999 and beyond was arguably obtained by cost cutting which hit the company’s suppliers the most. However, currently the auto maker currently is trying to stage another turnaround under a different leader but sans the ability of putting cost curtailment pressure on its parts suppliers.

The Covid-19 pandemic has hit the global auto market demand and all major auto companies including Nissan.  

However multiple issues riddle the third largest auto marker of the Japan. The company’s line-up of products are aging and are out of sync with the current consumer tastes which includes the growing demand for sport utility vehicles in the United States and luxury brands in China.

Nissan’s focus was on price and incentives, instead than new designs because of its relentless pursuit of high volume. That had forced the company to reduce its number of suppliers from 600 to less than 300 under Ghosn. Those that were retained by the company were forced to lower their costs but were benefitted with greater order volumes with a growth of global market share of Nissan.

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

Currently, the new management of the company is seeking ot reduce costs but is not in a position to offer greater business volume to its suppliers. This is because the company has announced its plans to bring down its production capacity and types of models by about one fifth to that it is able to cut costs by 300 billion yen ($2.88 billion) annually.

“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.”

Gupta said that the increased “regionalisation” of the auto market has added on to the challenges for Nissan. Different standards and regulations around the world are now applicable on auto makers which has forced them to make and sell various regions versions of cars.

An increasing technology battle in the area of electric vehicles and connected autonomous driving with rivals is also a challenge for Nissan. Rivals such as Toyota Motor Corp, Volkswagen AG and General Motors, have greater research and development resources and deeper pockets. New rivals such as Tesla Inc also pose a threat to Nissan.

“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 the media.

But Nissan has ot work more closely with supplier s than ever before because it plans to revamp the ageing vehicle line-up and targets to launch 12 new models over the next few years.

Gupta said that this makes the turnaround attempt for Nissan different from 20 years ago.  “The working with suppliers is a more technological partnership at a very early stage to achieve design to cost,” he said.

(Adapted from Reuters.com)

Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability

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