Bumps on earnings road spur a shifting of gears

Delivering earnings growth continuously even at a profitable carmaker is not easy. Just ask Carlos Ghosn.

The chief executive of Nissan Motor is famously known for turning around a US$6.1 billion loss at the Japanese carmaker into a US$2.7 billion profit one year after he took over the wheel. That was in 2001.

Since then Mr Ghosn has driven Nissan to record-breaking profits every year and kept the firm relatively free of the host of problems besetting other car majors and the industry.

But of late Nissan has hit some bumps, prompting Mr Ghosn to declare there is a 'performance crisis' at the carmaker. 'Hitting bumps is normal,' he says, but still much of the teflon aura around the turnaround artist seems to have suddenly vanished.

Nissan's results for the year ended March reflect some of the problems that have crept up on the carmaker.

The bottom-line figure is not to be sniffed at but for the first time under Mr Ghosn's watch it has posted a decline in annual profit.

Sales have slumped, accentuated by a poor performance in its domestic market, where it lost market share and was overtaken by Honda as the second-largest Japanese carmaker. Targets are not being met and Nissan is pushing back by a year a key goal of selling 4.2 million vehicles globally by the financial year to March 2009.

Mr Ghosn, not one to fudge the issues, admits 'we missed our targets this time and we're not proud of it and we want to react to it'.

Mr Ghosn, who is also the chief executive at Renault, has just given up his role overseeing Nissan's operations in the United States. 'No matter how talented Mr Ghosn is - and he's obviously good - he's got a full plate,' one analyst said.

What has gone wrong for Nissan mainly comes down to a dearth of new models in the past two years. Its smaller range of new models has hampered the firm's ability to mix it up with the tough competition, thus hurting sales in Japan and its growing US market. Ultimately, it is an indictment on Mr Ghosn's leadership that he has allowed the firm to lag behind competitors for so long in not coming up with more, and better, models.

Also, with rivals leading in creating innovative cars with environmentally friendly and fuel-efficient engines, Nissan has a lot of catching up to do. Mr Ghosn has for years been stalling on hybrids because of the huge development costs and the uncertain returns. The company has started selling hybrid cars, including the Altima, but licenses the technology from Toyota, which has a head start of about a decade with its Prius.

Mr Ghosn was parachuted in to take charge at Nissan from Renault, which holds 44 per cent of the Japanese firm. He is trying hard to case the joints, so to speak, of the two alliance partners but is still shaping his legacy at the French firm, where his main challenges are to expand its presence outside Europe especially in India and China, and perhaps take it back into the US market.

Not since the early 1980s when Lee Iacocca saved Chrysler from bankruptcy has the troublesome car industry seen such a visionary. There was talk that Mr Ghosn could be meant for bigger things, but now critics and disgruntled shareholders are watching for his demise. They may be disappointed.

Nissan is addressing the issues. Apart from restructuring including job cuts and streamlining production, it is accelerating the launch of new vehicles with 11 due for this financial year.

As for delivering profit growth again, it is not easy but it looks like Mr Ghosn could be on his way. 'Fiscal 2007 will be a better year for Nissan than 2006,' he says.