QUOTE AND NEWS
Clusterstock  3 hrs ago  Comment 
DETROIT (Reuters) - Volkswagen AG's entry-level electric car, the e-Golf SE, will be priced about $4,500 lower than VW's current lowest-priced electric car, the company said on Wednesday. The lower price for the new 2016 model, to be introduced...
Automotive World  Aug 5  Comment 
Nissan introduces new 1.6 litre DIG-T 163PS (160bhp) petrol engine to X-Trail line-up Advanced turbocharged engine combines performance, fuel efficiency and low emissions Available now across all X-Trail model grades Nissan is extending its...
Automotive World  Aug 3  Comment 
July 2015 July 2014 % Change Nissan Group Total sales (units) 130,872 121,452 +7.8 Nissan Division sales 120,439 112,914 +6.7 Infiniti sales* 10,433 8,538 +22.2 Nissan Group today announced total U.S. sales for July 2015 of 130,872 units, an...
SeekingAlpha  Aug 3  Comment 
Automotive World  Aug 3  Comment 
Three months into the new fiscal year and Nissan remains cautiously optimistic The post Nissan Q1: So far, so good appeared first on Automotive World.
Automotive World  Aug 3  Comment 
Renault Group and PSA Peugeot Citroen rode the wave of Europe's continued rebound and favourable currency effects in H1, but challenges await in H2 The post Strong H1 for PSA and Renault, but tailwinds to taper off appeared first on Automotive...
Automotive World  Jul 30  Comment 
The Renault Group continued to grow and increased its profitability in the first half of 2015 Group revenues up 12.0% to €22,197 million New registrations up 0.8% to 1.38 million units Group operating profit: €1,069 million (+47%),...
Wall Street Journal  Jul 30  Comment 
In the race between France’s two car makers, Renault SA has found itself in the unusual position of falling behind.
Financial Times  Jul 30  Comment 
Shares fall in spite of near 50% rise in first-half earnings at French carmaker




 
TOP CONTRIBUTORS

Japanese automaker Nissan is one of the most profitable automakers in the world. A strategic alliance with French automaker Renault has proven to benefit the company.

The company is trying to further increase profitability and has set its sights on gaining market share against industry leaders like Toyota and the floundering US Big Three: (General Motors, Ford and DaimlerChrysler). In order to do this, Nissan has established a plan to develop efficient, alternative-energy and hybrid powered vehicles in order to compete with alternative-energy auto leaders Toyota and Honda for the increasingly important alternative and renewable energy auto market. Despite being a latecomer to the field, Nissan has monetary incentives on its side: the current industry-wide system of federal tax credits given for the sale of hybrid vehicles will cease to apply to Honda and Toyota cars after these companies sell a certain (and rapidly approaching) preset number of hybrid cars.

Nissan's challenges will be many, including rising prices for steel and aluminum and fluctuations in exchange rates. Rising steel and aluminum prices drive up production costs and drag down profits. As a Japanese company, when the Japanese yen appreciates to the US dollar, sales in the US become less valuable to Nissan and it loses profits. Also, an appreciated yen makes Nissans more expensive for American consumers and drives down demand.

Business Overview

Nissan sells cars under two brands:

  • The Nissan line is aimed at middle-class Americans and includes popular sedans such as the higher-end Altima and Maxima, and the lower-end Sentra. Nissan's line also includes trucks, sports cars and SUVs.
  • The Infiniti brand is Nissan's luxury line aimed at higher-income consumers who want high-performance automobiles that come with the best possible features and styling. Like all luxury cars, Infiniti generates higher profits per car than the Nissan brand. However, sales of Infiniti branded cars account for only a small fraction of Nissan's total global sales.

Nissan and Renault

In 1999 Nissan was in a dire situation--steamrollered by the competition, the business was losing billions of dollars. In order to effect a turnaround, Nissan established a formal alliance with the leading French automaker Renault (about 15% of Renault is actually owned by the French government). In the 1999 deal, Renault received a 40% stake in Nissan, and Nissan received 15% of Renault's stock. In the short term, the founding of the alliance provided financial capital to revitalize Nissan and innovative ideas from new management. Today, the two companies continue to work together on research and development, purchasing agreements, manufacturing, and logistics and distribution. In fact, Nissan and Renault even share a CEO in Carlos Ghosn.

Trends and Forces

Rising Incentives Industry-Wide Could Infringe on Profits

A current trend in the auto industry involves the use of incentives (special financing deals, reduced prices, factory rebates, etc.) in order to encourage consumers to purchase new automobiles by lowering the cost of a vehicle. As domestic automakers GM, Ford and DaimlerChrysler continue to struggle in the auto market, they have been turning to heavy incentive use in order to generate sales. The average incentive on an automobile from a domestic automaker (i.e., one of the Big Three) is approximately $3,358. Meanwhile, Asian automakers have been saving profit by limiting incentives on their vehicles (the average incentive on an Asian companies automobile is $1,478). The average incentive on a Nissan automobile is $2,211, a figure lower than the Big Three's, keeping Nissan's profit margin relatively healthy; however, Honda and Toyota offer even lower incentives yet still manage to sell more autos than Nissan.

Growing Demand for Alternative-Energy Autos

Despite the global energy crisis and the increasing research in renewable energy for automobiles, Nissan has yet to release an alternative-energy powered vehicle, such as a hybrid vehicle like the Toyota Prius or Honda's hybrid Civic. This has hurt Nissan: hybrids have become increasingly popular as rising oil prices have led consumers to seek more efficient vehicles. In order to capitalize on the growing market for hybrid and alternative-energy vehicles and catch up with alternative-energy auto leaders Toyota and Honda, Nissan recently announced the Nissan Green Program 2010. The Nissan Green Program 2010 is Nissan's medium-term plan towards making its cars more eco-friendly. The Green Program included plans for:

  • Reducing CO2 emissions in all vehicles and manufacturing plants
  • Eco-friendly diesel engines by 2008 in Europe and 2011 in Japan, China and North America
  • Bio-ethanol-capable vehicles within the next three years
  • Electric vehicles to be launched in the Japanese market around 2010
  • A hybrid automobile for launch in North American and Japan around 2011
  • Fuel cell vehicles for North America and Japan sometime after 2010

Exchange Rates Can Help and Hurt Profits

As a Japanese automaker that relies upon sales across the globe, particularly in the US, Nissan is greatly affected by changes in exchange rates. Fluctuations in the yen/dollar exchange rate significantly affect Nissan's profits. Also, in the long run, fluctuations in exchange rates can affect consumer demand as well--appreciating and depreciating currencies may change the relative prices of autos. For example, when the yen appreciates relative to the US dollar, auto sales in the US decrease in worth for Nissan, while concurrently Japanese cars become more expensive for US consumers, lowering demand for Nissans.

Competition

Despite being one of the world's smaller automakers in terms of sales, Nissan is one of the most profitable major automakers, trailing only Toyota and Honda in operating margin. Also, Nissan hopes to boost overall profitability by revitalizing its Infiniti brand line of luxury cars, which are estimated to have a profit margin twice as high as Nissan's middle-market cars.

In the luxury car market, NSANY competes with Toyota's Lexus, Honda's Acura, Ford's Jaguar, Lincoln, Land Rover and Lincoln brands, GM's Buick, Saab and Cadillac and DaimlerChrysler's Mercedes-Benz line. Nissan's competitors are in similar situations with their respective luxury lines, as none of these companies' luxury lines account for much more than 10% of revenue. However, since the profit margins are so much higher in the luxury brands, growing sales of luxury lines is important to all of the automakers, and competition amongst these brands is intense.

Nissan is in the process of growing in size to match up with Toyota and the Big Three. Nissan hopes to utilize its advantage in profitability over the Big Three to take over more market share in the auto industry as the ailing giants struggle under the financial burden of expensive health benefits and pension plans. After overtaking the Big Three, Nissan will have to compete with the top two Japanese automakers, Toyota and Honda as those companies are likely to continue to grow as they ride the success and growing popularity of their hybrids. Once Nissan has matured to a size comparable to Toyota, it will be able to focus on the future of automobiles in its alternative-energy and hybrid research and development and begin competing head-to-head with Toyota and Honda.

References

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