 | |
- close
- close
|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
WIKI ANALYSIS
Japanese automaker Nissan is one of the most profitable automakers in the world, selling over 3.4 million autos worldwide in 2006 and generating over US $91 billion of revenue. These numbers are testament to the company's improvement since 1999, when Nissan had a 1.4% operating margin and a net income loss totaling almost $6 billion. Nissan's comeback has driven by a strategic alliance with French automaker Renault as well as by strong product innovation and development.
As the seventh largest automaker in the world by number of autos sold, Nissan is trying to further increase profitability and has set its sights on gaining market share against industry leaders like Toyota Motor (TM) 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
In 2006 Nissan sold over 3.4 million automobiles across the world to generate over $91 billion in revenue. From total sales in 2006, Nissan's operating profit was approximately $6.7 billion (resulting in an industry-leading 7.4% operating margin). Nissan's sales were concentrated mostly in North America and Japan (32% and 22% of worldwide auto sales in 2006). In order to function efficiently, Nissan's factories are located strategically across the globe not only to minimize production costs but to coincide with its major sales markets; thus in 2006, 36% and 35% of Nissan's autos were produced in Japan and North America, respectively.
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 4% 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.
In the past year, the average incentives given on Asian and US autos have risen (approximately 4% on Asian autos and 5% on domestic autos), a trend that could pressure Nissan and other automakers to give up even more profit in order to remain competitive on price.
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
Dwindling Tax Credits for Competitors Could Help Hybrid Newbie Nissan
One issue that could help Nissan counteract its late entry into hybrid cars is the tax credit system used by the US government to incite sales of hybrid cars by providing buyers of hybrid cars tax credits. These tax credits range from $400 to $3,400 per car, helping to lower the cost of cars for consumers and creating a greater demand that encourages automakers to develop and produce hybrids. However, after an automaker sells 60,000 of the cars with the tax credit, the credit per car begins to shrink down to $0. [1]. So as Toyota and Honda approach the "phase-out" period of their hybrids' tax credits, Nissan's new hybrids could be less expensive for consumers than competitors' because they would still have the maximum tax credit attached. This could help Nissan successfully enter the hybrid market and compete with market leaders Toyota and Honda.
Increases in Steel and Aluminum Prices Dampers Profitability
Two of the major components in the assembly of automobiles are steel and aluminum. Changes in steel and aluminum prices have a large effect on Nissan's production costs and profits. Changes in the steel and aluminum industries and legislation related to the import of these metals is thus highly important to Nissan. Rising steel and aluminum prices during 2006 contributed to higher production costs and the 2 percentage point decrease in Nissan's gross profit between 2005 and 2006.
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.
Market Share
| Manufacturer | May-06[1] | May-07[2] | May-08[2] |
| GM | 25% | 24% | 19% |
| Toyota | 15% | 17% | 18% |
| Ford | 17% | 17% | 15% |
| Chrysler | 13% | 13% | 11% |
| Honda | 9% | 9% | 12% |
| Nissan | 6% | 6% | 7% |
| Hyundai | - | 5% | 6% |
| BMW | - | 2% | 2% |
| Volkswagen | - | 2% | 2% |
| Daimler | - | 1% | 2% |
| Manufacturer | Rank | 2007 | 2008 | Change in Production | Manufacturer | Rank | 2007 | 2008 | Change in Production |
| GM | 1 | 13.0% | 11.9% | -11% | Suzuki | 11 | 3.6% | 3.8% | 1% |
| Toyota | 2 | 11.8% | 13.3% | 8% | Chrysler | 12 | 3.5% | 2.7% | -25% |
| Volkswagen | 3 | 8.7% | 9.3% | 3% | Daimler | 13 | 2.9% | 3.1% | 4% |
| Ford | 4 | 8.7% | 7.8% | -13% | BMW | 14 | 2.1% | 2.1% | -7% |
| Honda | 5 | 5.4% | 5.6% | 0% | Mitsubishi | 15 | 2.0% | 1.9% | -7% |
| PSA | 6 | 4.8% | 4.8% | -4% | Kia | 16 | 1.9% | 2.0% | 2% |
| Nissan | 7 | 4.8% | 4.9% | -1% | Mazda | 17 | 1.8% | 1.9% | 5% |
| Fiat | 8 | 3.7% | 3.6% | -6% | Avtovaz | 18 | 1.0% | 1.2% | 9% |
| Renault | 9 | 3.7% | 3.5% | -9% | Faw | 19 | 1.0% | 0.9% | -6% |
| Hyundai | 10 | 3.6% | 4.0% | 6% | Tata | 20 | 0.8% | 1.1% | 36% |
Competition
At the end of 2006, Nissan was the world's seventh largest automaker by sales, accounting for only 5% of the 67.5 million total automobiles sold. But despite being one of the 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. However, sales of Infiniti autos accounted for only about 4% of global auto sales for Nissan in 2006, a figure that Nissan hopes to grow as it pushes the Infiniti brand up against its competitors' luxury brands: 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.
Currently 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.
| Company | Autos Sold (thousands) | Market Share by Autos Sold | Total Revenue (mm) | Operating Income (Loss) (mm) | Operating Margin |
|---|---|---|---|---|---|
| Nissan | 3,296 | 5% | $91,485 | $6,790 | 7.4% |
| Toyota | 8,524 | 12% | $209,282 | $19,558 | 9.3% |
| GM | 9,181 | 13% | $207,349 | ($4,947) | 0% |
| Ford | 6,597 | 10% | $160,123 | ($15,051) | 0% |
| VW | 5,720 | 8% | $141,434 | $5,911 | 4.2% |
| DaimlerChrysler | 4,748 | 7% | $204,433 | $7,440 | 3.6% |
| Honda | 3,391 | 5% | $69,953 | $5,491 | 7.9% |
- Honda figures are for Honda's Automotive segment only.
- DaimlerChrysler and Volkswagen figures assume 1 Euro = $1.3486 exchange rate.
- Toyota, Nissan, Honda figures assume 1 yen = $.008739 exchange rate.
- Sources: Company Reports
Table 2. Comparison of profitability and key operational metrics, data from 2003-2006.Source: Company Data and Autodata
| Global Unit Sales (USD thousands) | Revenue/Vehicle | Product Redesign/Replacement Rate | Showroom Age (days) | Incentives/Unit sold (USD) | 3-yr Retention Rate | |
| Renault-Nissan | --- | --- | 77% | 53 (Asian average) | 1,400 (Asian average) | 49% (Nissan) |
| Toyota | --- | --- | 83% | 53 (Asian average) | 1,400 (Asian average) | 64% (Toyota) |
| GM | 9,000 | 18,000 | 75% | 71 | 3,600 | 55% (Chevrolet) |
| Ford | 6,800 | 22,000 | 60% | 74 | 3,500 | 53% (Ford) |
| DaimlerChrysler | 4,000 | 32,000 | 76% | 75 | 3,700 | 38% (Chrysler) |
References
- ↑ [http://oica.net/wp-content/uploads/world-ranking-2007.pdf OICA - World Motor Vehicle Production, 2007]
- ↑ [http://oica.net/wp-content/uploads/world-ranking-2008.pdf OICA - World Motor Vehicle Production, 2008]
| ||||||
|
|
