Nissan Motor Co., the top Japanese seller of vehicles in China, cut its full-year net income forecast 20 percent after consumer backlash stemming from a territorial dispute sent sales lower in its largest market.
Net income may total 320 billion yen ($4 billion) for the year ending March 31, compared with its earlier estimate of 400 billion yen, the Yokohama, Japan-based company said in a statement today. The carmaker cut its operating income forecast to 575 billion yen from 700 billion yen, and lowered its global vehicle sales target by 5 percent to 5.08 million units.
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The cutbacks at Nissan, which follows Honda Motor Co. in lowering its profit forecast, illustrates how leadership in the world's biggest auto market has become a handicap amid the row over uninhabited islands claimed by China and Japan. Toyota Motor Corp., which has the smallest share among the three largest Japanese carmakers, raised its income forecast on demand in the U.S. and at home.
Nissan's "strong presence in China is backfiring on them," said Yuuki Sakurai, president of Fukoku Capital Management Inc. in Tokyo. "I'd pay attention to what decision Ghosn will make to turn around the situation. He has been a strong leader and if the China-Japan dispute continues too long, I think he may change the direction of Nissan's China business strategy."
Nissan also cited the strength of the yen and deteriorating market conditions in Europe as reasons behind the cut in forecast, according to the statement today.
Nissan shares fell 2 percent to close at 677 yen in Tokyo before the earnings announcement. The stock has declined 2.2 percent this year, compared with the 6.2 percent gain in the Nikkei 225 Stock Average.
Net income was 106 billion yen in the July-to-September quarter, beating the 91.2 billion yen average of seven analysts' estimates compiled by Bloomberg. Operating income was 166.4 billion yen, versus the 164.4 billion yen average analyst projection.
Toyota yesterday raised its profit forecast after earnings from Japan last quarter jumped to a four-year high of 143.7 billion yen ($1.8 billion). That was 46 percent higher than the average estimate of five analysts surveyed by Bloomberg, while income from North America and other parts of Asia missed projections.
Honda last month cut its full-year profit forecast by 20 percent to 375 billion yen, after Chinese consumers shunned Japanese brands amid a territorial dispute.
Nissan's China deliveries fell 41 percent last month after reporting a 35 percent decline for September. The automaker reduced its sales target for the market to 1.175 million units. The impact of the sales decline will be reflected in the second half, Chief Operating Officer Toshiyuki Shiga said today.
The slump in China is the third crisis for the Japanese automakers in less than two years, after the Japanese tsunami and Thai floods destroyed factories and disrupted supply chains.
Rioters in anti-Japan demonstrations smashed cars and torched dealerships in China in September amid escalating tensions over a group of uninhabited islands claimed by both countries.
Nissan has vowed to reimburse owners for damages to vehicles during protests, including future demonstrations, as the company works to lure customers back.
Orders in China recovered to 70 percent of pre-protest levels by mid-October, while showroom traffic is at about 80 percent of the norm, Shiga said.
For Nissan, the North America operations contributed 59.5 billion yen in profit in the second quarter, lower than the average 65 billion yen analyst estimate. In Japan, operating income was 52.1 billion yen, compared with the 42.4 billion yen consensus. Europe's earnings were 9.84 billion yen, versus the 3.1 billion average estimate.
Earnings in Asia excluding Japan were 41.9 billion yen, compared with the 52.3 billion yen average estimate.
Nissan's global sales in the April-to-September period climbed 7.6 percent from a year earlier to 2.4 million vehicles, led by an increase in demand in the U.S., Japan and emerging markets including Indonesia and Brazil.
Nissan is ramping up production of the revamped Altima sedan, its best-selling car in the U.S., after an initial supply bottleneck, according to Kota Yuzawa, a Tokyo-based analyst at Goldman Sachs Group Inc.
The automaker fell behind its target to produce 30,000 units of the model a month because of problems including the sourcing of parts, Yuzawa said.
The Altima last year overtook Honda's Accord as the best- selling car in the U.S. behind only Toyota's Camry. This year, Nissan delivered 76,939 units of Altima in the July-to-September quarter, fewer than the 92,669 of Accord and 100,885 of Camry, according to researcher Autodata Corp.
Chief Executive Officer Carlos Ghosn said in September that in Europe the automaker is "preparing for many mediocre years" as the region grapples with shrinking demand and excess capacity.
Nissan in the region delivered 328,287 vehicles in the first half of the financial year ending March, 3.2 percent fewer than a year earlier.
For Japan, Nissan's vehicle deliveries rose 7.5 percent from a year earlier to 303,805 units in the April-to-September period, helped by the government's subsidies for buyers of fuel- efficient cars.
The yen traded at an average 98.4 yen against the euro and 78.6 yen versus the dollar in the July-to-September quarter, while the company had based its forecasts announced in May on 82 yen per dollar and 105 yen per euro.
Ghosn said last month that at current levels, he had no option but to move production out of Japan. He said the "neutral range" of the yen should be at 100 versus the dollar.
The carmaker said last week it will invest 11 billion baht ($357 million) to build a second plant in Thailand to meet rising demand in Southeast Asia.