Nissan, Daimler, and Aston Martin latest to take the hit in global car industry

Global carmakers as diverse as Japan’s Nissan, Germany’s Mercedes Benz-maker Daimler, and British-based Aston Martin, in new warnings about sales slowdowns, showed the huge challenges facing the industry as they try to buy time to invest in the new generation of electric and self-driving cars.

Nissan, Daimler, and Aston Martin latest to take the hit in global car industry

Global carmakers as diverse as Japan’s Nissan, Germany’s Mercedes Benz-maker Daimler, and British-based Aston Martin, in new warnings about sales slowdowns, showed the huge challenges facing the industry as they try to buy time to invest in the new generation of electric and self-driving cars.

Standing out against the pack, however, was French carmaker PSA, the Peugeot and Opel-Vauxhall manufacturer, as it delivered a sharp increase in first-half profit, defying the global industry downturn as new models and cost savings more than made up for weaker emerging market sales.

Nissan confirmed reports of a 90% drop in quarterly operating profit and a broader restructuring before posting results today, underscoring its struggle to get back on stable footing.

Operating profit for the fiscal first quarter will be several billion yen, the Nikkei newspaper reported, indicating a result well below analysts’ average prediction for a 66% drop to €306m in the April to June period. In the first three months of the year, profit plummeted 98%; Nissan hasn’t delivered such weak back-to-back earnings since the depths of the 2008 to 2009 financial crisis.

Separately, Nissan is reportedly planning to cut at least 5,200 additional jobs globally to improve its performance, on top of a plan unveiled in May to shed 4,800 positions. In total, the reductions make up more than 7% of the workforce.

Nissan board member Motoo Nagai said any restructuring measures to be announced by the carmaker “won’t be simple”.

A Nissan Leaf
A Nissan Leaf

Nissan has been struggling to get back on stable ground following the arrest in November of Carlos Ghosn, the former chairman and architect of the global alliance between Nissan, Renault, and Mitsubishi Motors. Profit last year hit a decade low. A revamp will, however, take time.

“Once chasing nothing but volume under Ghosn, Nissan is now scrapping that strategy and is shifting its focus more on profitability,” said Koji Endo, an analyst at SBI Securities.

“In order to achieve this, they are reducing the size of the company — this includes its inflated capacity and number of employees, as well as a bunch of unprofitable cars and trucks.”

Nissan is planning to refresh all core models, introduce 20-plus new products over the next three years. The surprise arrest of Mr Ghosn, who led Nissan and Renault for more than a decade, exposed rifts over control and decision-making between Nissan and Renault.

Meanwhile, luxury carmaker Daimler said it would intensify cost cuts after legal risks for diesel-related issues and the cost of replacing Takata airbags triggered a €1.5bn loss before interest and taxes in the second quarter.

The company reduced its sales outlook for Mercedes-Benz cars and said €4.2bn in one-off expenses hit earnings, mainly at the cars and vans divisions, contributing to an operating loss at group level, compared with a €2.6bn profit in the second quarter last year.

“We can’t help but note that this is the lowest level of money in the bank since the depths of the financial crisis,” said Bernstein Research analyst Max Warburton. “Raising Daimler’s operating performance is not going to be a quick fix.”

Daimler pledged to cut costs in response but provided few details under new chief executive Ola Kaellenius, who took up the top job two months ago. The Stuttgart-based carmaker said it now expects unit sales for Mercedes-Benz cars to be at the prior-year level, revising its previous forecast of achieving a slight increase, following a sharp slowdown in demand in China.

Daimler said earlier this week that China’s Beijing Automotive Group had bought a 5% stake in the company, cementing their long-standing alliance.

It made a provision of €2.6bn to cover diesel-related expenses in the first half of 2019 after German regulator KBA ordered a recall of 60,000 Mercedes-Benz GLK models, claiming the vehicles made use of illegal engine software.

Daimler has appealed the KBA ruling.

Rival Aston Martin also announced cost cuts and its shares tumbled after it lowered its outlook for operating profit on slowing demand.

Its shares crashed 25% after cutting its 2019 volumes forecast. Aston Martin, which has seen costs rise due to aggressive investment and Brexit provisions, said it now expects annual wholesale volumes to be between 6,300 to 6,500 vehicles, compared with an earlier forecast of 7,100 to 7,300 vehicles.

“We are disappointed that short-term wholesales have fallen short of our original expectations,” said chief executive Andy Palmer.

We are today taking decisive action to manage inventory and the Aston Martin Lagonda brands for the long-term.

A source said the company would cut vehicle production as a result of lower sales expectations.

Shares of the company, which listed on the London Stock Exchange in October last year, have now tumbled 58% from their initial public offering price.

“(The company’s) credibility could be shattered for some time as investors question if they can trust management to do what they said Aston Martin would do at the time of the IPO last October,” said Russ Mould, investment director at AJ Bell.

Peugeot and Opel-maker PSA had much better news.

Its operating margin rose to a new 8.7% record, boosted by a €270m increase in cost savings on purchasing, research and development and overheads.

“Our results are proving the sustainability of our performance despite the weakness of global markets,” chief financial officer Philippe de Rovira told reporters.

The recurring operating income came in at over €3.3bn, with net income up by almost a quarter to over €1.8bn as revenue slid 0.7% to €38.3bn.

“PSA continues to buck the trend being seen among most carmakers,” said Citi analyst Raghav Gupta-Chaudhary. Barring any new merger opportunities, PSA could have about €3bn in excess cash to return to shareholders, he added.

For the full year, PSA predicted further auto-market contractions of 1% in Europe, 4% in Latin America, and 7% in China, with Russia growing 3%.

- Irish Examiner, Bloomberg, and Reuters staff

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