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Inspections scandal puts dent in Nissan’s profits

Reuters

Nissan Motor Co. Chief Executive Hiroto Saikawa attends a news conference at the company headquarters in Yokohama on Wednesday.

BloombergTOKYO (Bloomberg) — Nissan Motor Co. cut its annual profit forecast by almost 6 percent after announcing a recall of vehicles in Japan that went through an inspection process deemed faulty by the government.

The company halted production at domestic plants for local sales since Oct. 19, sending deliveries down by about 50 percent in October, according to the car dealers association in the country. All six factories — which produce about 1,000 vehicles a day for the Japan market — restarted output and shipment Wednesday, the automaker said.

The inspection by unauthorized officials is the first major crisis for Chief Executive Officer Hiroto Saikawa, who took the helm in April and has personally pledged to get to the bottom of the lapses. Nissan conducted vehicle inspections that don’t comply with Japanese regulations for almost four decades, according to a person familiar with the situation. Incidents at Nissan add to the problems for Japan Inc., already reeling under a scandal at Kobe Steel Ltd.

“Manufacturing excellence in Japan is at the core of our operations, so we need to reinforce it,” Saikawa told reporters in Yokohama, where Nissan is based. “Undermining it will rock the foundation of the company’s growth.”

Operating profit in the year through March may be ¥645 billion ($5.7 billion), Nissan said Wednesday, lowering it from the ¥685 billion forecast earlier. The recall of about 1.2 million vehicles in Japan is likely to cost the company ¥26 billion, while compensation payments in the United States for Takata Corp. airbag-related cases also dented the year’s outlook.

Shares of Nissan, which dropped as much as 1.5 percent immediately after the earnings announcement, reversed the day’s losses on optimism the vehicle inspection crisis will only have a temporary impact on earnings. The stock was up 0.7 percent at ¥1,118.5 as of 3:04 p.m. in Tokyo.

Saikawa, who succeeded Carlos Ghosn as CEO, is seeking to reach the 8 percent goal for global market share and operating profit margin in the next midterm plan after failing to reach the targets in the previous period. Saikawa will steer a company whose future earnings growth is tied to the synergies Ghosn can draw from its alliance with Renault SA and Mitsubishi Motors Corp.

In a new midterm plan, Nissan said it targets to boost revenue 29 percent to ¥16.5 trillion by 2022. Details will be shared after recovery in Japan operations, Saikawa said.

Nissan’s sales in Japan jumped 34 percent in the first half this fiscal year, as an electric motor-powered version of the Note compact became a hit in the country and the new Serena minivan’s ProPilot autonomous driving features lured consumers. Minicar sales rebounded 94 percent from a year earlier, when Nissan suspended sales of the models supplied by Mitsubishi Motors after the latter was found fabricating fuel economy data.

That momentum ended in October as customers canceled some orders after Nissan was found using unauthorized personnel to sign off on quality. The impact on sales will wane in December, said Asako Hoshino, Nissan’s head of Japan.

The automaker has been boosting incentives to find buyers in the United States, a major drag on profitability in its largest market. Speech

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