How Nissan is preparing to reboot its Middle East business

When Japanese auto giant Nissan’s CEO Makoto Uchida took to the stage in May to declare the figures for the financial year ended March 2020, the numbers looked bleak.

Nissan reported a JPY671bn ($6.2bn) net loss – which was not only its first loss in a decade, but painfully moreover, also its biggest in 20 years.

The dramatic escape of its former high-profile chairman Carlos Ghosn from Japan in December, reports about fissures developing in the Renault-Nissan-Mitsubishi Alliance and the more recent crippling effect of the global pandemic didn’t help its cause.

By the time Uchida declared the numbers, Nissan’s stock had already lost nearly 30 per cent of its value from the start of the year, but he was determined to pivot the company. He announced a four-year turnaround plan that called for production to be cut by 20 per cent to approximately 5.4 million units a year, and emphasised the need to reduce about JPY300bn ($2.7bn) in annual fixed costs by measures including the closing of its plants in Barcelona and Indonesia. To steer its business within the Middle East, the company appointed Guillaume Cartier as the senior vice president and chairman of its Africa, Middle East, and India (AMI) region.

Cartier held another press conference recently to discuss the new direction for the market he now oversees.

“It is not volume at any cost,” says Cartier, in contrast to the company’s earlier policy of focusing on volume growth. “It is about profitable growth and financial discipline as we have to restore a better PNL than what we have today.”

Nissan Middle East FZE (NMEF) reported that for FY 2019, its domestic sales had grown 0.5 per cent year-on-year.

“We have delivered a very strong performance on the domestic side for Nissan Middle East that includes the Levant markets of Jordan, Lebanon and Iraq. And we have managed to grow our share 0.5 per cent compared to FY 2018. The same applies specifically for the Gulf markets,” says Thierry Sabbagh, managing director of Nissan Middle East.

The Gulf markets for Nissan’s Middle East division specifically include the UAE, Bahrain, Kuwait, Oman and Qatar.

Nissan introduced its new Sunny in the UAE in May, but more importantly, launched the new Nissan Patrol in September last year by way of a global reveal in Abu Dhabi.

In the Middle East, the Nissan Sunny sold 27,800 units – recording a 20 per cent year-on-year growth – and accounting for 37 per cent of the total sales volume.

But for Nissan Middle East, a key indicator of its health within the region has been the performance of its Patrol SUV – a car that has been a consistent success story for the brand within the region since its introduction here in 1951 and has even been nicknamed as the ‘King of the Desert’.

“Boosted by the launch of the 2020 Nissan Patrol, our overall Patrol sales saw a year-on-year growth of 65 per cent. With a total of 13,700 units sold, this iconic SUV contributed to 18 per cent of our overall sales volume,” elaborates Sabbagh.

The pandemic has thrown a spanner in the works for nearly all auto manufacturers. Sabbagh says that the TIV was down over 80 per cent at the start of the lockdown.

“After the restrictions were eased, we saw an interesting momentum along the retail side of the business. The fleet size of the business remains slightly more challenging as companies are trying to figure out the impact of the crisis on their own businesses before making any decisions,” says Sabbagh, who adds that Nissan Middle East’s fleet sales grew by 3 per cent in FY 19 compared to the previous year.

Cartier meanwhile remains cautious in his outlook for a quick recovery within the region. “At the minute, I’m not managing [the business on] a yearly basis, but much more on a weekly basis,” he says, while adding that the company was now acting to “prioritise and rationalise”.

“By rationalise, it means rightsizing the production capacity. Previously it would be said that we could produce eight million and seven million [units]. We had production capacity that was built for that number. But we are currently looking at five million – rightsizing our production. If we don’t do that, our costs will go up because we can’t absorb the fixed costs,” says Cartier.

When asked whether part of reducing the fixed costs would mean reducing its workforce in the region, Cartier chose instead to spell out the scale of the impact of the Covid-19 on business within the region.

“In the last three months, in the region that I am in charge of, the market is 70 per cent less than last year. We don’t know for example what will be the size of the market in Saudi. Initially, we were planning a business plan on a TIV that would be 600,000. Today, with Covid-19, the oil prices and tax increase, potentially the TIV will be 350,000. So your revenue is down 45 per cent. There is no industry that can support such a decrease.”

Within the AMI region that Cartier manages, Nissan currently has production plants in South Africa, Egypt and India – the latter of which provides the Middle East market with the Micra as well as the previous generation of the Sunny. As for prioritising, Cartier says that it is essential for the brand to focus on core products and technology.

“We want to really capitalise on SUVs – Patrol, X-Trail, Qashqai, Navara. In term of markets, clearly, the core is the Gulf market which is key in terms of profit and a volume driver,” says Cartier.

But he is adamant that increasing volume is secondary, while capturing a greater market share is a more immediate concern.

“The way I am now measuring performance is much more on the market share [we have]. Today, we are 6 per cent of the Gulf market and aim to keep a market share in the Gulf which is higher than the global average,” Cartier adds.

Sabbagh reiterates the strategy in place for the Middle East. “We plan to be above 12 per cent market share in all the markets we represent – in some markets we are nearly 20 per cent, and in some markets, we are just above 11.”

As part of the scaled-down production plans, Nissan will be launching 12 models over the next 18 months globally. The AMI division meanwhile will introduce eight new models over the next two years. A global strategy that will be sure to have ripple effects on the carmaker’s business within the Middle East is the now over two-decade-old Renault-Nissan-Mitsubishi Alliance which, although showing cracks over the last few years, has now coalesced over the shared burden of the damaging Covid-19 pandemic and the impact of it on their individual businesses.

“Each brand has its own independence in terms of managing the company and the PNL. When you add the three brands, you have next to 10 million in sales,” says Cartier. “With the ‘leader-follower’ concept, it means that in some regions, platforms, and technologies, one company will be the leader and the other two will be the followers. In China, for example, the leader will be Nissan obviously due to its presence. If Renault or Mitsubishi wants to benefit from our industrial capacity, or relationship with the government, that’s where they can collaborate with Nissan.

“You can apply the reciprocity in Europe where Renault will be the leader. It means that if the two other brands want to join and benefit, they can. The same applies to South Asia in Thailand and the Philippines where Mitsubishi is strong, and Mitsubishi will be the leader.

“As for the technology, instead of everyone doing everything, you will specialise. So for e-power and hybrid technology, the leader is Nissan. If the follower wants to use it, they have access to it. You can have the same reciprocity on some platforms. Nissan will be leading C and D platforms – the bigger platforms – and Renault will [take the lead] more on the small platforms A and B. Everyone is not doing the same things, but everyone is doing something that the other can benefit from.”

In the UAE, Nissan has been a prominent player of the automotive scene, even being appointed as the official motor partner of Expo 2020 Dubai, which has now been postponed as a result of the Covid-19 pandemic and will begin on October 1, 2021.

“Nissan will showcase the future of mobility at Expo 2020 Dubai with next-generation cars and advanced technologies across the site, all powered by Nissan Intelligent Mobility,” explains Sabbagh about Nissan’s plans for the event.

“Nissan will also provide a fleet of vehicles including electric vehicles (EVs) to Expo 2020 Dubai.”

As for those EVs, expect to see a production variant of the latest Nissan Ariya – the electric crossover that the carmaker revealed last month at its new Nissan Pavilion in Yokohama – which is its second fully-electric vehicle after the Leaf. The Ariya is expected to go on sale in Japan in mid-2021 and will be priced at around JPY5m (Dhs173,000).

Nissan is expected to launch over eight electric models by 2023, and Sabbagh outlined the conditions under which those EVs will be rolled out in the Middle East.

“It depends from market to market, and even on the subsidies the governments are offering. For example, in Jordan, commercially it makes sense to introduce an electric vehicle because of the waiver on taxation of electric vehicles – we recently launched the Leaf in Jordan. Our partners determine the right time, how we want to introduce it and whether it makes sense from a commercial standpoint. For markets like the UAE, we are studying this and will make a decision.”

At the 2019 version of the biennial Dubai International Motor Show, Nissan was among the few automakers to go full throttle with an expansive presence.

“Nissan was one of the rare large manufacturers to participate at the Dubai International Motor Show last year and that shows our commitment to the region. If the UAE government decides to have a motor show in the next two years, our commitment is definitely to encourage what the government is setting up,” explains Sabbagh.

He adds that in the future, it may be likely for motor shows to transform from on-ground events to virtual ones, where products are launched digitally. The lockdowns in the UAE resulted in Nissan pushing forward a digital transformation strategy including online car ordering, a chatbot, and a digital training academy.

But the digital push, says Sabbagh, will not come at the expense of showrooms.

“Certain partners have the full online experience and you can buy the car entirely online. But again, it was interesting to see that as much as people went online – and definitely there is no way back on introducing more innovation on digital platforms – they also started going back to the showrooms [once the lockdown restrictions were eased].”

While merely symbolic, Nissan also unveiled a brand-new logo last month. It won’t concretely further its turnaround strategy, but it won’t do much harm either while serving as a totem for this 87-year-old company which is, in many ways, in a decisive fight to rank among the world’s major automakers.

“We have been going through different crises over the last 10 years, but we have seen that the industry has managed to recover and that’s what we’re hoping for,” concludes Sabbagh.