The alliance of Renault SA and Nissan Motor Co. is set to disclose billions of dollars in cost cuts this week and Nissan is looking to slash capacity by an additional million vehicles, according to people familiar with the plans.
The moves will complete the undoing of the growth strategy pushed by Carlos Ghosn, former leader of both companies.
The companies had planned to sell around 14 million cars by 2022, a target set by Mr. Ghosn, who envisioned a world-leading behemoth with a major presence in every market.
Now, the target is closer to 10 million, according to the people familiar with the plans. Even before the coronavirus pandemic, the boom in demand the companies anticipated wasn’t materializing, leaving plants underused.
“The situation has become untenable,” said a person close to Renault.
Mr. Ghosn has objected to efforts by Renault and Nissan to blame him for the current predicament. A spokeswoman for Mr. Ghosn said executives at Renault and Nissan had supported his growth plans. “He cannot be held responsible for the state of companies that he has not been running for 18 months,” she said.
The entire car industry has been challenged by the coronavirus, but some are better-equipped to ride out the downturn in demand. Cash-rich Toyota Motor Corp., which unlike Nissan has avoided worker furloughs, said this month it expected a return to normal by the end of the year.
In a series of announcements on Wednesday, Thursday and Friday, Renault and Nissan are set to lay out their planned cuts and describe plans for closer cooperation. Renault owns 43.4% of Nissan.
Nissan is planning to add around $3 billion in cost savings to $3 billion in cuts announced in July 2019 that have been largely carried out, said people familiar with the plans. Since the July 2019 announcement, Nissan has eliminated nearly 15,000 jobs, and further job reductions are planned along with budget cuts in every department from engineering to event planning, they said.
The new plan also calls for cutting capacity by an additional million units beyond the cuts announced last year, bringing Nissan’s annual production capacity to around 5.5 million vehicles, they said. That is still well above current demand in a pandemic-hit global market.
“Under Carlos Ghosn, the company was talking about selling seven, eight, nine million cars. So, all the budgeting at the company was sized around hitting those numbers,” said a person close to Nissan.
In the U.S., where 10,000 workers have been furloughed during the coronavirus shutdowns, no large-scale permanent production cuts are set to be disclosed, but Nissan plans to shut a production line at its plant in Canton, Miss., said a person close to the company.
For its part, Renault has said it aims to cut structural costs by at least EUR2 billion ($2.2 billion), or 20%, over the next three years.
The French auto maker is looking at factory closures, which is particularly sensitive now because the company is completing a EUR5 billion state-backed loan to ride out the pandemic. France’s economy ministry is asking Renault to keep technologically advanced activities in France and develop electric batteries in Europe.
Small sites in Brittany and Choisy-le-Roi near Paris are likely to be closed, while a factory in the northern French town of Dieppe that produces Renault’s luxury Alpine brand could also be closed, according to the people familiar with Renault’s plans. The next generation of the Alpine will likely be electric and be built somewhere else, one of the people said.
Meanwhile, Renault’s flagship factory of Flins near Paris could stop producing vehicles within the next few years, the people said. The site produces the electric Zoe, but that production will likely be moved to another Renault factory when the next generation of the vehicle arrives. A planned expansion in Morocco is likely to be reversed.
“Renault is in serious financial difficulty,” said France’s economy minister, Bruno Le Maire, on Friday. “There is an urgent need for action at Renault.”
Renault has already announced plans to close its main China business. That country remains one of Nissan’s core markets, alongside the U.S. and Japan, and a potential bright spot as the coronavirus recovery proceeds. Nissan’s China sales in April matched their year-earlier level.
Some steps the companies are weighing won’t be ready for the announcements this week. Nissan is still reviewing a plant in southern India that has fallen far short of expectations.
Separately, it is looking to trim costs at its struggling Infiniti luxury brand by having Infiniti and Nissan use more common parts and platforms, similar to the way Toyota operates its Lexus brand, said people familiar with the plans.
Even in markets where downsizing is planned, Renault, Nissan and Mitsubishi hope they can keep a foothold by making more use of each other’s factories, research outfits and back-office personnel.
Nissan is closing its factory in Indonesia but will still produce vehicles at Mitsubishi plants in the region — a market where the smaller Japanese company has a stronger presence. Renault will produce vehicles for Nissan in Europe and South America.
Still, sharing factories and research relies on the alliance working smoothly, something Renault and Nissan have struggled to do in the wake of Mr. Ghosn’s sudden departure after his arrest in Tokyo in November 2018. The executive fled to Lebanon in December to escape financial-misconduct charges in Japan, which he denies.
People on both sides said that although Renault and Nissan would announce plans for closer cooperation this week, negotiations on specifics would continue after that.
— Market Watch