Nissan Motor announced that it will be reducing its North America production by 20%. The company, which is the second motor producer in Japan, says it is taking the moves because of the falling profits in the United State.
Reports have indicated that Nissan has already been slowing production in response to drop in vehicle sale plus increased costs, which have been weighing in on the company’s profits. Nissan is already implementing the new move at two US assembly plants plus an additional three in Mexico. The company is said to be implementing a 20% reduction in production in the affected plants. According to the report, the company will not lay off worker but will instead absorb them in other production lines and plants. Additionally, the company will not completely shut down production lines in the affected plants.
The effects of the new moves are likely to be felt in the coming few months. Decision will affect workers, salespersons as well as suppliers of motor parts who are expected to experience a reduction in their products.
Focusing on profits as opposed to market share
In a statement, the company’s Chief Executive Officer, Hiroto Saikawa, said they are taking the move to respond to a drop in profits. He added that the decision will further be precipitated by an expected drop in sales towards the end of this year through the first quarter of 2019. Saikawa said that the company will be reducing supply to dealers and concentrate on boosting retail sales.
In 2017, Nissan increased its fleet sales and shipment to dealers, in a move aimed at boosting its market share. This strategy was mainly driven by low-margin and high-volume car sales to rental companies. In addition, the company offered a lot of generoussales incentives. All these led to a reduction in profits.
The rise in corporate sales paid off in short-run by increasing turnover. It however ate into the company’s value and affected business in the long run. Nissan will start implementing a reduction in corporate sales, incentives as well as moving from a scale-based strategy and embracing a profit-based one.
Rogue sport utility vehicle and the Altima are some of the company’s best-selling brands in the US. The company holds six position behind General Motors Company and Japanese counterparts Toyota Motor Corp and Honda Motor Co Ltd.