Nissan Investors Applaud End
Of GM Talks, Await New Models
By ANDREW MORSE
October 6, 2006
TOKYO -- The breakdown of talks to create a global automobile alliance may actually pump up one of the companies that pursued it: Japan's Nissan Motor.
On Wednesday, Nissan, France's Renault and U.S. auto giant General Motors said they were ending 2½-month-old discussions about forming an alliance that all parties agreed would likely produce cost savings. The three dropped the idea of a tie-up because they couldn't agree on how to share those benefits, the auto makers said in a statement.
Nissan and Renault, which formed a similar alliance in 1999 when the Japanese partner was teetering on the brink of bankruptcy, had hoped to expand the collaboration to the U.S. The companies also thought they could use the know-how gained from turning Tokyo-based Nissan around to help GM, the world's largest auto maker, with its own restructuring.
But investors were rejoicing Thursday after the deal fell through. The reason: Nissan, Japan's No. 2 car maker by volume after Toyota Motor, won't get distracted trying to fix the problems at GM and can instead concentrate on halting a worrying sales slowdown that has marred its otherwise remarkable turnaround.
"Investors are relieved that they're not going to be getting into a messy and difficult-to-manage partnership," says Kurt Sanger, an automobile analyst at Macquarie Securities in Tokyo. He says Nissan will start to see sales revive when it rolls out a spate of new products later this year, and that the company can now focus on marketing these cars. Mr. Sanger has an "outperform" rating on Nissan, meaning he believes the company's share price will do 10% better than its peers over the next 12 months.
Thursday, Nissan shares jumped 3.5% to 1,369 yen ($11.61), the highest level in four months. The rally in Nissan stock came as the benchmark Nikkei Stock Average of 225 companies surged 2.3% after a record close for the Dow Jones Industrial Average in the U.S. The company's shares also trade as American depositary receipts on the Nasdaq Stock Market.
Nissan's most pressing problem is a dearth of new models, a direct result of one of the initiatives by the company's chief executive, Carlos Ghosn. Mr. Ghosn, also the head of Renault, pledged to sell 3.6 million Nissan cars in 2005. To do so, the company rushed out new models, including the Murano sport-utility vehicle and the Fuga luxury sedan in Japan.
The strategy worked and Nissan met Mr. Ghosn's goal. But it left the company without new models -- which lure motorists into showrooms and command a premium price -- to keep its sales humming. Last month, Nissan reported that its August sales in Japan dropped more than 20% from a year earlier, the eleventh straight month of year-to-year declines. In the U.S., sales fell 2.7% from August 2005 -- a sixth straight monthly decline. The sales drop weighed on Nissan's stock price: Even with Thursday's rise, Nissan shares are off more than 10% from their May 8 level of 1,526 yen, the highest close so far in 2006.
To be sure, the death of the GM deal didn't prompt analysts to change their ratings on Nissan. Many analysts already had high ratings on the auto maker because the company's shares had fallen so low that they began to look attractive, particularly given that the company is getting ready to introduce new cars.
In the second half of this fiscal year, which ends March 31, Nissan plans a sweeping product rollout, offering eight new models around the world. By comparison, the company launched just one new model world-wide in the first half.
This week, Nissan unveiled in Japan the Otti, a highly stylized minicar with features like pivoting seats to attract families tending to aging parents, an increasingly common phenomenon here. Before March 31, Nissan will bring out newly designed versions of its midsize Altima and compact Sentra models in the U.S. It also will start selling the G35, a performance car made under its Infiniti luxury brand.
With the distraction of the GM deal out of the way, Nissan now needs to shift to a more gradual product-introduction cycle that gives drivers a continual reason to check out its cars. To do that, analysts say, Nissan needs to constantly monitor how each of its models is selling and where they are selling best, and make frequent decisions on whether and when to introduce new ones to generate buzz.
"They've had a lumpy product-introduction cycle," says Chris Richter, an automobile-industry analyst at CLSA Asia-Pacific Markets. With the GM deal dead, he says, Nissan can focus more on smoothing the product rollouts.
Mr. Richter has a "buy" recommendation on Nissan, which means he expects the company's shares to outperform the market by at least 10% in the coming 12 months.
Analysts also say the company's managers can now concentrate on plans to expand outside of the key markets in the U.S., Japan and Europe. Those are important because countries like Thailand and Russia could offer exciting growth prospects.
Already, Nissan is ratcheting up its production and sales in Thailand, a pivotal Southeast Asian market, where it lags behind Toyota, the world's second-largest car maker after GM. Nissan also is trying to turn its Thai subsidiary, Siam Nissan Automobile, into an export hub that can ship cars and trucks to markets around the world.
In recent months, the company launched the Infiniti line in Russia, a growing market.
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