Nissan cuts profit outlook on inspection scandal after downbeat Second quarter

YOKOHAMA, Japan (Reuters) - Japan's Nissan Motor Co 7201.T reported its smallest quarterly profit in three years and cut its annual outlook, hurt by rising expenses in a competitive North American market and costs stemming from improper final inspection procedures at home.

The automaker had suspended domestic production of vehicles for the Japanese market for about three weeks after it revealed last month that uncertified technicians had been carrying out final inspections of vehicles for decades. The scandal led to a recall of 1.2 million vehicles. [nL4N1MV1HK]

“We expect to feel the impact of the improper final inspection issue in the second half,” Hiroto Saikawa, CEO of the maker of the Leaf electric car and Rogue SUV crossover, told reporters at an earnings briefing on Wednesday.

Nissan forecast an operating profit of 645 billion yen ($5.67 billion) for the year to March, almost 6 percent below a prior 685 billion yen view and down 13 percent from a year ago.

While Japan’s No.2 automaker has resumed production of vehicles for the home market at all six of its domestic assembly plants as of Wednesday, the scandal has slammed the profit outlook at an affiliate that operates two of the plants.

Nissan Shatai Co 7222.T slashed its annual net profit forecast by 44 percent to 5.4 billion yen, to account for a special loss of 4.5 billion yen to pay for re-inspections for the recalled cars.

Nissan Motor, which has been enjoying strong sales of its e-Note compact hatchback and Serena minivan in Japan, said a back-up in orders would hurt domestic sales for October-November, but that sales would normalize by the end of December.

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For the second quarter, Nissan posted a 21.6 percent drop in operating profit to 128.5 billion yen, its lowest since April-June 2014 and below forecasts for an increase to 171.5 billion yen from eight analysts polled by Thomson Reuters I/B/E/S.

Results were hurt by a multi-million U.S. settlement tied to the recall of vehicles with faulty Takata air bag inflators. Also, aggressive discounting to attract customers in the U.S. market, where demand has shifted to larger SUVs from sedans, drove up expenses and chipped away at earnings. [nL1N1KU1JS]

Nissan's quarterly numbers cap a slew of results this week that show Japanese automakers, including Toyota Motor Corp 7203.T and Subaru Corp 7270.T, struggling with sputtering U.S. sales. [nL3N1ND2KR][nL3N1NC247]

Toyota’s sales in North America sank to a three-year low over July to September, while’s Subaru’s U.S. sales fell from year-ago levels for the first time in six years.

Nissan’s vehicle sales in North America fell 3.3 percent in July-September to 502,000 units. In the United States, its biggest market, sales slid 2.2 percent to 377,000 units.

The automaker’s sales jumped 25.6 percent at home over the quarter. In China, Nissan’s No.2 market and the world’s biggest auto market, its sales rose 8.0 percent.

Nissan has led Japanese automakers in China sales this year, having sold 1.17 million units in the first 10 months of the year, up 10.8 percent from last year.

Reporting by Naomi Tajitsu; Editing by Himani Sarkar