November 8, 2018 / 9:52 AM / 10 days ago

Nissan says U.S. discounts remain a sore spot as second-quarter profit tumbles

YOKOHAMA (Reuters) - Nissan Motor Co Ltd (7201.T) on Thursday said it had more work to do to rein in U.S. vehicle discounts to improve profit in its key market, after it took a surprisingly big profit hit from sluggish sales as well as currency moves in the second quarter.

FILE PHOTO: A worker completes final checks on the production line at Nissan car plant in Sunderland, Britain, June 24, 2010. REUTERS/Nigel Roddis/File Photo

Japan’s second-biggest automaker and domestic rivals including Toyota Motor Corp (7203.T) have struggled with low profit in North America for the past two years as they expanded discounts in an increasingly competitive U.S. market where vehicle sales have plateaued near record highs.

“Unfortunately we can’t say that we’ve been able to lower incentives significantly,” Chief Financial Officer Hiroshi Karube told reporters at an earnings briefing.

During the July-September quarter, the automaker eked out only a 1 percentage point improvement in incentives as a proportion of vehicle sales revenue, he added.

“We’re still not there yet,” Karube said. “We have a lot of work to do in the third and fourth quarters.”

But Nissan was making progress in reducing stock of older models, he said, which would help it cut discount levels in the second half of the year.

The automaker is betting that the latest version of its high-volume Altima sedan will boost overall U.S. sales and help trim incentive spending following its launch last month, but the new model comes at a dire time for sedans.

Japanese automakers in the past two years have been struggling in the United States to sell sedans, a bread-and-butter product offering, as driver preferences have shifted toward larger models like pickup trucks and sport utility vehicles.

For the quarter, Nissan posted an 8.4 percent slide in vehicle sales in North America. In an odd twist, operating profit in the region rose 12.5 percent, as selling less cars meant that the automaker was able to spend less on discounting.

CURRENCY HIT

Nissan posted a 21 percent fall in second-quarter operating profit at 101.2 billion yen ($890.30 million) due to lower sales in the United States as well as Europe - where sales slumped 11.5 percent - along with weakness in emerging-market currencies like the Turkish lira.

(Click here for an interactive graph on Nissan operating profit, global vehicle sales tmsnrt.rs/2POSji4)

Profit was lower than a 130.1 billion yen median of nine analyst estimates compiled by Refinitiv, and the worst second-quarter performance since 2008. Still, Nissan kept its full-year forecast at 540 billion yen, a decline of 6 percent.

The sluggish profit comes at a sensitive time for automakers, which are investing heavily to develop self-driving cars, electric vehicles and new transportation services.

One bright spot for Nissan has been China, where vehicle sales since January have increased 7.4 percent through September compared with the same period a year prior, so far bucking signs that the world’s largest auto market is slowing.

(Click here for an interactive graph on Japanese automaker vehicle sales in the U.S., China tmsnrt.rs/2RjnBuA)

Nissan’s overall vehicle sales in Asia rose 11.3 percent in the July-September quarter, while operating profit in the region rose 8.2 percent. Global vehicle sales were largely flat.

(Click here for an interactive graph on Japanese automakers' annual global vehicle sales tmsnrt.rs/2RnFOr2)

($1 = 113.6700 yen)

Reporting by Naomi Tajitsu; Editing by Christopher Cushing

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