TOKYO – Heated annual meetings are a rarity in corporate Japan. But on June 29, precisely 588 days after ex-CEO Carlos Ghosn was arrested at a Tokyo airport, Nissan’s top executives collided hotly with fed up shareholders.

The Yokohama meeting saw newish CEO Makoto Uchida take investor fire for Nissan’s first annual loss in 11 years: US$6.2 billion worth of red ink in the fiscal year ended in March.

Nissan’s top brass were also forced to deny emerging reports of a corporate conspiracy to oust Ghosn, who was arrested and detained in 2018 for underreporting his earnings and misuse of company assets.

Recent reports of leaked internal Nissan e-mails have sparked speculation that Ghosn was really removed because he wanted a closer relationship with Nissan’s French joint venture partner Renault SA – anathema to a proud Japan Inc icon like Nissan, which views Renault as a weaker link in the alliance’s chain.

Nineteen months after Ghosn’s arrest, “Nissan is still in a dysfunctional marriage and throwing crockery,” says Nicholas Smith, a stock analyst at CLSA Securities in Japan. “The prognosis is not good.”

Ghosn’s ouster came amid a swirl of financial misconduct charges critics say caused Nissan to circle the wagons and jettison its foreign manager. Gaijin, or foreign, CEOs often have trouble thriving in insular Japan. Ghosn often veered toward brash and imperious behavior at Nissan’s headquarters.

Nissan did little to dispel such local versus foreign speculation by opting not to penalize Ghosn’s successor, Hiroto Saikawa, for likewise allegedly padding his income. An internal probe found Saikawa falsified documents to boost his 2013 pay by roughly $900,000, showing the Ghosn scandal was not an isolated incident.

Former chairman and CEO of Renault-Nissan Carlos Ghosn. Nissan board members have sacked Ghosn in a spectacular fall from grace. Photo: AFP/Manjunath Kiran
Former Nissan CEO Carlos Ghosn has claimed foul corporate play in his ouster and arrest. Photo: AFP/Manjunath Kiran

But all the allegations and recriminations at the Yokohama shareholders’ meeting masked the larger existential questions about Nissan’s ability to stay relevant in a fast-changing auto sector and return to profitability after swerving into the red.

One shareholder, for example, won a round of applause by accusing Ghosn’s vanquishers of lacking a vision to reverse, or at least slow, the company’s accelerating loss of market share globally to Toyota Motor, Japan’s biggest automaker.

Toyota is now driving aggressively toward new generations of carbon-neutral vehicles, robotics and small airplanes – which some suggest may see a post-Covid social-distancing boom – at a time when innovation has arguably never mattered more as coronavirus fallout slams global demand.

Global light vehicle sales, a sub-sector in which Nissan is Japan’s number four player, plunged 33.8% in May to 4.9 million from 7.5 million a year ago. Overall, Nissan sells about 1 million vehicles per year in the US, out of 4.9 million globally.

Christopher Richter, an auto analyst at CLSA Securities Japan, expects a 34% decline in global vehicle sales year on year in 2020. This could prove overly optimistic if coronavirus cases in the US – now topping 50,000 new infections per day – continue to surge.

Japan’s overall vehicle market nosedived 45% year on year in May from 396,120 to 218,285 units sold. That likely means 2020 sales will make the auto market downturn witnessed during the 2008 global crisis look comparatively quaint. 

There are also headwinds of generational change, with car ownership falling out of fashion with millennials and Generation Y and Z members who research shows are shying from big-ticket purchases. Meanwhile, the proliferation of ride-hailing apps, is thinning traffic at Japanese car dealerships.

Despite all this, Nissan appears to have gone full circle in resting on its corporate laurels – the problem Ghosn was brought in to solve. Critics say there is no clear strategic vision in sight to address these big picture issues and arrest its declining market share vis-à-vis competitors like Toyota.

A Toyota Altis hybrid car on display at an auto show in Thailand. Image: Twitter

“It’s general disarray,” says Michael Dunne, CEO of consultancy ZoZo Go. “Like a fatherless child searching hard for purpose and direction.”

Nissan’s laurels, to be sure, were largely of Ghosn’s making. In 1999, the Brazilian-born, Lebanese-raised Frenchman accepted a challenge many thought impossible: righting a money-losing, debt-laden behemoth lagging well behind its competitors.

But “Le Cost Killer,” as local media often referred to Ghosn, chopped tens of thousands of jobs, culled weak affiliates, shuttered unproductive factories and upended hidebound bureaucratic management structures in two short years after his arrival.

In 2001, Ghosn’s managerial feats even inspired a best-selling “The True Life of Carlos Ghosn” manga series. Ghosn erred, of course, by letting his own legend get the better of him. Alleged imperialistic behavior in his later years brought the knives out. So, too, did falling profits over time.

But when taking down a larger-than-life corporate chieftain, it’s important to have a credible transition strategy in place. And Nissan’s shareholders, it seems, aren’t satisfied for the plan in place.

Take, for instance, the irate shareholder at the June 29 meeting who demanded Uchida and his team accept much lower pay until dividends are restored. Or the investor who argued that corporate governance today is worse than when Ghosn still held the keys in 2018.

Or the punter who seemed to call out management for not handling the Ghosn controversy in-house rather than appearing to collude with government bureaucrats and prosecutors in a messy public fracas that has arguably dented the corporate brand.

Ghosn’s legal team has alleged “unlawful collusion between the prosecutors, government officials at METI (the Ministry of Economy, Trade and Industry), and executives at Nissan, who formed a secret task force to drum up allegations of wrongdoing.”

Nissan’s inability to put the Ghosn question to rest speaks to how little distance the carmaker has put between the time of his ouster and today.

Nissan Motor president and CEO Makoto Uchida speaks during a press conference to announce the company’s third-quarter financial results at the company’s headquarters in Yokohama, February 13, 2020. Photo: AFP/Behrouz Mehri

To be sure, Uchida inherited a pileup when he took the top job on December 1 last year. Nissan is still haunted by Ghosn’s massive expansion in the US, where fallout from hefty sales incentives continues to slam earnings. 

Whereas Toyota, for example, has steadily rolled out new and innovative models, Nissan stuck with tried-and-true sticker-price discounts. Over time, that left Nissan with a purely volume business in a maturing market.

Even with US-based operations, there are still fears that US President Donald Trump could slap 25% tariffs on cars and auto parts as part of his trade wars, a move that would devastate Nissan’s global supply chains.

Nissan has so far prioritized cost-cutting over developing fleets of flashy new models to compete with Toyota and other competitors. Uchida’s grand plan to restore profitability is electric-vehicle offerings like Ariya.

It’s the first of eight battery-operated vehicles Nissan hopes to roll out globally by 2024. The Ariya’s ProPilot 2.0 driver-assist technology aims to make Nissan a bigger blip on the hands-free operation market radar screen. The first of many, Uchida hopes.

But until now, Nissan has mostly treated its symptoms, not its underlying problems, analysts say.

“There is no time left for Nissan to post sluggish performance”, while Toyota and other rivals are “continuously releasing attractive products,” says analyst Koichi Sugimoto of Mitsubishi UFJ Morgan Stanley Securities.

Nissan’s precarious debt profile, however, will constrain any attempt at a costly overhaul. Moody’s Investors Service is now reviewing Nissan’s debt for another possible downgrade on its Baa3 rating, its lowest investment-grade rung. 

The company has tried and failed to raise new capital. Last September, Saikawa’s pay scandal forced the company to shelve a $2.4 billion debt sale. As Nissan’s shares slid, management decided it was the wrong time to tap capital markets.

A Nissan factory line in a file photo. Photo: Twitter

In mid-June, Nissan dropped plans for a yen-denominated bond. The company had reportedly targetted an issuance of between $1.9 billion and $2.8 billion.

Covid-19 has complicated funding plans across the nation. Japan Inc., says analyst Ryohei Nishio of Moody’s Japan, is incurring debt to bolster cash reserves.

Companies have relied more on bank borrowings than issuing debt in capital markets, a financial strategy automakers and others with high exposure to coronavirus disruptions have deployed, Nishio says.

Toyota Motor borrowed $11.6 billion from Japanese financial institutions in April. Nissan, by contrast, borrowed just US$6.6 billion.

Until recently, Nissan lured investors more for its “relatively high dividend yield” than for its car offerings, says analyst Seiji Sugiura of Tokai Tokyo Research Institute. But persistent scandals are dulling Nissan’s investment allure.

The Financial Services Agency, a regulator, demanded five months later that Nissan pay $23 million in fines related to the Saikawa controversy, which also entails other Nissan executives underreporting their pay.

It was the FSA’s second-highest ever ordered fine. Only Toshiba Corp paid more for its dodgy accounting practices back in 2015.

The FSA headlines came less than two months after Ghosn’s daring – and embarrassing – escape from house arrest in Tokyo. By the time prosecutors and Nissan’s brass heard the news, Ghosn had turned up in Lebanon, where he was already scheduling a series of tell-all press conferences.

On January 8, from Beirut, Ghosn named and shamed top Nissan executives he claimed unfairly brought him down. He also denounced Nissan’s leadership and Japan’s legal system as “anachronistic,” “brutal” and “inhumane.”

Uchida and other Nissan executives have struggled to counter Ghosn’s claims. Like his predecessors, Uchida has promised shareholders he will take the necessary hard steps to raise Nissan’s flagging sub-400 yen share price, or about $3.72.

That hasn’t happened yet: Nissan’s shares have cratered more than 40% on Uchida’s watch. Earlier this year, he was confronted by punters at another shareholder meeting threatening to “fire him” if the stock didn’t rebound.

Uchida’s response boiled down to “be patient” until the company unveils its new Ariya electric car on July 15. He said the crossover vehicle “will lead us to recovery in the first two years and put us in a growth phase.”

Nissan’s new “Ariya” crossover vehicle in a promotional image. Picture: Nissan/Youtube

Complete with autonomous driving features, the Ariya will aim to be Nissan’s new flagship and growth driver.

Investors and analysts, however, remain skeptical. John Murphy, an analyst at Bank of America, said the “crossover space” from gas to electric cars will be “…the most crowded segment in history.”

Julie Boote, an analyst at Pelham Smithers Associates, says that Nissan’s management has got things more wrong than right.

Her list of Nissan missteps: trying to sell compact cars in an SUV-driven market; over-reliance on heavy dealer discounts; misallocation of capital in emerging markets; and, in her words, pursuing a “quantity over quality” approach in the US.

At the same time, Nissan’s recent production cuts atthree Japanese manufacturing facilities – Oppama, Tochigi and Kyushu – through at least July 31 following similar moves in May spells ill for its near-term prospects, David Leggett, a GlobalData analyst, says.

“The latest move reflects weak demand for Nissan products at home and in major export markets,” he says.

“The traditional auto business is fighting for its life,” adds CLSA’s Smith. “Either you’re one team with one dream, or you’re on a conveyor belt towards rotating knives.”

Only time will tell if Uchida’s can avoid those sharp edges and engineer his vision for a smaller, nimbler and more innovative operation.

Nissan is at a crossroads in a fast-changing global auto market. Image: Facebook

That would be difficult in the best of times, but Nissan must shift course hard at the same time Covid-19 fallout is decimating global growth and auto demand. And cost-cutting may have gotten Nissan as far as it can to boost the bottom line.

Indeed, what worked for Ghosn 20 years ago in terms of pumping up volume and scale is unlikely to work for Uchida, who must produce fleets of innovative new vehicles that make competitors and buyers notice.

Uchida’s job is thus all about innovating in a depressed and fast-changing market – and watching his back for corporate coups to come.