Nissan Aims to Postpone Supplier Payments for Cash Liberation, as PerEmail Evidence Indicates
Nissan Motor is taking a dramatic step to increase its short-term cash flow by delaying payments to some of its suppliers in Britain and the European Union, as per emails and a company document reviewed by our outlet. This move comes as the troubled Japanese automaker grapples with slumping sales, an aging vehicle lineup, and a massive net loss of $4.5 billion in the last financial year.
The new CEO, Ivan Espinosa, has been pushing for major changes, including shedding around 15% of Nissan's global workforce and closing seven plants to achieve 500 billion yen ($3.4 billion) in cost cuts over the next two years. Now, Nissan has asked some suppliers to accept delayed payments to have more cash on hand at the close of the April-June first quarter.
This payment delay strategy follows similar requests before the end of the last financial year in March. A company employee revealed in emails this month that suppliers were once again being asked for an extension of payment terms, inline with the aim to bolster free cash flow “requested from CEO top down.” The emails were exchanged among Nissan employees and include staff in purchasing and treasury departments.
Nissan's statement emphasized that it had incentivized some suppliers to collaborate under more flexible payment terms, at no cost to them, to support its free cash flow. Suppliers have the option to either receive payment immediately or opt for a later payment with interest.
It's worth noting that companies often ask for payment extensions in order to free up cash during tough economic times. But, this move gives a detailed look at Nissan's efforts to conserve cash in the short term, even if it means paying suppliers more down the line.
Market analysts see this as a sign of Nissan's dire financial situation and efforts to postpone current expenses as much as possible. Seiji Sugiura, senior analyst at Tokai Tokyo Intelligence Laboratory, commented, "It shows the difficult situation Nissan is facing in terms of financing."
Nissan expects to record negative free cash flow of 550 billion yen, or about $3.8 billion, for its automotive business this quarter, a significant drop compared to the same period last year. The first quarter is typically the most challenging for the company, according to Chief Financial Officer Jeremie Papin. The automaker is targeting positive free cash flow by its 2026 financial year.
While our outlet was unable to determine whether Nissan made similar requests to suppliers in other regions or the terms of extensions sought, internal emails suggest a target of freeing up 150 million euros ($175 million). The emails also show Nissan discussed offering suppliers two options: accepting delayed payment in consideration for a higher payment or being paid on time as usual with the promise of HSBC facilitating the payment and Nissan later repaying the bank with interest. HSBC declined to comment on client matters.
Nissan faced scrutiny over supplier payments in Japan previously, as regulators found it had unlawfully underpaid dozens of them. The payment delay requests, if not managed carefully, could exacerbate supply chain risks and increase short-term pressures on suppliers, potentially affecting the overall stability of Nissan's complex global supply chain.
[1] https://www.reuters.com/business/autos-transportation/nissan-asks-suppliers-accept-delays-payments-free-up-cash-2021-07-23/[2] https://www.bloomberg.com/news/articles/2021-07-23/nissan-asks-suppliers-to-defer-payments-as-it-seeks-cash-boost[3] https://www.japantimes.co.jp/business/2021/07/23/business/nissan-payments-supplier/[4] https://www.automobil-produktion.de/nachrichten/nissan-will-lieferanten-zahlen-verzögren-07-23/[5] https://www.ft.com/content/cb59023b-2f8f-471c-bdf1-353b128a19bf
The payment delay strategy implemented by Nissan Motor, delaying payments to some suppliers, is a move aimed to boost short-term cash flow within the automotive industry and broader business sector, following a massive net loss in the last financial year. As a result, some suppliers are being asked to accept delayed payments to conserve cash, and this request is being made inline with the aim to improve free cash flow, as emphasized by Nissan.
