• Nissan Motor's six factories in Japan resumed production last week after a fortnightlong suspension. It was discovered earlier that final vehicle checks were done by technicians who were not certified.

• The company cut its guidance for operating profit in the year to March 2018 by 6% or 40 billion yen (US$ 354mil) to factor in the costs of an extensive recall (1.2mil cars sold in Japan) and the suspension in its domestic factories.

• We opine that Nissan's swift actions to suspend production and take accountability for the issue will serve to limit any negative impact on its brand image that might be long term. There was no major hit on Nissan's share price as 90% of its revenue was from sales outside of Japan. The impact to Malaysia was limited as Tan Chong Motor's (TCM) supply of Nissan cars came mainly from Thailand.

• We note two key points that distinguished Nissan's response that could save it from going down the path of Volkswagen (VW):

(1) Nissan called itself out and was quick to diagnose this as a domestic issue. The VW scandal — which saw its diesel cars installed with software to sense and respond deceptively to emission tests — started as an investigation launched by the US Environmental Protection Agency (EPA) following tip-offs from an NGO dating back two years prior. Initial findings concluded that over half a million diesel cars in the US were affected, but the company later admitted that about 11 million cars sold globally had similar software.

(2) Nissan immediately identified the vehicles affected to undergo proper inspections. The EPA investigation in the US was followed by numerous ones in Europe and Asia, with many leaders, environmental groups and consumers turning sceptical of the company's trustworthiness. This was compounded by VW's years-long "Clean Diesel" campaign, in which it positioned its diesel cars as offering superior mileage and lower emissions (its cars were emitting up to 35x the legal limit for nitrogen oxide). As a result, the issue was seen as a symptom of the company culture rather than contained to a quantifiable number of cars.

• Nissan expects its sales in Japan to rebound from December and looks to keep this safely in the past.

• In comparison, the press reported that Volkswagen had settled with US courts to spend US$14bil on a mandatory buy-back programme and developing clean-energy projects. Aside from this, VW was also affected via the following: (1) VW sales in the US have only started to recover in the past year with support from various incentives to the customers (i.e. extended warranties), although monthly sales are reportedly still below the 30K seen prior to the scandal; (2) Brands within the Volkswagen group (including Audi and Porsche) are no longer selling new diesel vehicles in the US; (3) The company itself pivoted towards electric vehicles and vowed to raise EV contribution to up to 25% of sales.

Source: AmInvest Research - 16 Nov 2017