NISSAN ANNUAL REPORT 1996: MESSAGE FROM MANAGEMENT

MESSAGE FROM MANAGEMENT

In our highly competitive market environment, a top management priority is continuing to do our utmost to speedily create a profit-oriented structure that can withstand changes in economic conditions and exchange rates.

Chairman Yoshifumi Tsuji (seated) and

President Yoshikazu Hanawa

Plans for Fiscal 1997

Operating Environment and Results

During the fiscal year ended March 31, 1996, tighter monetary policy slowed the pace of economic growth in the United States, while the economies of Europe generally trended downward. In Asia, however, rapid economic growth continued, supported by both exports and strong internal demand.

In Japan, the rapid appreciation of the yen that began at the end of the prior fiscal year slowed the economy's nascent recovery to a standstill. In the second half, however, the yen's retreat from its record highs and government stimulus packages helped the economy start picking up.

Supported by solid replacement demand and the introduction of new models, particularly in the recreational vehicle (RV) segment, domestic vehicle demand increased 2.3 percent to 5,170,000 units. This was the second consecutive year-on-year increase in total annual demand. Automobile exports decreased 16.6 percent to 3,620,000 units, the first time in 19 years that exports were below 4,000,000 units. Shipments to Asia and Africa increased, but exports to the United States and Europe fell because of increased in-market production and the negative effect of the yen's appreciation on the cost competitiveness of exports.

Faced with this challenging operating environment, we have set even more rigorous goals and accelerated our restructuring efforts to improve the way we do business. The entire company has pulled together in undertaking an exhaustive effort to improve efficiency and management. While Nissan reported a consolidated net loss of 88.4 billion yen, unfortunately our fourth consecutive annual loss, we narrowed it from the prior fiscal year by 77.6 billion yen. Unit sales decreased by 29,000 units year-on-year to 2,671,000; domestic unit sales increased by 82,000 units, but overseas unit sales decreased for reasons such as the sharp drop in Mexican sales. Supported by the increase in domestic sales, consolidated net sales increased 3.5 percent to 6,039.1 billion yen. Net profits for consolidated subsidiaries as a whole improved by 13 billion yen, primarily because appraisal gains brought on by the inflation in the aftermath of the peso devaluation in Mexico compensated for increased losses incurred by the Company's European operating units in a highly competitive market environment. On a non-consolidated basis, the rise in domestic sales and savings of 140 billion yen in Japan that have resulted from cost cutting and other rationalization measures enabled a 64.7 billion yen increase in net income to 3.6 billion yen, our first earnings increase in two years.

Domestic and Global Strategies

Nissan strengthened its domestic product line during fiscal 1996 to answer a diverse range of customer needs. We executed full model changes for the Cedric, Gloria, Primera and Primera Camino, Terrano, Bluebird and Leopard, and introduced a two-door Mistral. The Avenir and Prairie, among others, also underwent minor changes that strengthened their marketability.

Ahead of other Japanese automobile manufacturers, Nissan completed making a driver-side airbag SRS (supplemental restraint system) standard on all domestic passenger cars and the majority of RV models during fiscal 1996. The Company is now proceeding with the provision of dual airbag SRS for passenger cars and RVs. The strong appeal among customers of our commitment to safety was one factor that supported our sales gain in the past fiscal year.

While Nissan performed favorably in the U.S. market, Mexico's distressed economy and increasingly severe price competition in Europe made our operating environment outside of Japan challenging during the past fiscal year. Nissan has a tripolar operating structure based on Japan and Asia, the Americas, and Europe, with R&D, production, sales and finance capabilities in each region. To further localize overseas operations and make them more self-sufficient, we continue to strengthen sales and local production in each region. At the same time, we are increasing Japan-bound exports from overseas production bases and pursuing mutual supply of components and vehicles on a global level. Other key initiatives are improving cost competitiveness and constantly raising our ability to compete on the basis of quality. We are also vigorously strengthening our presence in the growth markets of Asia.

Highlights from our global operations during fiscal 1996 include the following:

Nissan Motor Manufacturing Corporation U.S.A. (NMMC) operated at full capacity. To strengthen our in-market manufacturing capability, we plan to add a production facility for the engines and automatic transmissions used in the Altima (Bluebird in Japan) and the Quest minivan. It is scheduled to come on-line in spring 1998.
Nissan Mexicana, S.A. de C.V. (NISMEX) started exporting the Sentra (Sunny in Japan) to the United States in May 1995.
Nissan Motor Manufacturing (UK) Ltd. (NMUK) began exporting the Micra (March in Japan) to Australia in May 1995.
Nissan Motor Iberica, S.A. (NMISA) began exporting a two-door Terrano II (Mistral) to Japan in February 1996.
In Asia, our technical assistance to Samsung Motors Inc. covering passenger car production in Korea got fully under way. We also created joint ventures in Indonesia, the Philippines, Thailand and China.

Plans for Fiscal 1997

In the fiscal year ending March 31, 1997, we expect flat consumer spending and slower capital investment to restrain economic growth in the United States, and stagnant economic conditions to persist in Europe. Our outlook for Asia is for slightly less vigorous economic expansion. In Japan, the weaker yen should contribute to higher corporate earnings and the government's stimulus packages will work their way through the economy. Because of the depressed labor situation and lackluster growth in consumer spending, however, the economic recovery is likely to be gradual.

While we expect expanding replacement demand in the domestic vehicle market as the economy recovers, competition on the basis of market appeal and price is bound to become even more intense, as will competition from imports. The tough export environment is likely to continue, considering the increase in in-market production and the stagnant consumer spending anticipated in the United States and Europe.

In this highly competitive market environment, a top management priority is continuing to do our utmost to speedily create a profit-oriented structure that can withstand changes in economic conditions and exchange rates so that we will be able to secure an appropriate level of profits on a sustainable basis, thereby living up to our stockholders' expectations. The main thrust of our efforts will be strengthening our sales structure, further enhancing the market appeal of our products and pushing ahead with thorough rationalization efforts both in Japan and abroad.

At the general meeting of shareholders on June 27, 1996, Yoshifumi Tsuji assumed Yutaka Kume's role as chairman of Nissan, and Yoshikazu Hanawa assumed Mr. Tsuji's former position of president. Mr. Kume's management skills and vision have been an invaluable asset supporting Nissan, and we would like to thank him for his many years of outstanding service. We would also like to thank our shareholders, associates and customers for your cooperation, and request your continued support as we work to meet our goals.

July 1996