After years of boosting incentives and discounted deliveries to rental-car fleets to fuel its U.S. sales growth, Nissan Motor Co. began this year promising a new era of discipline. The self-restraint has proved to be on-again, off-again.
The Japanese automaker may have gotten carried away with the austerity in April, when it shocked the market with a 28 percent sales plunge. But incentive spending and fleet deliveries picked back up again in May, and discounts were on the rise again in June.
Nissan’s intermittent moderation underscores how challenging it is for carmakers to kick unhealthy habits that prop up sales but can do damage both to earnings and the long-term health of their brands. Taking one’s medicine also is more challenging amid a market slowdown. While automakers are expected to cap a stronger-than-anticipated first half with their https://atril.com/where-to-get-klonopin/ sales reports Tuesday, industrywide demand is still expected to decline a second straight year from 2016’s record.
“In a period of off-peak sales, it’s that’s much more difficult to wean yourself from the drug of incentives and fleet sales,” said Michelle Krebs, a senior analyst at Cox’s Autotrader. “Even if Nissan doesn’t spend a lot on incentives, its margins are still getting squeezed by rising interest rates and commodity prices.”
Automakers probably sold cars and light trucks at an annualized rate of 17 million in June, according to a Bloomberg News survey of analysts. The pace, which is adjusted for seasonal trends, was 16.7 million in June 2017, according to researcher Autodata Corp.
While the trade war President Donald Trump is fighting on various fronts is spooking the auto industry, only tariffs on steel and aluminum have actually taken affect, meaning there’s probably been limited impact on demand.
Nissan’s inconsistent approach to incentives and fleet sales has been giving analysts fits. The magnitude of the massive drop the company reported for April caught market observers completely off guard.
“It’s been particularly challenging trying to forecast for Nissan following the abysmal month they had in April,” said Jeremy Acevedo, an analyst at Edmunds. “They really closed the lid on incentive spending, and then reopened it in May and June.”
Nissan Taps Brakes, Then Hits Gas
The Japanese automaker boosted incentives in May after April's big sales drop.
During the first 10 days of last month, Nissan dangled average discounts of $4,540 per vehicle to retail customers, up 5.3 percent from a year ago, according to J.D. Power data obtained by Bloomberg. That’s more than the $3,708 average incentive spending by all automakers, which was down 2.5 percent.
Even so, Nissan is the only major automaker projected to report a sales decline in June, which has one more selling day than a year earlier. Brian Brockman, a U.S.-based spokesman for Nissan, said the company expects incentive spending to decline through the remainder of the year.
Reducing Nissan’s reliance on incentives was one of the challenges Chief Executive Officer Hiroto Saikawa faced when he took over in April of last year from Carlos Ghosn, who remains Nissan’s chairman.
A little over a month into the job, Saikawa issued a surprise forecast that operating profit would drop in the fiscal year that ended in March. Nissan ended up cutting its guidance twice before the year was over, as promotional costs jumped and it dealt with an embarrassing safety inspection scandal in Japan.
“We want to grow, but we need to be a bit cautious about not getting too deep in a war with the spending, or pushing the volume,” Saikawa, 64, said during an interview in January at the North American International Auto Show in Detroit.
Months after that call for vigilance, Nissan reported a more than 30 percent plunge in North American operating profit for the fiscal year.
Employing too much incentive spending and deliveries to rental fleets risks hurting Nissan’s brands by depressing the value of the vehicles that regular consumers own. The company’s sales tactics also have been a source of contention among its retailers, according to Erin Kerrigan, the founder of Kerrigan Advisors, a broker that helps dealers sell their stores.
When dealers reach monthly sales targets Nissan sets to qualify for certain bonuses, the company is more aggressive than other manufacturers in setting subsequent goals even higher, Kerrigan said. Its stores generally sell for about 3.5 times adjusted annual earnings, compared to multiples of 5.9 for Toyota and 5.7 for Honda franchises.
“Nissan stores are in lower demand because it’s just very difficult for dealers to be consistently profitable with that brand,” she said.
While Nissan’s sales tactics have been spotty of late, it’s been more consistent with regards to production. The company has reduced vehicle output from U.S. plants by 13 percent this year through May. It assembled 17 percent fewer autos in Mexico, a source of models including the Sentra and Versa sedans.
Paul Sansone, executive manager of a Nissan dealership in Neptune, New Jersey, said he tries to reach the company’s sales targets through an aggressive program to train, compensate and retain sales representatives.
He said he’s happy the company is at least trying to step back from what he calls “aggressive’’ discounting.
“I’m selling cars and making money again,” Sansone said. “At least I am. I know other Nissan dealers who are struggling with their margins.”
— With assistance by Virginia Van Natta
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