YOKOHAMA, Japan — Nissan Motor Co. CEO Hiroto Saikawa has given the automaker's new North American boss some 60 days to devise a plan that may ease off the company's hard-driving reliance on incentives and fleet sales to deliver volume.
The problem? Nissan's vital U.S. market is becoming less profitable.
In an interview with Automotive News last week, Saikawa said he wants less pressure on Nissan dealers to take inventory, fewer market incentives and more focus on profitability and brand value. Also in his sights: Less reliance on fleet sales.
The anticipated new plan likely will be good news for Nissan's U.S. dealers, who have complained for years that Nissan is just pushing too hard in order to boost market share.
"I'll believe it when I see it," quipped one dealer who has frequently quarreled with Nissan about its aggressive dealer sales incentive programs.
Indeed, the monumental marching orders mark an about-face for an automaker that has almost single-mindedly chased market share in the U.S. since 2011. But the situation is not business as usual.
Tasked with engineering the changes is Denis Le Vot, the Frenchman from Renault who took over as chairman of North America just one month ago.
Saikawa said he is giving Le Vot "at least another two months" to come up with a plan so that Nissan can begin implementing short-term and midterm fixes in the fiscal year starting April 1.
"We have to first improve the brand value and profitability," Saikawa said last week after Nissan reported that operating profit plunged 50 percent in the last three months of 2017.
"Hopefully, we will be able to reach a very solid point in two years. This is the first mission for the new chairman."
Falling profit
Le Vot inherits management of North America, where regional operating profit dropped 41 percent and sales declined 1.4 percent in the first nine months of the current fiscal year.
North America is Nissan's biggest market and its long-standing cash cow, but it is on pace for a second-straight year of falling profit.
"We want to introduce something drastically different in looking at the business," Corporate Vice President Joji Tagawa said. "In the U.S., we were putting too much focus on growth. So profit, brand, quality of sales is what we need to put more focus on.
"We are changing direction as a company."
Tim Hill, owner of Hill Nissan in Orlando and also chairman of Nissan's National Dealer Advisory Board, said the planned sea change comes as a collaborative effort between Nissan management and the dealer board.
"Current market conditions suggest this is the best strategy for Nissan and the dealers,"Hill wrote in an email.
Old habits
Nissan tapped Le Vot to shake things up. He succeeds longtime North America boss Jose Munoz but will continue to report to Munoz, who is the corporation's global chief performance officer.
Reining in incentives and fleet sales won't be easy in a market long conditioned to sales spiffs — especially with U.S. industry sales cooling and rivals ramping up their own spending to win customers.
"These are hard habits to break," said Kurt Sanger, lead auto analyst at Deutsche Securities Japan in Tokyo. "My problem is believing they can transition in a relatively short period of time."
Last summer's surprise
Nissan's situation worsened last summer when U.S. demand began to soften.
The U.S. team bet wrongly that industry volume would keep climbing, Saikawa said, and Nissan continued stoking factory output to feed higher demand that never materialized.
The result was stockpiles of unsold 2017 models that Nissan dealers are still struggling to move off lots. Nissan ratcheted incentives and fleet sales to clear them but at a big cost: North American operating profit fell 37 percent in the October-December quarter.
"The team has been so used to more production and piling up of the supply side, then the wholesale. And with the [total industry volume] very good, it was relatively easier to sell," Saikawa said, referencing the seven-year run of annual gains in total industry volume that ended with last year's decline.
"But when the U.S. team is so used to that, they were a bit late to start action in adjusting," he said.
Cleanup
Now Nissan is scaling back production and wholesale supply to balance bloated inventories by the end of March.
Saikawa believes that will enable Nissan to dial back incentives, ease off fleet sales and begin rebuilding brand value around new products and technologies.
In the October-December quarter, wholesale supply was trimmed to 30,000 to 40,000 units less than its retail sales volume.
Nissan wants to cut U.S. inventory by around 100,000 vehicles by March 31, compared with levels at the end of December.
That may be a tall order. Nissan's backlog of 315,700 vehicles on Jan. 1, for a 59-day supply, actually expanded to 319,900 units by Feb. 1, for 65 days' worth of inventory.
Incentives also are being targeted. In November, Nissan said it wanted to cut average spending in the October-March period by $400 per vehicle, compared with April-September levels.
Nissan's average incentive spending rose 13 percent to $4,215 per vehicle in 2017 and rose 2.4 percent in December to $4,572, data from Motor Intelligence show.
Nissan's December outlays were above the industry average of $3,980.
Saikawa said Nissan can begin restoring profitability once supply is rebalanced.
A rush of new products this year also should help Nissan suppress incentives. This year, the company will start selling the Leaf EV, Kicks subcompact crossover and Infiniti QX50 crossover. Redesigns of the popular Altima and Sentra sedans will follow soon.
Brand value
Saikawa's global midterm business plan through 2022 largely skips the specific numerical performance targets favored by his predecessor, Carlos Ghosn, who remains chairman of Nissan.
Ghosn set the difficult and controversial mission of raising Nissan and Infiniti's combined U.S. market share to 10 percent by March 31, 2017, a goal Nissan achieved by a whisker despite criticism and warnings from competitors, dealers and outsiders around the industry.
In January, Nissan's share was 10.7 percent. But Saikawa says he's not talking numbers.
"If I start using 10 percent, it's risky. This is going to jeopardize quality of sales, so I won't say that," Saikawa said. "We need to increase our brand value."
A key benchmark of success, he said, will be whether residual values increase.