YOKOHAMA, Japan — Breaking Nissan's addiction to fleet sales and incentives in the U.S. was never going to be easy. But CEO Hiroto Saikawa says the initial hurt was more than even he expected.
It showed up this month when Nissan North America reported a 28 percent plunge in April sales.
That was "too much," Saikawa conceded here last week. And worse — pangs of the adjustment will continue through this quarter as Japan's No. 2 automaker races to align U.S. supply and demand.
But Saikawa promises that the short-term pain of reduced sales will be worth the long-term gains that Nissan's dealers will begin reaping this summer.
His vision?
Nissan's long-bloated inventories finally will be dialed back to healthier levels. Sales will be refocused on profit-boosting retail business instead of low-margin fleet. And a reinvigorated U.S. dealer network will be cashing in on a flood of new products.
But first, Nissan must weather the transition.
"We may anticipate some kind of performance deterioration," Saikawa acknowledged last week while announcing fiscal year financial results at Nissan Motor Co.'s global headquarters. "We will just swallow that and improve profitability in the U.S. It will be better in the later part of the year."
Saikawa is trying to pivot the company away from fleet sales and incentives in an effort to shore up brand value and margins. But that redirection comes at a risky time. U.S. light-vehicle sales are softening, and that could make it tougher to snap old habits of juicing sales.
Saikawa unveiled his plan for the shift in February, and Nissan began dialing back incentives and fleet sales in the carmaker's January- March fiscal fourth quarter. North America is already feeling the impact.
Nissan said the quarter's profits were hurt by the scaling back of wholesale shipments to cull a global inventory overload. Its worldwide backlog of 990,000 unsold vehicles shrank to 880,000 in March, the company said. But the U.S. wholesale pullbacks cost Nissan some ¥25.2 billion ($237.2 million) in the three-month period.
That fueled a 15 percent decline in North American operating profit and contributed to a 12 percent slide in the parent company's operating profit.
The restructuring, however, jolted U.S. operations in April, when the Nissan and Infiniti brands reported a combined 28 percent drop in sales on lower incentives and fleet deliveries.
'Not satisfactory'
Chief Performance Officer Jose Munoz said Nissan was fine-tuning the strategy.
"The April results are not satisfactory," Munoz said. "I don't think we found the right balance. We have already seen in the month of May a significant improvement versus the month of April. We are trying to find the optimal position to operate in this market."
Saikawa said the big April sales drop was "a bit too much." He predicted the rough ride will last the rest of the company's April-June fiscal first quarter and then steadily improve.
"In the medium term, of course, we want to aim for further growth in the U.S. market," Saikawa said. "But in the short term, including this fiscal year, profitability has to be improved.
"I want to be very clear on that. Profitability recovery is the largest point."
Nissan forecasts that North American sales will slide 2.9 percent in the fiscal year that ends March 31, 2019. But that also reflects a reduction in fleet sales, the company said.
Munoz said the fleet share of Nissan's sales mix will drop 4 to 5 percentage points this fiscal year.
"It means more retail sales versus fleet sales, which should improve the residual value," said Munoz, who also was chairman of Nissan North America until January. "This is the one that matters most. This is a good equation for the dealers, because for the dealers, it's going to imply an increase in volume."
Nissan already has been making gradual progress on some fronts.
According to estimates from Autodata Corp., average incentive spending in the U.S. for Nissan and Infiniti rose 13 percent to $4,215 per vehicle in 2017. But in the first four months of 2018, the spiff outlays dropped 4.3 percent to $3,837, even as the industry average climbed 5.8 percent to $3,721. In April, Nissan and Infiniti's incentives tumbled 21 percent to $3,100 per vehicle, below the industry average, Autodata estimated.
Those cutbacks boosted global operating profit by $376.6 million in the January-March quarter, although that gain was more than offset by falling volume and mix.
'Difficult balance'
Executives believe a rush of new products will help Nissan keep a lid on incentives.
New offerings arriving this year include the redesigned Leaf electric vehicle, which was the only nameplate in Nissan's U.S. brand portfolio to increase sales in April. A new-generation Nissan Altima sedan also is coming, along with the Nissan Kicks subcompact crossover and the redesigned Infiniti QX50 crossover.
The next Altima will be offered in an all-wheel-drive variant that will introduce a more profitable model mix, Munoz said. And the Kicks and QX50 will help the company shift its lineup more toward North America's hot crossover segment.
Light trucks account for 67.9 percent of overall U.S. demand, but they generate just 56 percent of Nissan and Infiniti sales.
The sales decline has at least one positive side effect, Munoz said.
"Our plant utilization is a little bit lower as well, and this allows us to be able to do a much more efficient change between the old model year and new model year," he said, referencing the ramp-up of the redesigned Altima arriving stateside this fall.
Saikawa's global midterm business plan through March 2023 largely eschews the detailed numerical 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 the automaker achieved just barely, despite criticism and warnings from competitors, dealers and outsiders around the industry.
Through April this year, Nissan North America's share dropped to 9.2 percent from 9.9 percent a year earlier. Nissan North America's sales declined 6.5 percent to 503,767 vehicles, even as the overall U.S. industry eked out a 0.2 percent increase.
"There is a difficult balance to make," Munoz said.
"But that's a decision that we've taken, and we're committed to it. We need to stick to the plan and do it better."