Nissan tries to tackle a U.S. sales slump

Nissan's newly named U.S. sales chief has one thing on his mind: profit.

Improving Nissan dealer profitability is a "key pillar for us," said David Kershaw, a nearly 30-year company veteran who was named to take over as Nissan Division vice president of sales and regional operations, effective Sunday, Sept. 1.

Kershaw met with U.S. dealers during a national meeting in Chicago last week and sketched out his strategy to rekindle Nissan's growth, boost profits for its retailers and increase consumer consideration of the brand.

The sales executive will have some selling to do to accomplish that. Nissan faces simmering discontent among dealers over the automaker's strategy and market performance.

Nissan is grinding through a pivot away from profit-draining fleet sales and incentives in the U.S. as it tries to shore up brand value and margins.

The new focus on profitability over market share, a strategic reversal of Nissan's past plan, handed down by CEO Hiroto Saikawa, is proving painful to Nissan's sales, which hurts retailers on store throughput. The Japanese brand's U.S. sales through July tumbled 7.8 percent.

About 30 percent of Nissan's U.S. dealerships are losing money, with an additional 10 percent merely breaking even, according to a source familiar with the data.

Nissan has conditioned customers to expect bargains, which makes it harder for dealers to make a profit on new vehicles, some retailers say.

"Nissan needs to stop advertising such low prices," said John Fanelli, general manager at Nissan of Turnersville in suburban Philadelphia. "Now we're the value brand, almost like Kia used to be."

In a conversation with Automotive News last week after the meeting, Kershaw, 54, acknowledged more work needs to be done to improve the brand's relationship with its dealers.

"It's very important to continue to work on the dealer relations piece," he said. "We have more work to do in that."

Kershaw, who most recently ran sales and operations for the Southeast, describes himself as a "dealer guy."

"I've spent the last year and a half out in the field as a vice president for a couple of the biggest regions," Kershaw said. "I gained a lot of experience by being face to face with the dealers."

Some dealers, disheartened by executive turnover at the automaker, believe the new sales executive has his work cut out for him.

Nissan North America has endured a wave of executive departures, including Chairman Denis Le Vot and his predecessor, Jose Munoz, as the company shakes out after the ouster of longtime Nissan Motor Co. Chairman Carlos Ghosn, who was arrested Nov. 19 on allegations of financial misconduct.

Kershaw's predecessor, Billy Hayes, quit unexpectedly last week.

"I think the executives realize, most of the time, they are working for a company that can't get stuff done," said one dealer, who asked not to be named. "They are just sitting there banging their head against the wall."

But Nissan National Dealer Advisory Board Chairman Scott Smith sounded more optimistic about Kershaw's prospects.

"He knows the intricate workings of Nissan from the bottom up," said Smith, president of Smith Automotive Group in Atlanta. "He knows every inch of the landscape."

Kershaw will have to prove himself in challenging times. Macroeconomic headwinds, including an industry slowdown in U.S. sales and the possibility of higher interest rates, are likely to compound Nissan's problems as it reboots.

Morningstar senior equity analyst Richard Hilgert said Nissan's past multiyear strategy to "buy market share" has hurt its average transaction price and residual values.

"There's plenty of instances where manufacturers have chased market share, rather than trying to retain profitable market share," Hilgert said, sounding a hopeful note. "And they've been able to turn it around."

The analyst sees a bottoming out of Nissan's sales slump. "We'll start to see some improvement in 2020," Hilgert said.

But Kershaw's first order of business will be figuring out how to help Nissan's retailers turn a profit.

Fanelli said profitability at his store has declined nearly 50 percent in the past year.

"Who's going to keep a Nissan store if you're not profitable?" Fanelli said.

Nissan executives are in a tough spot, Smith said. "They have to deliver share, while delivering profitability to dealers," he said.

A wave of new products should help. Nissan is launching 10 new and freshened vehicles by the end of 2020, including an electric crossover and redesigns of its pickups.

"With that new product, we'll be going to one of the freshest lineups in the industry," Kershaw said. "That will drive throughput, which will help lift dealer profitability."

At the meeting with dealers, Kershaw and other Nissan executives announced measures to boost retailer profitability and drive sales in showrooms, according to dealers who attended the event. The dealers said the changes include:

• Nissan will provide $200 in dealer cash per vehicle sold. Those rebates can be passed on to a customer, or retained by the dealer to boost profit on the vehicle.
• Nissan will tweak its controversial stair-step program, which rewards dealers with cash for hitting ambitious monthly, quarterly or year-end sales goals. The practice has been a source of friction and sour relations for five years, causing some franchisees to walk away from the brand.

The automaker will adjust stair-step objectives to reflect current market conditions. Retailers will receive $350 per vehicle if they hit their stair-step targets.

The company will also decouple some dealer payouts from stair-step sales goals. Starting in October, retailers will receive $200 per car toward store profit and $100 per vehicle if they enroll in Nissan marketing programs.

• To raise the brand's profile and broaden the customer demographic, Nissan will boost advertising and marketing spending by 32 percent in September.

Nissan's success hinges on it being able to shed its discount-brand image and attract higher-quality customers, Smith said.

He added, "We can't continue to live on bad credit and be the deal of the day."