Nissan dealers sour on selling new

Nissan's well-intentioned tweaks to its controversial stair-step program last year appear to be backfiring. Some of the brand's U.S. retailers say they are walking away from the sales incentive program after Nissan decoupled some bonus money from hitting volume-based targets.

And worse, the diminished pool of incentive support is making it harder for many Nissan retailers to turn a profit.

In December, about 50 percent of the brand's dealers participated in the factory sales incentive program, down from about 65 to 70 percent two years ago, Nissan National Dealer Advisory Board Chairman Scott Smith told Automotive News.

"It's very difficult for the majority of dealers to hit current stair-step targets, with the money in the system, and be profitable," Smith said.

At the same time, some dealers say more customers are taking a pass on what the retailers say are dated products in Nissan showrooms.

With customer traffic declining, the fran-chise has taken a hit, said David Basha, owner of Carriage Nissan in Gainesville, Ga.

"You don't have as many customers. It's like somebody shut the faucet off," Basha said.

Nissan Division's U.S. sales slumped 8.7 percent to 1.22 million vehicles last year, in an overall market down just 1.2 percent. The company says the decline was partly a result of its strategic decision to cut back on its sales to rental fleet customers.

But according to Smith, 40 percent of Nissan's dealers are now losing money or just breaking even. And many are shifting their attention away from Nissan's new cars and instead focusing on marketing higher-margin certified pre-owned and used-car sales, he said.

Declining dealer commitment to new cars is a potential time bomb for the brand. If franchised retailers skirt the sales program, they aren't ordering as many new cars from the manufacturer — which means Nissan's factories will have reduced production volumes, fewer vehicles will flow into Nissan service bays over time and the pool of available used cars will be smaller in the years ahead.

Basha said he has ordered only a "handful" of cars from the factory in the past eight months.

"I'm going to go from stocking more than 400 new cars last January to stocking about 100," the dealer said. "So, Nissan's going to feel the pinch."

But abandoning new-car sales is not good for dealer balance sheets, Basha acknowledged.

"We derive our new-customer base from selling new cars, not used," he said. "We don't have the repeat customer coming in for warranty work."

Nissan North America executives were unavailable to discuss the situation. In response to questions from Automotive News, company spokesman Chris Keeffe said, "Our new vehicles will attract more new customers. Nissan is launching 10 new vehicles over 20 months to refresh the Nissan portfolio by 70 percent. We expect increased dealer foot traffic with new models such as the all-new 2020 Versa, refreshed 2020 Titan, and most recently, the all-new 2020 Sentra, which is arriving at dealer lots now."

Meanwhile, Nissan's U.S. market share has dropped 1.2 percentage points to 7.2 percent over the past two years and is the lowest share for the brand since 2012, according to the Automotive News Data Center.

It wasn't supposed to turn out like this.

Nissan's decision to tone down its aggressive sales incentive program came after years of dealer complaining, and after retailers finally found a sympathetic ear in the company's current management team. Critics argued that pushing retail sales with incentives triggered price wars among retailers in a market. And in the spirit of turning away from that divisive practice, the manufacturer offered dealer cash and other incentives that were not tied to meeting monthly and quarterly sales goals.

But Nissan has also cut back on performance-based payouts. As a result, the bonuses dealers can earn for hitting monthly sales goals have been reduced from as much as $1,900 per vehicle in 2017 to about $600 per vehicle today, according to Smith.

The effect is clear.

In December 2018, Andy Mohr Avon Nissan booked $1,763 per vehicle in stair-step bonus money. Last December, following changes to the sales program, the suburban Indianapolis store earned $1,075 per vehicle. Per-vehicle stair-step bonus money in 2019 fell 42 percent vs. the prior year, General Manager Tim Dement said.

"There's no longer any carrot," Dement said.

Nissan dealers are prohibited from publicly advertising the dealer cash they receive to lure buyers into the showroom.

"We are only allowed to advertise the invoice price, less consumer-facing rebates," Dement said. "The dealer-cash discount can only be offered once the customer is in the store. But you need your best price upfront for the consumer to even show up in your showroom."

Nissan spokesman Keeffe said, "We structure dealer incentive programs to help them succeed."

Nissan's more fundamental problem in the U.S., dealers say, is that the brand's perception has slumped, hurting new-car demand.

"We don't have a strong enough brand, and we have a product portfolio that's 15 to 18 months behind everyone else," Smith said. "In the consumer's mind, Nissan is still a B player — it's not a Toyota, or a Honda."

In the past year, new-car sales at Carriage Nissan near Atlanta have declined 45 percent.

"We're lucky if we hit 40 cars a month now," Basha said. "In our market area, no one's coming close to their new-car numbers. They are having to sell used cars to make money."

With new-car demand down and an unprofitable incentive program, some dealers are turning to higher-margin CPO and used-car sales.

Rather than chase volume targets for little financial gain, Dement said, he is now focused on "maximizing profitability." Last year, Andy Mohr Avon Nissan sold 2,298 used cars, compared with 1,889 in 2018.

"The dealership management, who used to be, like, 'We gotta sell new cars, new cars, new cars,' now says 'Well, just make money on the cars. Who cares about the sales objectives?' " Dement said.

Dement is shifting his advertising budget toward selling used cars and certified pre-owned vehicles.

"I just approved all-new ad spend for February, and only 30 percent of it is targeted at new cars," he said. "With used cars, I can advertise the vehicle how I want to," he said. "I can control my cost, and the traffic is there. I make more money."