It's official: Nissan stair-step scheme is dead

Nissan is killing a retail sales program that has been a thorn in the sides of dealers for a decade — not to mention failing in its primary goal of driving market share.

The automaker told Automotive News last week that it will officially abandon its controversial "stair-step" dealer volume bonus program, which has used cash awards to incentivize retailers to hit aggressive monthly, quarterly or year-end sales goals.

That strategy, a tool in former Chairman Carlos Ghosn's dogged campaign to grow U.S. market share, has long irked Nissan's retailers, many of whom argue the automaker pushed unrealistic sales targets that fostered a culture of price discounting, diminished resale values and damaged brand reputation.

But Nissan management has gotten the message, U.S. sales chief Judy Wheeler said.

"We have been hearing loudly and clearly from our national dealer advisory board, from our NADA survey results," Wheeler said. "It's very clear that it was time for us to change."

The change will come in the form of a new bonus plan that replaces the pressure of hitting ever-growing sales targets with a much simpler one that rewards dealers for delivering customer service and building brand loyalty.

The new Nissan Next Retail Program, which dealers learned about last week, comes as Nissan completes a two-year product revamp, and it aligns with the automaker's pivot away from the Ghosn-era culture of "market share first."

"We're removing the push for sales volume and instead focusing on value," Wheeler said. With the newer product portfolio, "this is our opportunity to get off the 'deal' and focus more on the value of the product," she said.

Nissan's decision to walk away from sales objectives "is a big deal," said Tyler Slade, operating partner at Tim Dahle Nissan Southtowne in suburban Salt Lake City.

"Forever, dealers have struggled with the fact that 'if I have a big sales month, Nissan is going to punish me with a bigger objectives number the next month,' " Slade said. "Under the new plan, there's no punishment for selling more cars. Now there's no downside to maxing out on sales."

As part of the Nissan Next Retail plan, the brand's 1,073 U.S. retailers will receive a $250 bonus for every vehicle they sell.

The previous sales target-based program also fostered intra-brand competition among dealers, and that hurt dealer body profitability, many said. The new program will reward dealers for taking care of the customers in such a way that they also return to the brand for their next vehicle purchase.

Dealers can earn an additional $500, on average, for vehicles sold to repeat customers. The amount varies based on the dealer's customer loyalty scores and the models sold.

Sales-objectives programs are seen as a lever for automakers to coax dealers to sell a few more vehicles each month. But in Nissan's case, it wasn't working — especially as many of its retailers have opted out of the program.

"Half the dealer body hates the program and it has run its course," Nissan National Dealer Advisory Board Chairman Scott Smith said. "Nissan desperately needs to engage more than just 50 to 60 percent of the dealer body."

Nissan Division's U.S. market share tumbled to 5.6 percent last year from 8.4 percent in 2017, according to the Automotive News Research & Data Center.

Wilson Sisk, president of Sisk Auto Mall in Hopkinsville, Ky., said the new program is dealer-friendly and more sustainable for the manufacturer.

"All of us are tired of these chase-your-number programs that weren't good for the brand, were difficult to manage and difficult to plan advertising around," Sisk said. "You could spend a ton of money and not hit your number. You could do a pretty good job for the manufacturer and a terrible job for yourself."

But not all dealers objected to the objectives-based programs.

For some high-volume stores, the bonuses were critical to profitability.

"For the high-volume and high-achieving dealers, they will make a little less money than what they potentially have been making under the old program," Slade said.

With the factory payout per vehicle shrinking, Nissan dealers must change the way they sell. "Now, if a dealer wants to be profitable, he can't rely on the manufacturer as much as he could," said a Tennessee Nissan dealer who asked not to be identified. "We're going to have to get better at selling the value of the product to the customer, and not just selling the deal."

Sisk said good dealers will find a way to be profitable even with less manufacturer money.

"I'd like to get back to selling the features and benefits of the car, not just talking about the rebates and the discounts, but rather talking about the value," he said.

Removing sales objectives levels the playing field for dealers and "eliminates bad behavior," said Mike Rezi, dealer principal of two Nissan stores in Atlanta and Cookeville, Tenn.

"Nissan has listened to its dealer network and made changes to further the brand and franchise value," he said.

The shift could fuel the brand's recent momentum. Dealers are already seeing a lift in sales from the wave of updated Nissan products, which command a higher profit margin and drive foot traffic into stores.

The change comes as the industry faces tight inventories because of parts shortages. Pushing sales makes little sense when vehicles are scarce.

"If Nissan is going to rip the Band-Aid off, this is the time to do it," said Smith, president of Smith Automotive Group near Atlanta. "But do they have the patience and discipline, when car production comes back in six or nine months, to stick with this program if market share drops?"

This is not the first time Nissan has considered changes in the problematic old program.

In 2019, Nissan North America executives told dealers they would evaluate moving away from the stair-step incentive program, but then decided to keep it. And in February 2020, to win back dealers who had dropped out, Nissan overhauled the program, doubling sales-volume bonuses to help drive foot traffic and lift dealer profitability.

Then, during the automaker's COVID-related hiatus from the old incentives program, something curious became apparent, according to Wheeler.

Market share rose higher than what Nissan expected at the time. "It was a little bit of an aha moment," Wheeler said. "We were like, 'Wait a minute — we have no objectives during that period, and our dealers actually performed better?' "

Wheeler believes that freeing retailers from the pressure and mechanics of sales objectives will let them focus on simply selling.

Dealers "can sell as much as they want and they will not be penalized," Wheeler said.

She said the new strategy has the support of Nissan Motor Co. leadership in Yokohama, Japan. Executives there have been supportive of the U.S. subsidiary working out the plans and "know that they have to give us the tools to be successful in this market," Wheeler said.

Many dealers are also optimistic the new program will begin a new, less chaotic chapter in Nissan's relationship with its franchises.

"This is the best plan we've seen in decades," Smith said. "If we do it the right way, we could be Honda in two years."