Nissan dealers: Riding the wave of lineup, sales program revamp

Nissan spent the past two years revitalizing its vehicle portfolio — and its dealer relations.

It's beginning to pay off.

"I used to get three to four calls a week from dealers saying, 'I just want to jump off a cliff,' " Nissan National Dealer Advisory Board Chairman Scott Smith told Automotive News. "Last year, I didn't receive one call from dealers despondent with the franchise."

A lineup reboot, which involves 10 new or updated models, has rekindled consumer enthusiasm in the Nissan brand. Management, meanwhile, jettisoned a controversial sales program that dealers say fostered chronic discounting and destroyed profitability.

"The temperature of the dealer body right now is very good," said Smith, president of Smith Automotive Group in the Atlanta area. "Nissan should never give the dealers a reason to not trust them again."

The Nissan brand ranked No. 15 out of 32 in the Summer 2021 National Automobile Dealers Association Dealer Attitude Survey — a barometer of how auto retailers feel about their franchise. It was a marked improvement from Nissan's No. 25 ranking a year earlier.

A resurgence in brand confidence lifted Nissan's U.S. sales 12 percent last year, a sharp reversal from 2020 when the automaker suffered its largest annual percentage decline.

But momentum can turn on a dime.

Nissan's recent profit-before-volume business strategy has gotten a lift from the industrywide supply chain shortage, which took 130,000 vehicles out of Nissan's North American production last year.

Smith said he has received assurances from Nissan leaders that they intend to stay away from pushing vehicles on dealers, even once supply constraints ease.

"Nissan realized overproduction created damaging problems," Smith said. "I could not imagine Nissan would ever want to ever go there again."

Smith, 57, spoke with Staff Reporter Urvaksh Karkaria about the headwinds and opportunities facing Nissan dealers in the year ahead. Here are edited excerpts.

Q: What are the Nissan dealer board's top agenda items for 2022?

A: The sales audit program must be revamped, similar to what Nissan did with its warranty audit program. If there's fraud, there's fraud. We recognize that. But if somebody makes a clerical error on how an incentive was applied, it shouldn't cost the dealer anything and we should be able to correct it.

We want to continue improving dealer-factory relationships. How the dealer views the relationship and how we see ourselves in the sales mix is key. Nissan's policies have eroded the partnership over the years. But lately, the brand has gone out of its way to make them more dealer-centric.

How significant was the decision to drop the Dealer Volume Bonus program in improving the factory-dealer relationship?

The DVB program didn't accomplish what it intended to do — which was to engage 75 to 80 percent of dealers in the program. We had some short-term wins, but everything had a long-term consequence.

Selling cars in high quantity and below cost to the public does nobody any good. It drags down resale and brand values. When we eliminated the incentive program, dealers right-sized their business and focused on selling to natural demand. Now we know what a car deal is, what it represents in profit.

Once production returns to normal volumes, we must ensure that product pricing has enough dealer margin where we don't have to rely on just a quarterly volume bonus to survive.

What is the takeaway for Nissan management from the stair-step program debacle?

It showed the benefits of finding retail solutions along with the dealers who are closest to the customer.

As entrepreneurs, we find solutions that meet our customers' needs. We do it not only to make a fair profit, but for the longevity of our brand.

Dealerships are multigenerational — I have five sons. When I deliver a car, I want that customer to come back again and again.

The Nissan Next strategic plan pivots the brand from a focus on market share to one that prioritizes profit. Will Nissan stick to this path when vehicle production returns to normal?

Management — in the U.S. and Japan — is committed to building to natural demand even when production levels normalize. They've reassured us they're going to invest in proper marketing in the right launches. And they want to improve the resale value by pulling back on rental fleet sales.

Does rising inflation risk derailing dealer profitability this year?

It's the elephant in the room. The increase in the cost of goods and services — from delivery fees to shop supplies — threatens margins. You can only pass on so much to the customer.

What new vehicles are you looking forward to this year?

The Ariya electric crossover is going to bring new customers to Nissan because of the segment and the technology. We are going to build on that customer base with additional products. Nissan wants to have an EV in every segment. We hear the GTR is going all-electric in 2025, or 2026.

With more EVs coming to Nissan, how will that affect dealer margins?

There's a consensus that dealers are going to maintain fixed ops revenues with EVs to some extent. The electric models are not perfect; they still require warranty work and maintenance.

But the concern is EVs don't have as many moving parts as combustion engine vehicles. So, there's a bit of an unknown on service profitability with electric cars.

We might have to rethink how we sell the cars on the front end. We're going to have to ensure that there's margin in those cars because we're not convinced that there's going to be, over time, the same return on servicing EVs.

Have sales incentives changed during this time of decreased production?

Generally, factory incentives have come down. When you had 10 or 20 cars on the lot, there used to be a $3,500 incentive on the car. Now, they might have $2,000 in incentives.

Having less incentive is not a bad thing. It's brought transaction prices up and realigned us with some of the competition. But, as supply returns, Nissan may have to increase it on some higher-volume models to hit the share that they anticipate.

We've learned a big lesson: Spending too much on incentives and building too much is not the recipe for success.

How are dealers handling new-vehicle pricing?

Dealers in less competitive markets are adding markups, but most Nissan dealers are sticking with MSRP.

I'm selling cars in my stores under MSRP rather than holding out for the highest gross. I would rather, during these times, make a statement to my consumer that "I'm here for you."

With new-vehicle supply shortages, what are Nissan dealers doing to bolster their used-vehicle business?

The inventory shortage has put an injection into the certified pre-owned business. Nissan is incentivizing CPO cars through more competitive financing rates. CPO packages have also been enhanced and aggressively priced.

We can't sell as many new cars. But if we could sell 30 more CPOs in a store, you're still keeping customers in the brand.

Have fixed operations revenues returned to pre-pandemic levels?

We have exceeded pre-pandemic levels in demand and revenue. The only issue is staffing. We have eight to 14 people out due to COVID — half of them in fixed ops. When you have 12 technicians, and two or three of them are out at a time, it affects the business.

How difficult is hiring and retention in a tight labor market?

We've improved pay plans to let employees know they're a valuable asset to our company and our profitability. Without the opportunity to sell quite as many cars, we have had to increase the sales bonus on a per-car basis. Payout in the sales department has increased about 5 percent.

We're offering better employee benefits, such as lower insurance premiums. Health insurance costs have increased 15 to 20 percent from last year and we've absorbed a majority of that.

We also have put more emphasis on customer satisfaction in the pay plan. It's not only about how much revenue employees produce, it's how they take care of our consumers.

How has productivity of the sales staff changed during the pandemic and inventory shortage?

Two of my stores last month outsold what they did the prior year. A good salesperson, who's always hungry, they're going to find a way to get it done. During pandemic lockdowns, salespeople had to sharpen their skills.

Is the Nissan@Home digital platform resonating with dealers?

It's too early to tell, but we're optimistic. Some dealers are doing reasonably well with it. But others don't feel that it's where Nissan's resources should be. But the whole industry is heading in the direction of digital platforms to better engage with the consumer.

Have there been any changes in Nissan's facility image program amid the pandemic?

Nissan has relaxed its image program requirements, but dealers should continue to invest in store upkeep. There was a period around 2015 when Nissan tied dealer bonus money to meeting facilities upgrades. It became adversarial. Nissan now asks us to be good stewards of the condition of our dealerships, but they're not tying incentives to it like before.