Nissan: Redesigns breathe new life into struggling brand

Nissan Motor Co.'s product overhaul has transformed the automaker's U.S. lineup from the industry's oldest to among the newest.

The product renaissance, which included redesigns of the core models such as the Rogue and Pathfinder, has lifted consumer and dealer interest in the struggling Japanese brand.

Meanwhile, rising dealer profitability and a pullback from aggressive sales programs have brightened dealer-factory relations.

"Nissan dealers are bullish on the franchise," Tyler Slade, Nissan National Dealer Advisory Board chairman, told Automotive News. "We are seeing long-term-minded sales policies, rather than short-term shots-in-the-arm that damage the brand."

But the optimism of the past couple of years could evaporate as the economy turns.

Inflation threatens to bite into demand for big-ticket purchases, such as crossovers.

Meanwhile, as pandemic-era supply chain shortages dissipate and the industry dials up production, once-hefty dealer margins could come under pressure.

"It's a worrisome time with the change in market conditions," said Slade, operating partner at Tim Dahle Nissan Southtowne in suburban Salt Lake City. "Nissan must keep residual values high and the brand strong."

Slade, 49, spoke with Staff Reporter Urvaksh Karkaria about the headwinds and opportunities facing Nissan dealers in 2023. Here are edited excerpts.

Q: What's on the dealer board's agenda this year?

A: The process of getting warranty labor rate increases approved is arduous. When dealers seek an increase and provide documentation, in certain instances, Nissan will ask for more information multiple times and be confrontational about the number we're trying to justify. It can create friction between dealers and the factory. We need to pay our technicians competitively or we will lose them.

The dealer board is also tackling the challenges Nissan has had with recent product launches. We must be better at getting new product to market quicker. The new Z and Ariya launches have been difficult for dealers.

What are the headwinds in 2023?

High-interest rates and rising inventory as supply improves will strain dealer profitability. That could create significant employee turnover and affect the overall customer experience.

Inflation affects mainstream brands' sales volume and dealer profitability more than luxury brands. Nissan customers generally live paycheck to paycheck. As vehicle prices increase, our average customer's monthly payment becomes out of reach. The updated lineup and a pullback in factory incentives have raised sticker prices on core Nissan models by $3,000 to $5,000.

To offset that, Nissan must grow the vehicle leasing business. Rising residual values on new models make leasing a more affordable option.

What must Nissan do to help dealers sell cars with interest rates surging?

As a mainstream brand, affordability is critical. The average monthly payment of a new Nissan vehicle has risen more than $100 a month from pre-pandemic averages. [Nissan Motor Acceptance Corp.] must subvent the interest rate and find creative ways to lower the average monthly payment.

What are dealers doing to acquire used vehicles?

Buying cars from the public, referred to in the industry as "street purchase," is more challenging as used-car values have fallen about 15 percent. When used-car prices were high, it was easy for customers to sell their cars to dealers because they had equity. Fewer customers say yes to offers now because they owe more than the vehicle's value.

Dealers are returning to auctions, where sellers are more motivated.

How will sales incentives evolve as vehicle supply increases?

Historically, an over-reliance on incentives to drive volume damaged Nissan's residual values. As production ramps up, it will be a great test to see if Nissan will be more strategic with sales incentives.

Instead of putting a lot of cash incentives on the hood of every vehicle to every customer, Nissan should focus on loyalty cash. That helps keep customers already loyal to Nissan in the brand, which strengthens residual values.

What does Nissan's pivot from a focus on market share to one that prioritizes profit mean for dealers?

Nissan's U.S. management has said it is committed to maintaining a 45 days' supply in the long run. But the average Nissan dealer is skeptical.

Staying disciplined with production could be challenging when competitors ramp up supply to gain market share. Let's play the long game of building brand value and not do short-term sales practices that crush residual values.

Dealers must also hold to higher transaction prices and sell the value instead of the price. Gone are the days of hitting retail objectives at all costs. We must treat customers so they become lifetime buyers of the Nissan brand.

What are dealers doing to overcome tight inventories?

Dealers are selling into their pipeline.

Stores advertise incoming inventory and post the Monroney with delivery ETAs on showroom windows. Customers can sign their name on the Monroney and put a deposit on the car. It's efficient and has proven to be a good best practice.

Why has Nissan struggled with bringing products to market on time?

Nissan, with its Japanese heritage, is maniacal about perfectionism. Nissan is so concerned about ensuring that the product is as perfect as possible we get these delays. Some other OEMs are quicker to say, "You know what, I know this isn't exactly how we want it, but let's get it to market."

Nissan has said it hopes to shrink the time between product redesigns by about two years. They've seen the damage from having an aging product portfolio. But it's a delicate balance between investing in R&D and getting product to market quickly versus maximizing shareholder profitability.

How has the new product changed dealer perception and the customer demographic?

A record number of Nissan dealers are opting to invest in new facilities. You don't spend millions of dollars of your own money building or redesigning facilities if you don't feel the brand has a promising future.

The franchise offers good value because of the brand's historical struggles. Nissan stores sell for less than the other Japanese franchises. So, dealers should see a considerable return on their investment.

The updated product is drawing better-qualified buyers. The average credit score of customers at my Nissan stores has increased by about 25 points.

When you have a product that has intrinsic value in the market, it will bring a higher demographic. When all you're selling is price, you're catering to a lower demographic.

Given the increased dealer enthusiasm in the Nissan franchise, do you expect the network to grow?

Nissan is not interested in increasing its dealer count. Instead, they want to be strategic about the network footprint. The idea is to increase dealer representation in growing markets and not replace closed stores in poorly performing markets.

Nissan expects electric vehicles to account for 40 percent of U.S. sales by 2030. What does that mean for dealers' service and parts business?

By 2030, Nissan expects 16 percent of its vehicles on the road to be EVs, so gasoline-powered vehicles will continue to account for most of the units in operation for some time.

But make no mistake, the EV business is a significant concern for the franchised dealer's service and parts business going forward. Historical data shows that the service revenue from [battery-powered] Leaf vehicles is half that of ICE vehicles.

To soften the blow on dealers' fixed ops business, Nissan is giving new Leaf and Ariya buyers a three-year complimentary maintenance package that will drive customers back to the service drive. It's a crack at the plate to keep customers loyal to our stores.

What does the shift toward EVs mean for dealer margins?

Dealers need to make more on the initial sale of the EV to offset the drop in service and parts revenue. We still have expenses to cover.

The EV dealer margin must be more than an ICE vehicle. If dealers don't have the revenue to operate profitably in the future, manufacturers will have to adjust or risk losing their dealers. If there's insufficient margin to operate profitably, dealers will not order EVs.

How's the early interest in Nissan's second electric model, the Ariya crossover?

I see lots of customer excitement. This EV craze has been fantastic. Nissan has historically struggled in the western part of the United States, specifically California. The Ariya is allowing Nissan to be much more competitive in that part of the country.

Hyundai Motor Group is leaning in on EVs, with several models planned. Should Nissan move faster in bringing EVs to the market?

While Nissan is well ahead of its Japanese peers in the EV space, we must look at the right competitors. Nissan must square its sights on the Koreans and Volkswagen because that's where the race is being run.

But as everybody else is going so hard at EVs, Nissan could win by continuing to develop compelling ICE vehicles over the next 10 years.

Could the Inflation Reduction Act's stringent eligibility rules slow EV adoption, as many models don't qualify for the federal tax credit?

The new Nissan Ariya electric crossover will be tougher to sell without the $7,500 tax credit. But we're not going to tell a customer interested in the Ariya to go to a Ford store and buy a Mach-E, which receives the credit. Instead, we will talk them out of the Ariya EV and steer them to a similar Nissan ICE model.

The intent of the law is good, but the execution is terrible. Give automakers a longer runway to get where you need them to be. Leaving manufacturers with no time to ramp up U.S. production and supply chains is unfair.

How is the redesigned Frontier helping the brand?

The new Frontier has helped with conquest and the residual values are stellar. The pickup outperforms the Toyota Tacoma in every measurable aspect. That emboldens dealers and salespeople to have these claims of superiority over Toyota, which we've never had. It brings a lot of excitement and energy to the showroom, and customers feel that.

The Titan has not gained much market traction. Does Nissan need to play in the full-size pickup segment to be competitive?

A full-size pickup offers an upgrade path to Nissan's Frontier pickup customers who need more capability. We want to protect against losing our customers to a full-size brand. A full range of truck models is important when selling to commercial customers, who prefer to source their fleets from the same brand for maintenance reasons.

What new products are you excited about?

With rising inflation, the redesigned Kicks crossover will be a winner when it arrives early next year. It will be our least expensive crossover and desirable in a high-interest-rate climate. The new model is sportier and more rugged than the current Kicks.

What's missing from the Nissan portfolio?

Dealers want a midsize electric pickup. The Frontier hardbody has been a part of Nissan's brand for decades. It's logical to bring an electric version.

An all-new GT-R supercar would build excitement around Nissan's engineering and bring buyers for the mainstream models.

How is the Nissan@Home digital platform helping dealers?

About 75 percent of Nissan dealers have adopted the digital platform. It allows customers to drive the car-buying process. It generates sales opportunities for dealers and will enable us to compete with online retailers like Carvana.

What improvements would you suggest for Nissan's digital retailing efforts?

Dealers are at their best when they have more options for different sales processes based on local market conditions. There are many third-party solutions for digital retailing, and we would love more choices.

Also, dealers would prefer more customization within the Nissan@Home platform.