The second straight year of slowing growth for the auto market in the U.S. is forcing automakers from Japan to reconsider their discounts to increase market share and place more focus on increasing profitability in what is their biggest market.
Global automakers have battled for domination in the No. 2 largest market in the world as annual sales keep sliding from the record high in 2016 of 17.55 million units.
Many have used price cuts to increase market share across growth segments such as pick-ups and SUVs, while also supporting sales in the sedan segment that continues to struggle.
The cost of discounting in the U.S. has hurt operating profits for most of the automakers from Japan, including Toyota and Mazda, where earnings for North America are expected to fall for the third consecutive year in 2018.
Profits for Nissan in North America are expected to drop for a second straight year. During an interview earlier in February, Hiroto Saikawa the CEO of Nissan said that days of high incentives would be ending when the automaker finishes its 2017 models in March, the end of its financial year, as large discounts were not sustainable in a market that has seen its growth stall.
Competition for auto sales will become more difficult in this type of environment and improving the quality of each sale is going to become very important and we cannot compete just by using incentives we need to increase marketing as well as brand value, added the Nissan CEO.
Nissan, after placing focus on growing sales aggressively in the U.S. since 2011, is not putting the stop on that particular strategy, though it looks for strong growth across China.
While growth strategy for Nissan in the U.S. boosted its share of the market to 9.2% at 2017 year end, which was up from 2010’s level of 7.8%, it also increased its expenses for marketing to levels amongst the highest anywhere in the industry.
Data taken from online analytics firm J.D. Power show in 2017 Nissan incentives averaged 16.7% of the vehicle prices, which was higher than the 10.6% industry average.
In 2017, Nissan discounts end as the second highest to just Hyundai Motor’s which were 18.6%, and were above the 13.6% of Ford and 14.1% of FCA. They were significantly higher than Toyota’s 9.6% and Honda’s 7.9%.
Nissan added that overproduction of its Altima sedan, which has struggled, prior to the release of its new model for 2018 led to increased discounts.