Long before the coronavirus pandemic began shutting down the auto industry, Nissan’s U.S. retail network was grappling with its own crisis. About 40 percent of Nissan dealerships were hemorrhaging money. Aging products, coupled with years of heavy discounting and residual value-hurting fleet sales, left Nissan’s retailers with sluggish customer traffic and bloody balance sheets. Nissan was on a path to recovery. The automaker is pivoting away from an aggressive pursuit of market share championed by former Chairman Carlos Ghosn while orchestrating a product offensive that involves updating about 70 percent of its portfolio by mid-2021.

 

But now that recovery is at risk as the nation gradually goes into lockdown, silencing assembly lines and emptying showrooms and service departments. Nissan retailers and outside observers wonder whether the extraordinary economic complications of the coronavirus could prove lethal for some dealerships. The average Nissan dealership makes less than one-third of what the average Toyota dealership does, business broker Alan Haig estimates. That gives Nissan’s retailers a smaller financial cushion to outlast the current business slowdown. “Some dealers will choose to close their stores and repurpose the real estate for other uses, and some dealers are going to just run out of money,” predicted Haig, founder of Haig Partners LLC. However, he added, a smaller Nissan dealer network coming out of the crisis would be healthier for the survivors.

 

As the coronavirus crisis took hold in March, sales at Dave Wright Nissan in suburban Cedar Rapids, Iowa, fell 40 percent from a year ago. Service revenue was down 30 percent for the month. Given the slim margins, “dealerships can’t afford a 30 percent dip in business,” said the store’s dealer principal, Dave Wright. Business was difficult for dealers before the pandemic, Nissan National Dealer Advisory Board member Tyler Slade said last week. “Some dealers will not be able to survive — it’s just too much,” said Slade, operating partner at Tim Dahle Nissan Southtowne in suburban Salt Lake City. The new question is whether, once the economy recovers, Nissan dealers will struggle to recapture market share, given the automaker’s iffy financial health going into the crisis.

 

Nissan Motor Co. posted a net loss of $26.1 billion ($238 million) for the October-December quarter and cut its full-year operating profit forecast by 43 percent. Nissan Division sales during that late-2019 period dropped 16 percent in the United States. As a result, “Nissan might not have the ability to incentivize the consumer as much as Honda or Toyota, which have better balance sheets,” Haig said. “The burden of this crisis is going to be felt more by the weaker franchises.”

 

Stepping it up

 

Nissan had a strategy taking shape as the year began and it was showing positive results. Fresh product and a new dealer incentive program had sales off to a brisk start.”Then the world changed,” said David Kershaw, Nissan division vice president of sales and regional operations. Nissan Division’s U.S. sales dived 30 percent in the first quarter as consumer demand for vehicles and much else fell in the wake of the coronavirus pandemic. “Dealers know their business model has changed with COVID-19,” Kershaw said. “Their focus now is looking for ways that they can continue to work with customers, particularly the service side.” Profitability has been a challenge for Nissan for a while, Liza Borches, CEO of Carter Myers Automotive in Charlottesville, Va., told Automotive News last month. “They’re the one brand that’s going to need to be stepping up the most,” Borches said. “We need to get showroom traffic up for Nissan.”

 

Nissan executives recognize the gravity of the situation and have responded with a relief package that includes guaranteed dealer payouts, relaxed performance objectives and 0 percent interest customer financing. Nissan will cover up to two months of payments and defer payments on an additional three months for some new customers. For April, Nissan will guarantee dealers a $425 payout per vehicle sold. That’s an increase from a guaranteed $375 offered per vehicle in March. Monthly and quarterly sales objectives are also on hold. “Sales-based objectives must go away and we just need to get paid a guarantee per car so we can all be competitive,” Slade said. “There’s no way you can set objectives right now because business conditions in each city [are] so different from the next.”

 

To help control the expense line, finance captive Nissan Motor Acceptance Corp. is deferring floorplan interest payments for 60 days. Dealers can apply for a cash-flow assistance program, which allows six months of interest-only payments on existing mortgages and capital loans.

 

Staying nimble

 

David Basha, owner of Carriage Nissan near Atlanta, suggests the factory pause all incentive programs that don’t directly drive vehicle sales and pass on the dollars earmarked for those programs to retailers. “The key right now is keeping the dealers buoyant, keeping the dealers cash-flow positive,” Basha said, noting his showroom traffic was down 60 percent last month. Kershaw left the door open for additional dealer support. “We are constantly looking at all areas of their business,” he said. “We are nimble, we are agile, we are listening to what they say.” Nissan’s dealer incentive program, called Drive 2020, was delivering market traction in the first couple of months of the year, Kershaw said “There’s certainly no reason to believe that as the market comes back we don’t continue” with the momentum, he said.

 

View original article at: https://www.autonews.com/sales/nissan-turnaround-struggling-stores-jeopardy-amid-outbreak

About Urvaksh Karkaria