Nissan's Push for Greater Market Share Comes With a Big Cost

Nissan is closing in on its goal of owning 10 percent of the North American market, but it opened itself up to plenty of risk along the way.

The surging automaker beat rival Honda in sales during the first half of this year, but only because of boosted incentives and increased fleet sales, Bloomberg reports. Big volume doesn’t always mean big profits.

Beating Honda was always a goal of CEO Carlos Ghosn. That, and the 10 percent market share.

Right now, Nissan stands at 9.2 percent in the U.S. and 9.7 percent in North America (using sales figures from the first half of the year). With just under 800,000 U.S. vehicle sales during 2016’s first six months (according to Autodata Inc.), Nissan topped Honda by about 6,000 units. (TTAC’s ranking puts the gap at about 20,000 units, with Nissan’s first-half sales rising 9.1 percent, year over year.)

That sounds great, but the back story isn’t good news for Nissan’s bean counters. According to Bloomberg, fleet sales rose 42 percent between January and May, to a total of 175,505 vehicles. Most of those sales went to rental agencies, meaning reduced profit for Nissan and lower average resale values for its vehicles.

Incentive spending rose 6 percent in the first half of 2016, to an average of $3,400 per vehicle — less than half of what Honda spends to move its cars. Nissan’s strategy now looks a lot like General Motors’ old game plan, before that automaker shifted its focus to profit at the expense of market share.

A Nissan spokesperson told Bloomberg that the spike in fleet sales was due to a backlog of orders. However, the publication points out that the automaker wouldn’t have beat Honda without those sales.

Thanks to the boosted discounts and fleet sales, Nissan’s finances suffered. The automaker’s chief financial officer, Joseph Peter, recently said the company’s operating profit fell 9.2 percent in the fiscal first quarter (April through June). Part of the blame went to currency changes, but he couldn’t rule out the impact of incentives.

The strategy looks like a losing game, so Nissan plans to push higher-profit vehicles to offset losses on incentivized low-end models. Judy Wheeler, the automaker’s U.S. vice-president, told Bloomberg that the company will boost production of its Armada SUV in the second half of the year, at the same time that the 2017 Titan pickup enters the market.

[Image: © 2016 Seth Parks/The Truth About Cars]