Two of the top Japanese automakers have been trading punches in recent days and, in the process, warning of potential problems to come, especially if the U.S. automotive market continues to slow down.
Sales took an unexpected dip in March after five years of generally steady growth coming out of the Great Recession. That has led a number of industry observers to worry that manufacturers might make some risky moves to shore up their sales and market share.
“As we see the industry flatten, nobody is flattening production volumes,” said Honda of America Executive Vice President John Mendel. As a result, he warned, “You’ll see some bloody battles out there.”
In fact, they may have already begun, he suggested during a media roundtable at the New York International Auto Show. In an unusually harsh attack, Mendel declared “bullshit,” when told that Nissan Motor Co. was in position to overtake Honda, insisting his rival was only doing so by ramping up incentives and “juicing their business” by putting 28% of their vehicles into fleet markets. Honda has traditionally minimized fleet sales.
For their part, Nissan officials were quick to rebut Mendel’s claims. If anything, his company has actually reduced fleet sales by 17% this year, countered Jose Munoz, head of Nissan North America. He also stressed that the maker is largely focused on profitable commercial fleet business, rather than rental fleets.
Munoz also insisted Nissan has trimmed its incentives, on average, by $700 per vehicle over the last two years.
It’s not alone. While the average transaction price, or ATP, for the typical vehicle sold in the U.S. last month rose 2.1% year-over-year, to $32,201, an analysis by data firm TrueCar found incentives shrank, $34 on average, to $2,691. There were a few exceptions, both Nissan and Honda raising their givebacks last month, TrueCar reported.
“The situation looks even more favorable” during the second quarter, forecast TrueCar Vice President Eric Lyman.
(Honda’s Mendel hypes Civic models coming soon. For more, Click Here.)
Not everyone is quite so upbeat. With other key economic indicators, such as jobs growth, stuttering, some fear the automotive recovery may be coming to a peak – or, at the very least, slowing from the torrid pace of the last two years.
March, said Nissan’s Munoz was “a little worse than expected,” though he insists that, for now, he is “not worried.”
(Click Here for details about Nissan’s need for additional U.S. capacity.)
Nissan Motor Co. CEO Carlos Ghosn said he was also upbeat, insisting that “you won’t see anything like” the years leading up to and through the Great Recession when incentives pushed to record levels, contributing to massive industry losses.
The real test will come when there is the inevitable slowdown. It is difficult for manufacturers to simply walk away from market share, Fiat Chrysler CEO Sergio Marchionne noted earlier this year. That has traditionally led to a push upwards in rebates and other incentives as makers struggle to keep factories running at optimum speed.
(To see more about the 2016 Nissan Maxima, Click Here.)
For their part, both Ford CEO Mark Fields, as well as General Motors Chief Executive Mary Barra, have said they are willing to trim production to keep it in line with demand. Whether this shift from a push to a pull market will continue when storm clouds hover over the industry remains to be seen.
The U.S. manufacturing mentality of over-produce and then discount the product to move it, is exactly what got the Big Three into bankruptcy. The Europeans have been smarter than to use this approach in the past but with stiff competition and a grandiose belief that being the highest volume auto maker is some worthy goal when product quality is dropping along with customer retention numbers, it’s too soon to say which auto companies will pay a very high price for poor business management.
The fact that Nissan has “cut back incentives by $700 per vehicle” illustrates how precarious the U.S. market really is. Zero percent interest rates and thousands in incentives shows just how much profit the auto makers enjoy when selling at sticker price. Consumers and tax payers end up paying for the follies of the Big Three and this affliction could spread to other brands.