Japan Automakers Likely To End High Discount Strategy In U.S. Due To Slow Growth There

Japanese automakers are being forced to think of other methods apart from discounts for generating market share growth due to a second consecutive year of slow growth in the auto market in the U.S. The Japanese companies are reportedly getting more focused on enhancing profitability.

There has been a steady fall in sales of auto in eh second parget auto market in the world from a high of 17.55 million vehicles in 2016 and this has increased competition between the global automakers for gaining more market dominance. Many companies have taken up the strategy of offering large discounts in the fast growing SUV and pick up truck segment while at the same time they are also trying to boost sales in the sedan segment which has shown very slow growth.

For Japanese auto makers including Toyota Motor Corp, and Mazda Motor Corp, their operating profits have dwindled due to deep U.S. discounting strategies as a means to compete. There is expectations in the market that the there would be a drop in the earnings from the North American market for these companies this year noting a second year of reducing profits from the market.

Once the auto companies are able to sell off their inventories of 2017 by the end of fiscal year in March, the market would see an end to the strategy of high discounts because such discounts are no longer a suitable strategy because there is stalled growth in the market said Nissan CEO Hiroto Saikawa in an interview earlier this in February.

“Competition for sales will be difficult in this environment, and improving the quality of sales will be important. We can’t compete only with incentives. We need to raise our marketing and brand value,” he said.

While seeking strong growth strategy in China, Nissan is bringing an end to its strategy of aggressive growth in the U.S. market which had been in force since 2011.

While that strategy has enhanced the market share of Nissan in the American market from 7.8 per cent in 2010 to about 9.2 per cent by the end of 2017, the strategy has also significantly increased the marketing costs for the company which are amongst the highest in the industry now.

In 2017, the discounts on its vehicles offered by Nissan was only beaten by Hyundai which offered an average of 18.6 per cent discount but were higher than that of 13.6 per cent offered by Ford as well as of the 14.1 per cent offered by FCA. Compared to other Japanese automakers, Nissan’s discounts were higher with 9.6 per cent being offered by Toyota and 7.9 per cent being offered by Honda.

“Raising incentives beyond these levels won’t necessarily translate into higher sales. We need to grow sales by promoting our products better,” said managing executive officer of another Japanese company Mazda – Yasuhiro Aoyama earlier in February.

“With the pie getting smaller, you’ll probably see incentives continuing on the most profitable vehicles as well as where automakers do not want to lose their market share,” said Brad Korner, general manager of Cox Automotive Rates and Incentives.

“As long as the other big volume players in incentives, like Ford, FCA, Hyundai, maintain their discounting, I don’t think that Nissan (and the others are) going to let up any.”

(Adapted from Reuters.com)

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Categories: Economy & Finance, Strategy, Sustainability

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