In pursuit of its goal of accounting for 10 percent of the U.S. automotive market, Nissan has adopted a different strategy than most automakers ever have: It is focusing powerfully on fleet sales to business clients such as rental car agencies and delivery firms, rather than solely on selling to individual consumers. This tactic has greatly expanded its sales volume, though that growth may be coming at the expense of its margins.
Nissan’s strategy has enabled it to become the top seller to rental car companies. These sales account for approximately 18 percent of all its sales—a higher percentage than the U.S. car companies (e.g., GM, Ford) that traditionally have stocked rental lots, and far greater than the percentage allowed by other Japanese car companies, which tend to avoid such fleet sales. This strategy also involves a shift in the types of products provided. Whereas many rental car options historically have involved the most basic models and versions, Nissan has sought to place well-equipped cars and SUVs with its business customers, in the hope that such higher-end models will appeal to the end customers of those clients. This move not only gives the business clients a means to differentiate their offer but also enhances the prospects for resale markets, because consumers are more likely to consider a used car that has all the bells and whistles.
However, there are several reasons that most other car companies either limit their proportion of fleet sales or have started moving away from this market. If a brand or particular model gains a reputation as being the car that people find when they visit the rental car counter, it can harm the brand image for the wider consumer market. Nissan believes it can avoid that risk though, by providing appealing versions of its popular Altima and Rogue vehicles. Thus, even if they encounter it as a rental, consumers still should have positive impressions of the car.
Another challenge pertains to the margins available. When pursuing fleet sales, car companies generally must offer volume incentives. Thus Nissan makes less per car when selling hundreds of vehicles to a rental company than it would earn by selling the same number of cars to individual consumers. At the same time, competition in the market has forced the company to offer increasing incentives to consumers, such that its operating profits recently fell by 42 percent. In this case too, the company has a response though: It asserts that the consistency of sales to rental car companies ultimately will enable it to make up for the lost margins.
- What factors have driven Nissan to pursue more business-to-business sales?
- What are the implications of this strategy for its sales to consumers?
- Is Nissan’s confidence in its ability to succeed with this strategy convincing, or are the risks too great?
Source: Mike Colias, “Nissan Makes Unconventional Bet on Rental-Car Market to Boost U.S. Sales,” The Wall Street Journal, December 27, 2017