Nissan Price Cuts Put Industry on Alert, Hyundai Says

Automakers are scrutinizing Nissan (7201) Motor Co.’s move to cut prices on its cars and trucks in the U.S. as a test of whether the auto industry can avoid a price war, the head of Hyundai Motor Co. (005380)’s U.S. unit said.

Nissan’s competitors are eager to see if the carmaker will hold to its pledge to reduce incentives after cutting the prices of seven of its top-selling models, John Krafcik, chief executive officer of Hyundai Motor America, told reporters yesterday. The No. 2 Japanese automaker’s U.S. sales surged 25 percent in May, triple the industrywide gain.

“The first month wasn’t an indication of oh, the re-pricing was successful or not,” Krafcik said after accepting an automotive executive of the year award in Detroit. “It said if you put bigger discounts on your car, you’ll sell more of them. We already knew that as an industry. The question is now, is it going to stick as the big rebates go away?”

Nissan’s price cuts lowered the average price consumers paid for its models by $500 in May, according to Barclays Plc. Other automakers are “all watching closely” to see if Nissan’s average transaction prices fall further, Krafcik said.

“Our data demonstrates that overall transaction prices for the re-priced vehicles have risen and incentive spending has fallen,” Travis Parman, a Nissan spokesman, said in an e-mail yesterday. “While the strength of our new models is driving the bulk of the sales increases, the price repositioning strategy so far seems to be complementing the sales streak.”

Price War

Should Nissan’s price cuts be matched by Toyota Motor Corp. (7203) or General Motors Co. (GM), the world’s two largest automakers, that could set off a price war that would erode the profit progress made since the recession, Brian Johnson, a Chicago-based auto analyst for Barclays, said this month.

Hyundai is forecasting its slowest U.S. sales growth in five years after a 13-year streak in which it combined with affiliate Kia Motors Corp. (000270) in gaining U.S. market share. The Seoul-based carmakers have trailed industrywide sales growth in every month since September, constrained by plant capacity and battling more competitive U.S.-based automakers.

Hyundai and Kia combined to sell 522,818 cars and utility vehicles this year through May, a 1.4 percent decline, according to researcher Autodata Corp. Industrywide deliveries rose 7.3 percent.

Chung Mong Koo, chairman of Hyundai and Kia, is emphasizing a push to improve quality over adding to their North American manufacturing capacity. That has tested the automakers’ ability to build enough vehicles to keep up with demand in a U.S. auto market on pace to exceed 15 million sales this year for the first time since 2007.

Hyundai Capacity

“Right now, there are no plans, but we’re evaluating” whether to boost production in the U.S., Krafcik said yesterday. “We said that we want to get our quality operations systems absolutely ideal in every aspect of the company. Once we have those things running very, very well, we’ll make that decision.”

Deliveries of Hyundai vehicles should rise 4.4 percent to 734,000 this year, Krafcik said in March. That would be the smallest annual gain since 2008, when Hyundai sales fell 14 percent amid an industry that plunged 18 percent, according to Woodcliff Lake, New Jersey-based Autodata.

Nissan’s price cuts were the first sign of a Japanese automaker taking advantage of the weakening yen that Prime Minister Shinzo Abe has encouraged to improve Japan’s economy. That currency’s 18 percent swoon versus the dollar since Oct. 31 gives Japanese automakers the ability to cut prices or offer additional features while keeping prices even.

To contact the reporters on this story: Craig Trudell in Detroit at ctrudell1@bloomberg.net; Megan Durisin in Detroit at mdurisin@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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