Global Economics

Potholes Ahead


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In the summer of 2004, designers at Nissan Motor Co. (NSANY) presented the auto maker's top brass with a bold makeover of the Sentra compact. The Sentra -- Nissan's No. 2 seller in the all-important U.S. market -- needed an update to give it a look similar to the larger Altima and Maxima sedans, which have underpinned Nissan's recovery from near-bankruptcy in the late '90s. The verdict on the design: a strong thumbs-down. Focus groups indicated they thought it was too edgy, so the design team headed back to the studio to tone down the car's lines. ``It was too different,'' says Shiro Nakamura, Nissan's chief creative officer and top designer. ``So we pushed back.''

Way back. The company finally unveiled the new Sentra earlier this year -- and only now is it being readied for shipment to U.S. dealers in the fall. The car, while still a dramatic departure from the model it will replace, doesn't quite have the radical profile of the original proposal. In the end, Nakamura says, he ``changed maybe 20%, but that was enough for it to become acceptable.''

Nissan could use a lift. Although the company's margins are the best in the business, its pipeline of fresh vehicles for the American market has dried up. The last new model in the U.S. was the Xterra SUV in February, 2005. Despite rising incentives, Nissan's April U.S. sales were down 1.7% from a year earlier, while Toyota Motor Corp.'s (TM) rose 8.5% and Honda Motor Co.'s (HMC) were up 6.8%. On Apr. 20, Nissan announced it would stop manufacturing at plants in Tennessee and Mississippi for six days to cut inventories. Worse, the Sentra's delay means Nissan has a smaller window of opportunity to create a hit compact just as gas prices rise and sales in the category take off. Honda's Civic has sold well since being redesigned last fall. And Toyota is expected to launch a new Corolla next year. ``We've lost a little bit of market share because of the delay, and Toyota and Honda seem to roll out a new model every six months,'' says Frank Hernandez, a manager at Stevens Creek Nissan in Santa Clara, Calif.

Nissan is betting that the Sentra and a host of other new models will help. The company hopes to improve upon the 119,000 Sentras it sold in 2005, and June will see the U.S. launch of the Versa subcompact. More important, a new Altima family sedan -- Nissan's best-seller in the U.S. -- and a new Infiniti G35 sports sedan will follow by yearend. ``Nissan has been in a long, dark tunnel, but there is light at the end of it,'' says Chris Richter, an analyst at CLSA Asia-Pacific Markets.

Still, Nakamura says he has no regrets about the delay. He knows what it's like to launch a flawed vehicle: He flubbed a redesign of the Quest minivan that proved too extreme for soccer moms, and ultimately had to redesign the interior. So Nakamura wanted to make sure he got the Sentra right before putting it in front of fussy American buyers. ``The delay wasn't good for dealers or customers, but we think the design is much more appealing,'' Nakamura says. ``The Sentra has caught up with the Altima.''

The new Sentra is two inches longer and four inches wider than the current generation, and it has the sloping, angular look of the Altima and Maxima sedans. With a starting price of about $15,000, it's also some $2,000 more than the current model. Nissan doesn't consider that a problem since the Versa, starting around $12,000, will take over the bottom end of the market. ``The Sentra is getting bumped up to the next class,'' says Jason Nebgen, a sales consultant at South Point Nissan in Austin, Tex.

Not everyone is convinced the new design will be enough to get Nissan back into form. After Nissan introduced the Sentra at the Detroit auto show, comments on car Web sites were mixed, with several on autoblog.com calling the design ``ugly.'' Some even worry that the Versa could provide competition for its big brother. ``The Versa will cannibalize sales a little bit,'' acknowledges Dave Butler, general sales manager at Michael Jordan Nissan in Durham, N.C. Even after the redesign, it seems, the Sentra faces plenty of potholes.


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