Drive On: Will Nissan ruin the profit party?

A car drives by a Nissan dealership in Colma, Calif.

Will Nissan ruin the party?

Automakers are experiencing not only huge sales, but consumers are forking over unusually high prices. It’s been the kind of climate that automakers could have barely imagined four years ago when the car market hit rock bottom.

Now comes Nissan to ruin the party. The Japanese automaker, emboldened by a “take-no-prisoners approach to gaining U.S. Market share,” has cut prices on seven models and is boosting incentives, Bloomberg News reports.

Needless to say, it’s working. Nissan’s sales rose 25% in May and the discounted Altima sedan beat Ford’s Fusion.

Now the question is will other automakers be forced to follow. And if they do, will it cut into profitability enough that the good times will come to an end — even as consumer benefit from lower prices?

Automakers are in a unique position. Even when the auto market was vibrant a decade ago, the Detroit Three saw narrow profits or losses because they were making more vehicles than the market would bear, forcing them to slash prices.

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Nissan’s cost cutting isn’t due to slumping sales as much as it may be taking advantage of currency flows. Japan’s yen has grown 15% against the dollar since October, Bloomberg says. It’s passing on the savings — at least for models still made in Japan.

These days, however, almost all foreign automakers have extensive U.S. Manufacturing to protect themselves from unfavorable currency exchanges.

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