Nissan's (NASDAQOTH:NSANY) premium brand Infiniti couldn't capitalize on the strong U.S. demand last year. Where most brands posted healthy gains -- be it Audi, BMW, Mercedes, Cadillac, Lincoln, or Lexus -- Infiniti saw a decline in both sale volumes and average selling prices. Since then, the U.S. luxury market has picked up further momentum and, in the first five months of the year, the segment grew at more than double the overall auto industry's rate. This time, Infiniti won't miss the bus. Armed with new models and new strategies, it's rapidly covering lost ground.
Solid growth in past six months
Sales of Infiniti vehicles have rebounded nicely, with 13.6% growth through June this year, ahead of the 12.8% growth that Nissan saw overall in the U.S. Among luxury brands, only Lincoln and Lexus sales have grown faster. In the first half of 2014, 59,341 Infiniti vehicles left the showrooms in the U.S. compared with 52,233 vehicles in the same period last year, and average selling prices were up 8% year over year, to $47,830. The brand's best sellers were Q50 sedans, launched toward the end of last year, and QX60 crossovers.
Infiniti still lags most of its peers in terms of market share -- last month, it accounted for 5.4% of the industry sales against BMW's 19.2%, Mercedes' 16.8%, Lexus' 14.9%, Audi's 10.7%, Cadillac's 8.9%, and Acura's 7.1%. However, with the sales offensive planned by CEO Carlos Ghosn, this could change soon.
Reducing gap with rivals
Nissan brought its premium Infiniti brand to North America in 1989, the same year in which Toyota (NYSE:TM) introduced Lexus. But the fate of the two luxury brands has been completely different. Lexus immediately attracted U.S. buyers, and was the country's best-selling luxury brand for 11 long years until the tsunami and the earthquake hit production in Japan in 2011. In comparison, Infiniti failed to take off properly, and missed key models in the segments where it competed.
Michael Bartsch, vice-president of Nissan's American unit, rightly diagnosed:
The challenge of Infiniti is not the quality of the products, not the ability to build premium-class cars. We have to broaden our reach. The brand is too narrow in segments we're participating in.
In order to change that, Nissan has roped in market expert Francois Bancon to formulate Infiniti's product strategy, and plans to boost its luxury portfolio by 60% in the coming five years. The company already launched the Q50 sedan last August, but the offensive will start in full force next year with a new Q30 compact hatchback, and QX30 crossover.
The Q50 sedan is the successor of the aging G series, sales of which are dwindling. Q50 not only has a more spacious interior and stylish exterior than its predecessor, it also flaunts the first-in-class steer-by-wire technology that provides superior control of the wheels. With many more advanced features, the Q50 competes with BMW's 3-series and Mercedes-Benz' C-Class models.
Along with the launches, Infiniti also intends to polish its brand image -- it's looking for a good ad agency in the U.S., and has asked its dealers to adopt similar showroom themes and practices, according to Wardsauto. Despite a slow start in the earlier months of 2014, the U.S. auto industry has gained strength in the past two months mostly because of the improving U.S. economy, and low rate of interest on car loans. And Infiniti is doing all it can to cash in.
On June 27, Renault-Nissan, a 15-year-old association, formed a 50-50 partnership with Daimler (NASDAQOTH:DDAIF), parent of Mercedes-Benz, to jointly develop and manufacture compact cars for Infiniti and Mercedes-Benz brands from a Mexican facility. Mexico is a good choice, as operating costs would be much lower due to cheap labor and proximity to the U.S. On top of that, Mexico has free-trade agreements with 30 other countries.
The plant will have a capacity of manufacturing 300,000 cars annually, and production for Infiniti will start from 2017. This will boost Infiniti's total annual capacity from the existing 850,000-unit level. The Infiniti models from the Mexican plant will be built on the Mercedes car platform. The $1.36-billion investment plan could be a win-win for both the companies. The duo will also jointly develop four-cylinder gas engines from a Tennessee-based plant.
Mercedes-Benz is the second most-popular luxury-car brand in the U.S., and this close association with its parent could help Infiniti enhance its market share.
Solid demand in the U.S. luxury car market is a good opportunity for Nissan's Infiniti to grow sales. The brand contributes 9% toward Nissan's total U.S. sales, and much more toward profits. Nissan has an aggressive plan for repositioning the brand through the rollout of new products, structured marketing, and greater commitment from dealers. The first six months of 2014 have been good and, as benefits from the new strategies start kicking in, Infiniti could do even better.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.