Only three years after Nissan Motor Co.'s (NASDAQOTH:NSANY) full redesign of its 2013 Sentra, the Japanese automaker plans to shake up the competition again this fall with an "incredibly freshened" 2016 Sentra, Nissan Senior Vice President Fred Diaz told Automotive News.
Historically, having a substantial refresh three years after a redesign, rather than the typical very subtle tweaks, is a red flag that the automaker zigged when it should have zagged in terms of the car's design, pricing or features, and that it's time to swallow pride and go back to the drawing board.
That's not the case with the Sentra, though, which has performed fairly well in recent years. In fact, the 2015 Nissan Sentra was recently named the top compact car in J.D. Power's Initial Quality Study; it was also an IIHS Top Safety Pick earlier this year.
So, if the Sentra is such a solid product in the compact-car segment, what's Nissan up to with this substantial refresh so early in its life cycle?
It's selling well, right?
In 2014, Nissan sold more than 183,000 Sentras in the U.S., which was a staggering 42% increase from 2013 and the nameplate's best sales year in the United States in more than two decades. Moreover, the Sentra's sales in 2015 haven't been deterred by tougher year-over-year comparisons: sales were up 15% through May.
However, despite the Sentra's success since its redesign in 2013, and recent surge in U.S. sales, it hasn't gained much ground on the competition.
The compact-car business is a high-volume sales segment in the U.S. automotive market, and thus presents a strong opportunity for automakers to quickly gain -- or lose -- market share. That's the driving force behind Nissan's substantial refresh of the Sentra only three years after its last redesign.
In 2011, Nissan CEO Carlos Ghosn set a goal for the automaker to control 10% of the U.S. car market by the end of fiscal 2016. At the time, Nissan controlled roughly 8.2% of the U.S. market, but through May 2015 it had only increased that figure to 8.7%.
Nissan hopes redesigned or refreshed vehicles, such as the Maxima sports sedan, the new Titan truck, the popular Rogue crossover utility, and the 2016 Sentra, will help move the needle on the company's lagging share in the U.S. market. In theory, it's a good move for Nissan, because rising market share and fresher vehicle lineups help drive higher profits and stock prices.
Unfortunately for automaker investors, the strategy to refresh vehicles more substantially and more often will come at a cost.
What it all means
In an industry that has grown significantly healthier since the Great Recession, mainly because automakers have refused to use massive incentives or deals to push vehicles off dealership lots, an increasing number of extreme midcycle refreshes could force other companies to follow suit to keep up. This trend could mean rising production costs and additional incentives to move only slightly older competing vehicles.
Ultimately, automakers competing in the U.S. market are doing very well right now, with many taking home near-historic-high profits. However, investors should keep an eye on highly competitive segments, such as the compact car, because if the strategy behind the 2016 Sentra becomes a trend for all players -- especially at a time when the average competitor in the U.S. auto industry plans to replace 80% of its lineup with new vehicles -- it could mean a much less profitable industry in the years ahead.