For Nissan Motor Co. Ltd., China promises to become tasty frosting, but North America remains the irreplaceable 3-layer cake — U.S., Mexico and Canada — where most sales are made and most profits are generated.

Norio Matsumura, executive vice president of Japan's No.2 auto maker as well as president of Nissan North America Inc., underscores this reality in an interview in Gardena, CA, with Ward's.

“China is a significant automotive market which may grow to 8 million vehicle sales annually by 2010,” Matsumura says. “But I still see the U.S. market of most importance to Nissan for at least 10 more years.”

North America accounts for nearly 40% of Nissan's global sales, and in each of the past four years sales here have exceeded those in Japan, with the gap widening each year.

Nissan is spending several billion dollars on new models and a new U.S. assembly plant now ramping up in Canton, MS, all aimed at maintaining momentum.

The U.S. market accounts for roughly 75% of total North American sales for Nissan. U.S. sales peaked in 1994 at 774,400 units and sank to 621,500 in 1998 before recovery began the following year.

At the current pace, sales this year could increase 10% to a new record high of 813,000 and are expected to head still higher in 2004, spurred on by Nissan's new fullsize Titan pickup and Pathfinder Armada SUV and an Infiniti model, the QX56, built on the same platform due next spring.

With Nissan joining Toyota Motor Corp. in manufacturing fullsize pickups and Honda Motor Co. Ltd. a definite “maybe,” Matsumura does not rule out a repeat in trucks by Japanese makers in the years ahead to match their remarkable gains in the car sector, from virtually zero in 1957 to more than 30% of the U.S. market today.

“We'll have to see,” he says. “It will depend on providing high quality and high performance, which are important assets for Japanese manufacturers. Since this market segment won't grow drastically, conquest sales will be necessary, but we should not underestimate the prowess of the U.S. Big Three.”

Matsumura minimizes the shift in August that, for the first time, put Toyota third in U.S. market share, ahead of the Chrysler Group, and discounts talk about the “U.S. Big Two.”

In his opinion, the three most significant automotive developments in North America are continuing growth in the luxury segment, the increasing popularity of cross/utility vehicles and the destructive “incentive war.”

In October, Big Three spending on incentives averaged $3,445 per vehicle, compared with $931 by Japanese makers, according to “Participation in this 'war' is necessary in some segments to support our products, but, in general, Nissan won't participate,” Matsumura says. He declines to reveal details of his company's level of “participation.”

He disagrees with a recent J.P. Morgan Securities Asia study that North America generates 75% of all Nissan profits worldwide and notes that, last year, Nissan's operating profit ratio of 10%-plus was the highest in the global auto industry.

But what he finds most satisfying is what Nissan North America has done and is doing.

A stable of attractive new models — five launches in 2002 plus the Infiniti FX45 and FX35 CUVs and Nissan Maxima, Z Roadster, Quest, Armada and Titan this year — is boosting sales and underscores Nissan's comeback in North America.

“We are on track to rebuild our image and regain our brand value,” Matsumura says. “One remarkable achievement is the improvement so far of 5% in the residual value of our used cars.”

And he notes the Infiniti brand has “now started to take off,” with sales expected to jump at least 30% in 2003 to about 130,000 units and grow at least 20% in 2004.

In the past, he says customer satisfaction was good, but the model lineup was limited.

“Now, with the Q45, M45, G35 sedan and coupe and the FX models, the market has begun to recognize that Infiniti provides a range of real luxury models,” Matsumura says. He foresees the luxury segment, currently 10% of the U.S. market, headed for 15%.

Matsumura readily acknowledges the wisdom of catering to North America's youth market and indicates Nissan will join the parade of “boxes on wheels,” aimed at Generation-X buyers, currently led by Toyota's Scion xB and Honda's Element.

“We are in the exploratory stage,” Matsumura says. “We are considering what new model may be needed.”

However, he remains lukewarm about hybrids. “Hybrid sales today are almost nothing,” he says. “In 2006, we will have a hybrid model for sale, purely to meet government requirements, but our priority is on development of a fuel-cell vehicle.”

He considers hybrids a “practical bridge” to fuel-cell vehicles, which remain 10 to 15 years away. Nissan, however, has a technical tie-up with Toyota for possible hybrid sourcing.

More significant is the declining importance of imports here for Nissan, illustrated by the launch last March of the next-generation Maxima, designed and engineered specifically for North American buyers, and being built here for the first time, in Smyrna, TN.

Matsumura expects the import share of Nissan sales in North America, currently around 30% and dropping, will stabilize near 15%.

He is not beating any drums about build-to-order manufacturing and says any move by Nissan in that direction will be made cautiously.

“We have done this for years in Japan,” Matsumura says. “We have the know-how but don't know whether build-to-order is necessary here. The technology is there, but sufficient demand may not be.”

Matsumura attaches higher priority to creating a punchier dealer network. The company has 1,260 Nissan and Infiniti dealers in the U.S., 172 in Canada and 170 in Mexico.

“We have no plan to increase dealerships but want to grow their capacity,” he says. “Nissan and Infiniti dealers now sell 600 to 700 vehicles each year, and our goal is 1,000.”

Domestic production got a sharp boost this year with completion of the $1.4 billion assembly plant in Canton, which adds 400,000 units to North American capacity and promises to rival Nissan's top-ranked 500,000-unit-a-year Smyrna plant in efficiency.

With a 10% increase in capacity due next year at Smyrna, plus two plants in Mexico with combined capacity of 334,500, Nissan should be able to handle demand domestically for a while longer. He reports no plans yet for a fifth North American plant.

So far, Nissan has invested more than $6 billion here but, as far as Matsumura is concerned, North America and the U.S. market in particular are still unfinished business.

The “180” turnaround plan announced by Nissan President Carlos Ghosn in April 2002 calls for an increase in sales worldwide of 1 million units by Sept. 30, 2005, with North America responsible for 300,000 of that increase.

However, as the mid-point in that ambitious 42-month plan approaches, gains here are failing to meet Ghosn's target.

Yet his confidence and that of his North American chief appear unshaken.

“Nissan had 5% of the U.S. market in August and we're still aiming for 6% sometime in 2005,” Matsumura says.

This, he concedes, will depend in large measure on two things: whether the U.S. economy accelerates, and whether Nissan employees in North America and Japan are up to the challenge.

Nissan North America Vehicle Sales

Year 1999 2000 2001 2002 2003
U.S. 677,212 752,088 703,308 739,525 813,465
Canada 32,290 47,404 56,664 64,661 68,900
Mexico 134,937 173,066 190,537 211,648 225,000
TOTAL 844,439 972,558 950,509 1,015,834 1,107,365
Note: Numbers denote calendar year sales; 2003 is estimate. Source: Nissan North America