Ferrari recently announced that it had strengthened its bottom line by actually cutting production. The Italian exotic brand sold 5.4% fewer cars in 2013 than it had the year before–intentionally–yet its net went up by the same percentage.
Ferrari is clearly a special case, with its total volume of 7,000 cars worldwide making it one of the most exclusive marques on the planet. But the extremes can often elucidate basic phenomena, and in this case it shows how scarcity can elevate perceived value.
We’ve written previously about the drive for market share and the impact of adding incentives when those goals come up short. However, the hidden impact is the effect of used supply when it comes to resale values; it is one of the primary drivers of our residual value analytical model. If there’s plenty of demand for a brand in the marketplace, then a naturally high level of sales wouldn’t result in a later glut on the used market. But if sales are artificially inflated with incentives, it creates a one-two punch of higher used supply in the pipeline that is also composed of vehicles that began their depreciation from a lower starting point.
Nissan is clearly not going to restrict its volume to a level at which buyers consider it a coveted badge similar to Ferrari. But the company can allow volumes for the Altima to follow the natural demand patterns of the market, rather than pushing incentives to support the brand’s goal of doubling US sales by 2017, which we addressed last year. This can have a deep impact on the appropriate pricing level within buyers’ minds in both the new and used markets–Ferrari has certainly illustrated this–which has significant long-term implications for the brand.