Amid sea change, goal is to stay afloat
The U.S. auto industry is in the midst of a sea change, as Detroit struggles for street credibility after experiencing a nagging erosion in market share.
"Right now is the most dynamic period for the industry in 50 years," says David Cole, chairman of the Center for Automotive Research, in citing a "magnitude of change" in industry restructuring, product development, marketing and manufacturing.
"Market share is nice, but profits are essential," he says, referring to General Motors Corp. and Ford Motor Co. fighting their way back to black ink in their home market despite losing share.
Meantime, Japan's Big 3, Toyota Motor Sales USA, American Honda Motor Co. and Nissan North America, are making hay, attracting more U.S. buyers with expanded lineups. "The perception of Detroit product quality and design is far below reality," says Bob Schnorbus, chief economist of auto consultant J.D. Power & Associates. "Getting the right product can change things pretty quickly," he says, pointing to how DaimlerChrysler's Chrysler 300 bolstered the company, its image and profits.
In the auto world, buyer perception equals reality, and Detroit's problem, for the most part, has been self-inflicted. Since 2001, Detroit has reverted to generous incentives to move the metal, which hurts brand image. GM has led the parade, spending hundreds of millions of dollars annually advertising the uniform-themed, multibrand deals. Both GM and Ford have backed away from that this year as Chrysler Group's incentives have surpassed theirs.
Although J.D. Power expects Detroit's Big 3 market share erosion to continue short term, Mr. Schnorbus says it will bottom out in the next five years, stabilizing at a combined 55%.
In 1990, GM's U.S. share was 35.5%, according to Automotive News Data Center. At the end of 2005, it was 26.2%. Over the same period, Ford Motor's share slid from 23.9% to 18.6%, while Toyota Motor's rose from 7.6% to 13.3% and America Honda's from 6.2% to 8.6%, according to Automotive News, a sibling publication of Advertising Age.
George Magliano, director-auto industry research in the Americas for consultant Global Insight, says things won't turn around for Detroit until 2011, although Global Insight's forecast has GM bottoming out to a 12-month average in 2008 of 22.7% before stabilizing. The consultant projects Ford Motor's share will slip in 2006 to 17.7% and 15.3% in 2011, surpassed by Toyota then with 15.4%.
"GM's product strategy is good; unfortunately, it will take years to see these products," says Mr. Magliano.
Nameplate power lags
Toyota, Honda and Nissan all have the advantage of well-known nameplates, with single models in the midsize sedan and small-car segments. Detroit, which lacks the auto nameplate power, is led by full-size pickup trucks, namely the Chevy Silverado, Ford F-series and Dodge Ram; trucks have been Detroit's volume leaders those 15 years.
Still, Nissan had the highest media expenditure per vehicle, $950.50 in 2005, compared to the five other top automakers, an Advertising Age analysis shows. Toyota Motor was lowest among the largest six carmakers, at $475.77 per vehicle. Nissan's incentives, which led the industry in the late 1990s, have decreased substantially, notes Todd Turner, president of consultancy CarConcepts.
All automakers will continue to struggle in the full-size sport utility category, hurt by high gas prices.
The hybrid arena will be played out in the next five years and emerging technologies, like hybrid diesel, could have an unpredictable effect on the marketer, says Mr. Schnorbus. Hybrids currently account for a tiny part of the market and won't grow much until unit costs come down. But if high gas prices persist, consumers may lean more to smaller cars or vehicles with smaller, more fuel-efficient engines.
The U.S. auto industry "is very competitive and to assume anyone has a lock on success or failure is a mistake," says Mr. Schnorbus.