GM, Ford may lose more market share

Report faults automakers on updates, lower R&D

June 22, 2005|By KNIGHT RIDDER/TRIBUNE

DETROIT - General Motors Corp. and Ford Motor Co. are not updating their model lineups as fast as their competitors and likely will continue to lose U.S. market share as a result, according to an annual analysis of the auto market by Merrill Lynch & Co. Inc.

GM and Ford will replace just 16 percent and 15 percent of their lineups a year on average over the next four years, estimates Merrill Lynch's report, "Car Wars 2006-2009: The Product Pipeline and its Investment Implications."

Korean, Japanese and European competitors will update their models much faster, replacing 30 percent, 21 percent and 15 percent, respectively, of their lineups annually during the same period, the Merrill Lynch report says.

The findings, which GM and Ford dismissed as incomplete and speculative, were released in a recent conference call and presentation. The published "Car Wars" report is to be available in about two weeks.

John Casesa, the Merrill Lynch auto analyst who writes the annual analysis on the auto industry, said yesterday that Ford's and GM's relatively weak investment in new products compared with their Asian competitors "gets to the heart of the problem."

Casesa's estimates reveal that domestic automakers invest far less of their revenues on capital expenditures, such as new manufacturing equipment, and research and development than foreign competitors.

On average, automakers invest about 10 percent of their revenue on capital expenditures and research and development. But, the report says, domestic automakers spend less, with GM spending 8 percent - the lowest amount in the industry - Ford spending 8.2 percent and Chrysler Group spending 8.5 percent.

Casesa said GM and Ford could be doing better in the market if they invested more money in their engineering, manufacturing, design and marketing departments.

"The revenue problem will be solved with new product and that is solved with investment," Casesa said. "You have to spend the money on the product and the people who develop the product."

Merrill Lynch's data suggest there is a strong correlation between the percentage of new models and how much market share an automaker gains or loses, with the freshest lineups doing the best.

GM's sales are down 6.7 percent for the year through May, and Ford's sales are down 5.7 percent. Their combined share of the U.S. market the first five months of the year was 44.8 percent - down from 47.3 percent a year ago.

DaimlerChrysler AG's Chrysler Group "will continue to lead Detroit with freshest lineup," Casesa wrote in the presentation summarizing the findings. He estimates that the automaker will replace about 17 percent of its lineup annually between 2006 and 2009.

Automakers do not typically release their future product plans, for competitive reasons. So Merrill Lynch's conclusions are based on proprietary research the company's analysts gather through auto suppliers, manufacturers and other sources.

Said Deep, a Ford spokesman, said the automaker does not believe the Merrill Lynch report accurately reflects its future product plans. He noted it excludes some new 2006 models, such as the Explorer and Mountaineer SUVs.

"We've got a lot more coming," Deep said. "He doesn't have the full picture. ... We have publicly said that we're going to deliver more products faster, and we're doing that."

Because the Merrill Lynch report is based on "data that we try to keep secret," the findings are incomplete, said Tom Wilkinson, the GM spokesman. He said GM is trying to replace more models faster.

Wilkinson also noted that GM's portfolio of models is so large - about 80 cars and trucks - it's more difficult to achieve higher replacement rates. Companies with a handful of vehicles can replace just a few models and achieve a much fresher lineup.

"There's a built-in advantage for someone like Hyundai," Wilkinson said of the numbers.

Overall, the Merrill Lynch report anticipates a continuing explosion of new vehicles coming to dealerships.

The firm estimates 195 new products will be available for consumers between 2006 and 2009, for a total of 290 vehicles on sale in 2009.

GM and Ford will not be producing enough of those new vehicles to maintain their market shares, the report concludes. Neither GM nor Ford would comment on their market-share projections.

Although Casesa predicts that Chrysler will be able to maintain its market share with its product plans, a Chrysler spokesman, Jason Vines, said the company expects to increase its piece of the pie. DaimlerChrysler's share of the U.S. market through May was 15.2 percent.

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