||Auto Industry's in Upheaval, and Detroit 3 Are in the Driver's Seat
Detroit is up. Japan is down. Toyota is losing market share and General Motors is awash in profits.
This is clearly not the same plot the auto industry has been following for the past few years. This is a paradigm change in an American auto industry accustomed to decades of tough times for Detroit.
"The renaissance of the Detroit 3 is well on the way," AutoNation CEO Mike Jackson told Automotive News last week. "The profit results, product lineup and consumers' opinion will allow the domestics to have market share growth for the second year in a row. We will see a remarkable recovery in market share as the domestics drive toward 50 percent."
Flash back just five years: Detroit was the City of Gloom. Market share dwindled year after year. Ford Motor Co. suffered from poor quality and botched vehicle launches. Chrysler Group's lousy performance was about to earn it a divorce and good-riddance from Germany's Daimler. At GM, the buzzards were circling in the guise of stock speculator Kirk Kerkorian.
All the while, the Japanese auto industry grew bigger, richer and more prominent in the United States. The term "Big 3" was retired in favor of "Detroit 3" to address the rise of Toyota Motor Corp.
Back to May 2011, and things are a little different. As in the-world-has-turned-upside-down different.
As the U.S. economy continues to recover, the Detroit companies are well positioned to profit from rebounding auto sales. The Japanese Big 3, meanwhile, can't exploit that growth. They're choked by a dramatic production collapse stemming from the March 11 earthquake.
GM and Ford Motor Co. are now making boatloads of money, and death-threatened Chrysler Group, which just reported its first quarterly profit in five years, is soliciting money from the private sector to repay government loans. Chrysler even said it's running out of room for the 1,000 engineers it's adding at its headquarters in Auburn Hills, Mich.
In April, Detroit's market share was 46.5 percent, up 1.5 points from a year ago. Japanese brands were at 35.5, down 3.4 points.
Toyota and Nissan Motor Co. expect to lose money for the next six months. In the United States, Japanese brand dealers are running out of inventory as the benefits of a U.S. recovery are passing them by.
Could a new reordering of the industry be under way?
Japanese automakers often have overcome adversity in North America. But at the moment they have a very full plate.
Last week, American Honda Executive Vice President John Mendel informed Honda's dealers by letter that Honda's "overall production volume will be at significantly reduced levels as we continue production adjustments through the summer months."
Consoling the dealers for the loss of sales, Mendel said, "You have overcome significant challenges throughout the years and yet, in the long run, you have all prospered.
"We will work our way through this difficult time and we will all be stronger in the end," he wrote.
German, Korean brands up
It's not just Detroit that's thriving in North America. The Germans -- BMW, Mercedes-Benz, Audi and Volkswagen -- also are cleaning up.
In April, the BMW brand outsold Mercedes (not including Sprinter vans), pushing ahead of Mercedes through the first four months as the top-selling U.S. luxury brand.
Lexus, which held that sales title from 2000 through 2010, is running a distant third, and has no prospect of catching up because of production constraints.
And Hyundai and Kia continue to snap up market share. The Koreans are introducing hot new models and are desperately searching for U.S. production capacity.
Sales of the small Hyundai Elantra, redesigned this year and now built in Montgomery, Ala., topped 22,000 in April -- more than twice its volume from a year ago and nearly 13,000 more than the fast-selling Ford Fiesta.
After a record 2010, Hyundai's U.S. sales are up 31 percent and Kia's 42 percent through April, in a market that's up 20 percent.
Combined, the companies accounted for nearly 10 percent of the U.S. market last month. For the first time the Koreans outsold the combined European brands in America.
But as U.S. demand grows, Japan finds itself unable to produce even half enough.
Toyota CEO Akio Toyoda recently said it will take until the end of the year to fully restore vehicle output to normal levels -- and this as U.S. consumers clamor for exactly the sort of fuel-efficient cars that made Japan rich.
"This month, next month, as we get into the summer, we'll certainly be seeing inventories declining," Randy Pflughaupt, Toyota group vice president of sales administration, said in a conference call last week after reporting Toyota's April sales increase of just 1 percent, in an overall market that rose 18 percent.
Big change in small cars
In a man-bites-dog twist, Detroit's big gains in April were powered by selling larger numbers of fuel-efficient cars and lower incentives.
That reverses the U.S. industry's familiar trends of recent years. In part because of impending shortages of vehicles, Detroit 3 incentive spending is at its lowest point in five years.
As the Japanese competition scales back on incentives and sales -- Nissan postponed its annual May Tent Sale -- U.S. automakers are toning down their discounting. Autodata Corp. reports that Chrysler's average incentive spending per vehicle was $2,806 in April, a 23 percent reduction from a year earlier. Ford was down 20 percent and GM was down 14 percent.
In April, as gasoline prices topped $4 a gallon in some markets, Ford, propelled by higher car sales and the popularity of its small Fiesta and mid-sized Fusion, reported first-quarter net profits of $2.6 billion, its best first-quarter result since 1998.
GM last week also posted a quarterly operating profit of $2.0 billion, excluding special items -- its fifth straight quarterly profit since emerging from bankruptcy.
In April, GM sold 25,160 units of the compact Chevrolet Cruze, whose Eco version is rated at 42 mpg on the highway. The Cruze was nearly 2,000 units behind Honda's Civic but topped the Toyota Corolla by nearly 1,000 units.
GM CEO Dan Akerson remarked at a recent industry gathering that when soaring gasoline prices spooked consumers in 2008, GM didn't even have a competitive small car to sell.
"We're finally seeing the Honda Civic buyer," said Michael McGuire, dealer principal at McGuire Chevrolet-Cadillac in Newton, N.J. He said that in addition to older, traditional GM buyers looking to downsize, the Cruze appeals to younger people who generally have stuck to Japanese brands.
UBS Securities analyst Colin Langan wrote in a research note this week that things should get better for GM as the year unfolds. Langan said GM stands to pick up 1.1 percentage points of market share at the expense of Japanese automakers because of Japanese production constraints.
GM's U.S. market share grew to 19.6 percent through the end of April, from 18.7 percent in the first-quarter of 2010, according to the Automotive News Data Center.
Langan wrote: "GM will be the biggest beneficiary of the upcoming Japan-related inventory shortages."
Never say always
Not everyone believes the sea change is permanent.
"It's not impossible that on a short-term basis you may see some market share variations, because of the impact that the earthquake has in the minds of people," Carlos Tavares, chairman of Nissan Americas, told Automotive News. "Monthly bumps may happen. But we need to judge on a full fiscal year basis."
But it is clear that for the first time in recent history, U.S. automakers believe they have the opportunity and the vehicle lineup to reclaim some of the market they have lost to the Japanese.
"What we need to do is really make sure that the quality, reliability and durability of our cars is an unexpected surprise for people," Mark Reuss, GM's North America boss said last week. "It's sort of a once-in-a-lifetime opportunity for us to get people into our cars and trucks and have them experience the excellence of the product that they may not have given us consideration for in the past.
"We're taking it very seriously."
(Source: Automotive News, 05/09/11)
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