Automotive News [AN, sub] reports that The Big 2.8 are responding to the general downturn in the U.S. new car market by slashing first quarter production– and beyond! CSM Worldwide says Chrysler will cut factory output by 15 percent, GM will cut production by 10.6 percent and Ford will cut trim throughput by seven percent. Models set for cutbacks include GM's [supposedly] hot selling Lambda crossovers (including the vaunted Buick Enclave), Dodge pickups, Jeep Grand Cherokee and Commander. Once again, the spinmeisters are blaming the downsizing on their determination to wean themselves off fleet sales. Chrysler CEO Boot'em Bob Nardelli has promised to trim fleet sales from 30 (yes 30) percent down to (just) 20 percent. Meanwhile, the transplants are preparing plans to boost production. And that means Toyota and Honda are about to grab yet more market share from Detroit. "Toyota President Jim Lentz said the company expects to boost U.S. sales 3 percent next year. If industry sales reach 15.6 million units in 2008, Toyota's market share would rise to 17.4 percent… Honda continues to gain share, too. Last week, American Honda Motor Co. President Tetsuo Iwamura told reporters the company expects to boost U.S. vehicle sales 2.5 percent. Assuming industry sales of 15.6 million units, Honda's market share would rise to 10.2 percent." And so it goes.
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Let’s be honest here. The headline ” Japan’s big 2.556 beating Detroit’s big 2.801 like a ginger stepchild” is hardly news!
What was the second item?
“The grass is green and the sky is blue”?
It just goes to show you, organic growth is the way forward, not growth by acquision…..
But, next year, expect Hyundai spice things up!
Not to mention that the Japanese carmakers are simultaneously expanding production at home(businessweek.com). 2008’s going to be a perfect storm for auto sales.
Eat their lunch? I think they’re on 4th meal.
Yet somehow this notion that the Camry and Corolla are bland appliances or that Toyota’s fall is going to happen any day now due to some recalls is all the rage on internet forums.
That’s because most buyers don’t spend their day on internet car forums. When it comes time to shop, they MIGHT pick up a consumer reports.
“Some” recalls like this latest one from Toyota?
http://www.autonews.com/apps/pbcs.dll/article?AID=/20071214/ANA03/71214007/1197
Isn’t this #4 or 5 for the truck that’s changing it all? I’ve lost count.
And I agree with Katie….the fact that the domestic brands are losing share to import brands is hardly newsworthy.
Normally, I delete comments about TTAC’s editorial stance or style from the comments’ section. Those kinds of remarks invariably lead to rancor and thus, flames. All questions or comments about our choices should be addressed to robert.farago@thetruthaboutcars.com, where they will be addressed and debated as needed.
But I’m leaving the assertion that Toyota/Honda’s increasing U.S. market share is “nothing new” here because I find it astounding that Detroit’s inability to protect its turf is considered ho-hum.
What we are watching, what TTAC is chronicling, is an enormous corporate failure; one of the largest and most profound in American history. It is THE automotive story of our time.
If it’s become “background noise,” well, that’s a sad testimony to how the mighty have fallen.
And there IS news here: the wounds have not been staunched. And worse is yet to come. Watch this space or… not.
What continues to be depressing for the domestics is the continuing need to put huge incentives on the hood. Just this weekend I saw ads (I am in California) for 2008 Dodge Trucks with $6,000.00 rebates. Chrysler is offering “zero percent interest and no payments until summer” deals on “all 2008 models”. Ford has hugely discounted lease programs going on 2008 models and GM has thier “red tag” sales events ($2,500.00 rebates on 2008 Impalas for examples.) What is mazing is that some of the vehicles are just arriving to showrooms and are being heavily discounted.
How long can this insanity continue?
If Ford only sold 1 million cars a year, but did it profitably, they could shrink all the way there and it would be good at the end of the day. That’s the point.
But, considering Q1 was the strongest quarter marketshare-wise for the domestics last year (including much higher fleet mix for GM and Ford than in recent months) coupled with the expected gravity of the slowdown next year, I think at least GM and Ford are moving correctly.
That doesn’t mean they’ll be down 10% and 7% for the whole year. It’s just one quarter. My guess is that GM’s production will remain flat next year and Ford’s might drop a total of 2-3%. I could be completely wrong if the economy does weird things. But I don’t think it’s nearly as bad a picture as is being painted here.
I must also point out that nearly half of both Toyota and Honda’s growth (all of Nissan’s growth) this year has come by selling to fleet – not to retail customers. So, sure, they’re growing, but they are no longer doing it simply organically. And if those are sales that they are taking from GM and Ford (Chrysler seems loathe to give them up – despite the rhetoric), then they can have them.
RobertSD :
I must also point out that nearly half of both Toyota and Honda’s growth (all of Nissan’s growth) this year has come by selling to fleet – not to retail customers.
Can you please provide some kind of reference for this statement? We have no indication whatsoever that this is the case.
This looks like something they should have done 5 years ago. Match production with demand and they might not be losing money like crazy right now.
It doesn’t look like they are scaling back enough, this all may be a little too late at this point.
While not new the fact that this continues in the face of Detroits latest and greatest product updates is rather astounding.
Automotive News article on December 10th on fleet sales through September
Up and down
Estimated fleet sales
Automaker 9 months ’07 9 months ’06 % change
General Motors 776,000 823,000 -5.7
Ford Motor 568,000 687,000 -17.3
Chrysler LLC 478,000 496,000 -3.6
Toyota Motor 176,000 134,000 31.3
Nissan Motor 92,000 55,000 67.2
American Honda 35,000 16,000 118.8
One interesting piece to glean out of this is that over half of Toyota’s and Honda’s sales growth this year is attributable to fleet sales. All of Nissan’s growth is fleet growth.
Without their fleet declines, GM would still be down 5% versus 7% through September, Chrysler would still be down 2% versus 3%, and Ford would still be down 8% versus 13%.
I just posted it but it didn’t post.
The numbers with some commentary below it.
With Toyota, Honda and Nissan fleet sales growing and incentives at the automakers basically at all-time highs according to Edmund’s, I’m not surprised that coupled with massive fleet reductions at Ford and GM as well as incentive growth restraint has boosted the Japanese companies’ marketshare. How couldn’t it?
With these fleet numbers above, note that the Big 2.5 have substantial commercial exposure because of their trucks, vans and other heavy vehicles – much greater than Toyota, for example – exposure that is more profitable than rental fleet sales. All of the decline in fleet sales (at least for GM and Ford) has come from rental reductions. Ford’s rental sales are expected to end the year a bit under 300,000. Toyota’s are probably going to finish at a similar level, maybe slightly lower.
All I’m saying is that it isn’t organic anymore. It is often forced through fleet sales and incentive spending. We’ve heard that tune before, and that’s exactly how Ford and GM ended up where they are now.
So at what point can we expect the domestic market share to stabalize?
Interesting that the “imports” are increasing their fleet sales. I wonder what the motivation is (if other than just moving metal and keeping production closer to optimal)?
Also the new Tundra has $6k off sticker according to radio commercials here in central New York. That’s not a good sign, and Nissan is considering dumping the Titan. I don’t things are especially great for any OEM right now. It’s just that the imports have more fat with which to deal with a famine.
I have no idea when Chrysler’s will stablize without dumping into fleets. GM’s is pretty stable right now. Ford has been the biggest culprit dragging down the Big 2.5’s marketshare this year, but the declines have decreased. October and November were pretty stable for marketshare from a retail perspective from Ford. It’s going to be rough in Q1 of 2008 for the domestics especially because of their decent numbers in 2007 in that quarter.
I think GM share will be stable or down very slightly next year with the Malibu, Lambdas and GMTs pulling their weight along with a sprinkling of new or updated products. I think Ford will see market share loss until Q3 or Q4 at which point the Flex, F-150, MKS and a couple other updated products start to come out and rental fleet sales are no longer being reduced. 2009 should be a stable or growing year for Ford. I have no idea about Chrysler…
RobertSD, those are interesting figures. As Detroit tries to ramp down their fleet sales, the gap will get filled. I’d guess the fleets aren’t ready to present a heavily Korean mix of cars.
However, to put it in perspective, Toyota’s fleet sales are still not even a quarter of GM’s fleet sales.
Nissan’s fleet sales are about a sixth of Ford’s and Honda’s fleet sales, even after a 118% increase are still negligible.
Toyondissan are not yet dependent on fleets.
And, one wonders, what kind of prices are fleet Toyondissans commanding?
Again, though, you have to factor out commercial fleet sales – sales that are more profitable and sales that are often the target of a vehicles features or design (like pikcup trucks or vans – the Super Duty wasn’t just designed for Joe to tow his trailer… Ford has hundreds of thousands of commercial buyers that it was targeting).
Almost all of Toyota, Honda and Nissan’s fleet is still rental (at some point in the next several months, we’ll see data from a fleet source that should update this, but I don’t expect it to change much) – and the rental companies still aren’t paying a whole lot. More than the $5000/Taurus they paid in 2006, but far below invoices. That doesn’t change how it will affect residuals, though.
Honda is still small – but those 19,000 new fleet sales are still half its growth through September and fly in the face of what Honda used to do. Before this year, I have never seen Honda actively sell to rental agencies, but many late-model Accords were dumped in August and September. Nissan isn’t that small anymore. Its rental fleet ratio is about that of Ford’s considering their size, but Ford’s is in decline. Toyota is not a small rental fleet player. Its ratio is slightly better than Ford’s and GM’s, but again, half its growth through September has been in majority rental fleet sales. I’m scared to look at Hyundai’s mix.
My original point was that, sure, they will grow next year and “eat” Detroit’s lunch… but what lunch will it be? Organic? Fleet? Discounted? I guarantee it’s not much of the first (some, let’s not kid ourselves – Detroit’s retail share isn’t stable yet without some good rebates). Other than a couple models that are new now or will be new in the next six to nine months, they will have to move more metal with heavy discounts and fleet sales.
Ultimately, Detroit must be profitable, and if that means giving up sales by not fighting a discount war and relinquishing lower margin rental sales that depress residuals in the long-term, then I don’t mind if marketshare decreases next year. It does have to grow at some point, but you also need to know where the real demand for your products is… something that Detroit has ignored completely in recent years to their detriment.
RobertSD: The bottom line remains profitability and debt. Toyota and Honda remain hugely profitable and have a net worth light years ahead of GM and Ford. Meanwhile Ford and GM are drowning in debt and a market share (fleet/no fleet whatever) that is dwindling. You present the question about Ford selling a million vehicles and be profitable? The better question may be, can Ford sell a million vehicles a year and service/pay down their debt ans stillpay the operating costs?
Can Ford even reasonably compete if it has a six or seven percent marketshare? (one million vehicle sales out of an estimated sixteen million annually sold in the US.) Also, you have to have a lot of profit making sales to carry them at a one million per year sales clip, and where is that going to happen? Which vehicles?
Seems to me that Ford, GM and Chrysler will not be able to get away from the massive rebating/discounting. Is it entirely possible they may on downward march to oblivion? It certainly looks that way.
One last point, if Ford is to sell one million vehicles a year, what do they do with all the dealerships? The Mercury brand? Do they have the capital to get rid of all of that? That won’t be cheap.
The big question about fleet sales is, What models are the respective manufactures offering up for fleet sales?
Are they sending new models to the fleets, e.g. Sebring or are they sending models that are at the end of their production run, e.g. Corolla.
I doubt there are any new Accords currently going to rental fleets because I bet Honda can sell each one at retail.
The fact is, given the weakening economy, the US auto market will probably contract next year. Disregard product, Toyondissan has the finacial ability to weather difficult storms much more so than the 2.811.
Although things may be different for Chyslerberus… Nardelli and his three-headed pooch may put on a nice circus act in ’08.
Here’s a look at the major midsize players through November 2007, with a comparison to the same period last year (courtesy of aiada.org):
Toyota Camry (including Camry Solara models) – 434,277 (+5.8%)
Honda Accord – 360,976 (+10.8%)
Chevrolet Impala – 293,328 (+11.2%)
Nissan Altima – 259,611 (+24.6%)
Toyota Prius – 167,009 (+70.4%)
Ford Fusion – 136,007 (+4.8%)
Pontiac G6 – 132,894 (-7.6%)
Hyundai Sonata – 120,696 (-13.4%)
Chevrolet Malibu – 116,140 (-23.8%)
We already know the story with most of these models. But one thing that’s really shocked me is the abysmal performance of the Sonata. If you take out the fleet sales which account for close to a quarter of it’s sales, the once crowned Camry killer may actually have fewer than 100,000 retail sales this year.
Oh, and my four year old son just wants to say ‘Zaboomafoo’ and has requested that he sees him ASAP. Any chance of having him test drive a 2008 Passat?
Toyota and Honda could easily move 5%-10% of their product into fleet sales without hurting their residuals and without giving bargain basement prices to the fleets. A 0.5-3 year old Honda or Toyota retains significantly more of it’s value than does a similar Ford, GM or Chrysler product.
The crime of it all is that as Detroit retreats from fleet sales the Asian makers are stepping in and picking up that business AND doing so without hurting their retail customers (residuals!) and without killing profits.
When it is all over the Retreat From Fleet by the 2.8 will not look like brilliant strategy, but as another wrong answer to the wrong question.
Businesses is not a rational game as its first source of energy and direction for success. Business is propelled by attitude, conviction and emotion, with the rational factors applied to channel and maximize the impact of those human factors. The car business is a grow-or-die business and no automaker has escaped this.
It was scarcely 10 years ago that Ford was poised to overtake GM’s market share in the US. At the time, when asked about that threat, GM’s management claimed they weren’t in business to chase market share but instead profitability. A few years later, when Ford’s surge had tanked, Bill Ford and Mark Fields said over and over that they are looking for profitability and were prepared to let market share fall where it may. I knew both companies would suffer further declines and setbacks with these pronouncements.
Profit without growth builds very little sustained value into a company, but it can pay dividends. Growth without profit tends to make you valuable to someone, if not so much to yourself. Sometimes a consolidation of prior gains is needed, but in this case we’re instead witnessing the consolidation of prior losses. IT IS UNACCEPTABLE for these companies to willingly cede market share. If they lose it in a fight, that’s one thing. To not fight for it at all is a failure of heart and will and it’s disgusting, given the stakes.
However weak some folks here view the product lines of the Detroit 3 and their role as assets or liabilities in these companies defending their turf, there are many options short of burning more money. What GM and Ford burn in marketing can be deployed with much more effective creative representation of products. The money can also be allocated to give some promotional coverage to absolutely everything they sell. Warranties can be extended. They can field obmudsmen to dealerships to resolve problems on the spot and to needle wayward dealers to improve merchandising, services and customer practices. If these companies just got to break-even or close, but were on a serious war footing and regaining market share a couple of tenths of a point at a time, the effect on their valuations and their ability to move the psychology of the market more in their direction strengthens more than if they cede share but suddenly became predictably profitable. But to a risk-averse mindset, the appeal of settling back into a “safer” state of profitability is powerful. Unless the Detroit 3 can only see their destiny as specialty manufacturers, with full-scope market participation off the table, they must fight for market share.
We’ve seen that it’s easy to let share shrink. It’s way more difficult to win back share with equal speed. Only if the profitability gained by shrinking the business results in an overwhelming war chest for intense and broad-based product development, revamp of business practices, massive marketing to undo perceptual damage, etc., is there a chance that shrinking is a good first step.
Every weakness we’ve seen in the domestic automotive companies traces not to product itself, but to failure of will on the part of leadership behind those errors, right up to the boards. These are huge companies, weak on market cap, burdened with legacy agreements and operating in an environment of consumer apathy and government disinterest in their health. It’s up to them to change that, and ceding market share is the antithesis of overcoming apathy. These companies are also sitting on huge talent pools across disciplines, that are not effectively channeled. GM might be breaking through in this respect, given the similarities in strides evident in multiple vehicle model upgrades, but it’s too soon to know whether work and authority is flowing to the talented, or whether talent leverage depends upon a few senior managers keeping their jobs. That is to say, is there institutional change or does the train start slipping backwards if Bob Lutz, Jim Press or Alan Mullaly get struck by a bus?
Winning companies don’t cede market share without a fight, regardless of their search for profit. Profitable growth is the long term imperative. Growth is the immediate mandate.
Phil
I think growth can mean smarts, brains, ie. skill. Also product improvement, and company policy. The degree with which one can find his/her way through (the difficulty of) situations is the true persons/companies growth. The objective (sustainability) is one thing, the goal (progress) another, and what will/might work another. Happiness is what we truly all want, and to progress in learning what works to have/feel/embrace happiness (love). Money alone is not a worthwhile way of life, It alone will not inspire anyones motives, and I believe it will be reflected in the dynamics of ones choices. Half the cup is full. Revenue has been used for progress, as well as to reveal areas that need growth (mistakes). Comparing the companies to one another through similarities in history is only one way to observe a companies progress. Its only one way to take inventory of the value of its operations. Third party perspective does not define a company, only a part of it.