One of the theories explaining GM’s downfall is that they did not invest enough in R&D. Wrong! Booz & Co.’s latest report on Global R&D spending says: bar Toyota, GM was tops. Here’s the 2007 ranking:
Company R&D expenditures in $m
Toyota 8,386
GM 8,100
Ford 7,500
Honda 5,142
VW 4,757
Daimler 4,321
Nissan 4,001
BMW 3,995
Peugeot 2,835
Renault 2,531
Booz says in comparison to 2006, R&D expenditures in the auto industry grew by about 10 percent. European “champs” pale, with the European primo (VW) being only around half as research-intensive as the biggest spender. Here are some other findings…
* Automotive R&D is global. The study found that the average global multi-national corporation spends just 45% of its total corporate R&D dollars in its home country, while the majority is invested in other countries in order to benefit from specialized R&D skills and to
better understand local markets. While 83% of the automotive industry’s 2007 R&D spending came from three countries ―the U.S., Germany and Japan― just 60% of total R&D spending took place in those three home countries.
* Scanning the report, you get an “opposite-of-deja vu” feeling: Somehow, I think I’ll never see anything like this again. For 2009, I see Renault-Nissan in the number two position, followed by Honda and VW. GM, Ford: I don’t want to speculate.
* Did GM waste a whole lot of its money, or what?
I think what is being missed is how much of a buzz kill the bean counters are. It’d be interesting to see who leads the way in cost cutting.
Alone these numbers are meaningless. GM can’t possibly be that incompetent so as to develop such a poor portfolio while spending so much money. The number of models and brands supported by the R&D dollars must be figured as well.
JoeEgo: “GM can’t possibly be that incompetent so as to develop such a poor portfolio while spending so much money.”
Hey, it costs a lot to restyle a pickup’s grill or design a new cupholder.
As JoEgo said, GM is spreading those R&D dollars over many more brands and models than Toyota.
Also it would be interesting to see the historical spend per manufacturer.
When I was doing this work, a lot of routine design and development work was “claimed” as R&D to take advantage of tax rebates and credits.
The cost of developing a completely new car is about 1 bn. Obviously it depends a little (a lot) on the segment but I guess as a rule of thumb that would be pretty usuable.
IF these numbers are accurate, they pretty much say that Ford and particularly GM have many lousy engineers that just can’t make a good car. However, I don’t think they are accurate.
I also wonder where they got these numbers from, because I don’t think R&D costs are on the balance sheets, so they would have to be from annual reports that the companies themselves have some discretion of putting together. However, I’m not to sure about that last point. Accounting class has been a while ago (and in Europe, so USGAAP might be different).
Reanult/Nissan combined are #4 even in 2007
And to show they’ve gotten their money’s worth, GM has the best cupholders of any automaker, bar none.
My first thought goes right to where JoeEgo is.
Break it down by bucks/model.
My bet is Honda could be on top and Toy pretty good.
GM? Please, don’t make me laugh. I doubt it is their engineers abilities, they probably have a limited budget per model and beanies on their backs 24/7/365.
Bunter
A lot of this can be attributed to different accounting practices, but here are other factors:
-Other companies, especially the Germans, are very evolutionary. They don’t develop brand new platforms just to throw them out because they suck (I’m talking to you GM), and they make small changes between the generations.
-The other companies keep a small number of related engines that receive evolutionary improvements. GM, remember that DOHC Inline-6 truck engine you developed just to abandon?
-The European companies rely heavily on tier-1 suppliers like Bosch, Getrag, Borg-Warner (for VW DSG) etc. for R&D.
-The Japanese, and the Europeans especially, have true world cars.
Toyota I’m sure is investing a lot in hybrid technology and other true technological advancements, but much of their R&D also likely goes to GM like practices like over-tailoring cars to individual markets and keeping too many redundant platforms.
An R&D dollar at Toyota does not equal an R&D dollar at GM. Toyota spends it much more efficiently than GM.
Also, look at that $7.5B number from Ford compared to the $8.4B at a company that sells 50% more vehices world-wide. Two things: 1) playing catch-up and 2) their worldwide R&D processes were a mess when Mulally showed up. Ford thinks it can save between $1-1.5B in R&D each year and produce more effective products by aligning product development around the globe. I wouldn’t doubt it.
More proof that GM is like a government institution more than a company. They couldn’t get something right, so they apparently just threw more money at it.
Back in the early 90s, GM was spending roughly the same amount on R&D as Toyota. This was back when GM was 3xs bigger than Toyota.
That was the moment I knew that this day was going to come; the only surprise is that it has taken as long as it has.
pig iron has a good point. My company blew the bank on R&D for the last 3 years, most of it in sustaining products and vaporware, with little to show except raised eyebrows on Wall Street. That’s bitten us in the ass now, or at least bitten the few of us who remain after layoffs.
Can you restate the spending as a percentage of revenue, as is typically done? Without this number, of course the field looks tilted. Not that less revenue means real R&D costs less, it’s just that you can see who really puts a priority on this kind of spending for new products.
Instead of putting the money to good use producing products that the average consumer will buy they blow it instead on Buck Rodgers show cars that will never be produced, or thow money at niche cars that will never turn a profit.
The problem with American auto companies is they’re stuck in the “ALL NEW !” revolutionary mode of designing new models, instead of slowly making the evolutionary product upgrades to improve quality. That, and not using enough parts bin engineering to keep costs down. I remember reading a story one time about how an American auto company that had over 30 different designs for door handles on the cars they were selling. That’s not the way to keep costs down.
I wonder how much of Toyota R&D coin is going to the F1 team…
SteveL
We need to do a per capita basis of R&D Spend to brands / models / market share. For instance – GM spent $8B but has a 22% market share on 8 brands and over 60 models versus Honda which spent $5B but has a 10% market share on 2 brands and only 11 models or Toyota who spends more than GM (> $8B) but has a 17% market share on only 2 brands and 18 models.
I think per R&D spend to revenue Honda was the top MFGR that reinvested into their business.
“We need to do a per capita basis of R&D Spend to brands / models / market share.”
Market share and $R&D/revenue ratio give a different picture of priority.
Just taking the $R&D per model/brand is ugly enough and provides the perfect illustration as to how GM is digging its own products’ graves. Some of GM’s models are cheap badge swaps, but they must average at least 3 models per platform to match Toyota and Honda (surprisingly similar). While this happens often enough (Chevy, GMC, Cadillac SUV’s) (Chevy, Pontiac, Buick sedans) (Lambdas) we soon see how each upgrade becomes a multi-brand moon shot (minivans, GMT900) or a resource-starved good/great first attempt (Solstice, G8, SSR, STS, Volt?).
GM $8.1B 60 models $135M per model
Toyota $8.4B 18 models $466M per model
Honda $511B 11 models $467M per model
*looking again, these numbers are global while the model counts are (I believe) USDM. I am not sure how much that affects the overall ratios.
I remember an article a year or two back in Automotive design and production estimating that the same task at the domestics required two to four times the engineering time from twice as many personnel.
Wonder if they were right.
Which brings us back to the “magically” rapid development of the Volt.
Yikes.
R&D is a bit of a grey area at car companies, especially GM. There would be huge sums spent on things like show cars ( millions of dollars each) that would come under R&D for example. There is also a lot of work done on things which are a complete waste of time. At Holden we have 15 people in the Design Colour and Trim Department. No one seems to know what they do but I bet a lot of it is put into the R&D budget.
While we are looking at what car companies spend, I would be interested to know about the Executive wage bill of GM v Toyota or Honda. We seem to have hundreds of Vice Presidents and Executive Directors. This is one area of waste that never seems to be addressed in the “GM Turn Around” talk.
@joeEgo:
*looking again, these numbers are global while the model counts are (I believe) USDM. I am not sure how much that affects the overall ratios.
That’s definitely something to take into account.
Honda has pushed and pulled the Accord and Civic platforms into many different types of cars and price points.
In Japan, there might be MPVs based off of stretched Civic platforms. We already have the Pilot/Accord/Acura TL/Acura CL platform sharing. It’s not badge engineering, because there is a fair bit of difference between a TL and an Accord.
But, as mentioned earlier. GM does a few one-off platforms that are only used for a single car, like the XLR.
Or as TTAC well knows, go to the trouble of introducing/importing a new model, like the Pontiac G8, and then decide it’s not worth introducing a second generation.
And as far as platforms that should be updated, where is the second generation Cobalt?
Since research expenditures are tax deductible companies in the US have every reason to make this number as large as possible, including such things as market research. The rules for what counts as a research expenditure are arcane and vary from country to country. The report is basically useless because it is based on poor data. Garbage in, garbage out.
Whoa, Morea, hold it. Expenditures per se are deductible — in just about any tax regime I know of. Not only R&D expenditures, and not only in the US.
What evidence do you have that the data is not comparable? Have you looked at the data? Are you an expert on GAAP?
What evidence do you have that the data is not comparable?
It is incumbent on them to prove that it is. They did not. They did not even try to demonstrated that it is.
Have you looked at the data?
They do not provide the data, so the reader is left in the dark.
Are you an expert on GAAP?
Nope, I am in R&D. Furthermore, GAAP is a mess, little of it seems to be “generally-accepted” from company to company, from industrial sector to industrial sector, and certainly NOT from country to country. (To editorialize, poor accounting practices are exactly what got the country into the financial mess it is in now.)
Below is the full text on “Methodology” found in the on-line report. They seem to make no effort to determine what each company (or business sector or country) considers an R&D expenditure. Their exact statement on the matter is highlighted below. It basically says we took data we could get for free with little work; we made no attempt to vet the data for correctness. It’s clearly an apples to oranges comparison (or at least they haven’t shown it isn’t).
Lastly, R&D expenditure is not the central issue: transferring the results of R&D to product is where the rubber meets the road. Unfortunately, measuring that is none too easy but it separates the well managed firms from the also-rans.
Booz & Company identified the 1,000 public
companies around the world that spent
the most on research and development in
2007. To be included, companies had to
make data on their R&D spending public;
all data is based on the last full-year data
reported by June 30, 2008. Subsidiaries
that were more than 50 percent owned by
a single corporate parent were excluded
because their financial results were
included in the parent company’s reporting.
This is the same core approach to
identifying the Global Innovation 1000 that
we have used in the previous three years
of the study.
For each of the top 1,000 companies,
we obtained key financial metrics for 2001
through 2007: sales, gross profit, operating
profit, net profit, R&D expenditures,
and market capitalization. All foreign currency
sales and R&D expenditure figures
prior to 2007 were translated into U.S.
dollars according to the average exchange
rate for the year. In addition, total shareholder
return was gathered and adjusted
for each company’s corresponding local
market total shareholder return.
Each company was coded into one of
nine industry sectors (or “other”) according
to Bloomberg’s industry designations,
and into one of five regional designations
as determined by each company’s reported
headquarters location. To enable
meaningful comparisons across industries,
we indexed the R&D spending levels
and financial performance metrics of
each company against its industry group’s
median values.
To understand the global distribution of
R&D spend, the drivers of that distribution,
and how the distribution affects the
performance of individual companies, we
researched the global R&D footprint of
the top 100 companies in terms of R&D
spend, plus the top 50 companies in the
three largest industries in terms of R&D
spend (auto, health care, and computing
and electronics). A total of 184 companies
— reflecting overlaps in the top 100 and
the three selected industry lists — were
evaluated in detail. This subset of the
Global Innovation 1000 was responsible
for US$351 billion of 2007 global R&D
spending, representing 71 percent of the
spending done by all companies in the
study and 57 percent of all global privatesector
R&D activity.
The distribution of R&D spending
across countries was assessed for these
184 companies. When geographic breakdowns
were not publicly available, we
collected data on the location of R&D
facilities, the product segments each supports,
the year each facility was established,
and the number of employees by
facility, sales by product segment, and
global distribution of sales. This data was
used to allocate total R&D dollars to the
countries where facilities were located.
Supplemental interviews were conducted
with a subset of respondents among innovation
leaders in the selected industries.
The detailed research on these 184 companies
covered activities at 3,407 R&D
sites spanning 47 countries.