Carmageddon's Real Victim: Auto R&D Down $12b in 2009

The car business has endured a lot of bad news over the last several years, as finance-fueled sales crashed with the credit market, and automakers around the world scrambled for government aid. The so-called “Carmageddon” has touched everyone even remotely involved with the automotive industry, not to mention everyone who pays taxes, but from a strictly consumer perspective, it hasn’t been all bad. Certainly the deals have been good, as programs like Cash For Clunkers and the wind-down of several brands have helped savvy shoppers find some of the best deals in a long time. So here’s the reality check: according to Booz & Co.’s Global Innovation 1000 study, spending on research and development by the auto sector was down $12b last year. That’s $12b that should have been spent making your car faster, smarter, safer, cleaner, better that’s no longer being spent. Still feeling untouched?

And yes, this is a problem that’s unique to the auto industry. As one of the report’s authors tells Wards

If you look at the data, (auto makers) cut R&D to sustain their business models. As a percentage of their total revenue, it’s not just the largest dollar amount cut but also the largest percentage reduction of any industry we followed.

And he’s not kidding. In 2008, Toyota was the top R&D-spending company in the world. After a billion and a half dollars in cuts, they’re number four [memo to Toyota, update the file]. In fact, Volkswagen was the only major automaker to not reduce R&D spending last year, as most of the majors shed at least a billion dollars trying to keep their heads above water. It would be premature to predict the onset of 1970s-style automotive malaise based on one year of cuts alone, but unless all those missing billions were being wasted, their absence will be felt in new cars at some point.