Automotive R&D Means Not So Very Much

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?

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4 of 25 comments
  • CoffeeJones CoffeeJones on Nov 12, 2008

    @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?

  • Morea Morea on Nov 13, 2008

    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.

  • Martin Schwoerer Martin Schwoerer on Nov 13, 2008

    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?

  • Morea Morea on Nov 13, 2008
    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.