By on November 9, 2010

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.

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12 Comments on “Carmageddon’s Real Victim: Auto R&D Down $12b in 2009...”

  • avatar

    Ralph Nader…. are you reading this?

  • avatar

    Why bother investing in R&D when you can wait on a government- and VC-funded company like Tesla or Fisker to do it, then pay annual license fees to them instead? And I’m only slightly kidding. Toyota’s hybrid tech was the archetype for this. Why have the proverbial Newton and Leibniz inventing calculus at the same time if you can avoid it?

  • avatar
    SVX pearlie

    The development and introduction of new tech in the Volt is very expensive. Now that the new-tech Volt is going into production, it makes sense that GM R&D costs can shrink a bit. Tho lopping $2B off a $8B budget is a awful big adjustment. But GM appears to be putting the most money back in to development, so that bodes well for the next few years. It could be that GM might be able to sustain their recovery.

    What’s more worrisome is that Ford cut over 30% of their R&D, and now only supports 1 (and-a-half) lines of product. GM is outspending Ford both on a real dollar basis and as a percentage of sales revenue. That’s not a good sign for Ford.

    Not surprise that Chrysler isn’t even on the map. Tho it does raise the troublesome question where their all-new product is going to come from in a few years, when the latest refresh starts getting a bit stale.

    Honda is reinvesting a lot into R&D, proportionally nearly as much as GM. Hopefully, this means we’ll get better product sooner, rather than later.

    • 0 avatar

      Haven’t we learned over the last few years about how poorly GM was run?  Why is their excessive corporate spending now considered a good thing?  Just because GM spends more money than Ford doesn’t mean they have a better product.

    • 0 avatar
      SVX pearlie

      OTOH, the crown jewels of PAG just got sold off, Volvo got sold, Mercury was axed, and Lincoln is the laughingstock of the “luxury” market. FoMoCo’s not doing so well, either.

    • 0 avatar
      John Horner

      One could argue that GM would be better off were it not putting so much money into the Volt.

    • 0 avatar

      PAG and Volvo were run as separate companies, and Merc and Lincoln were largely just branding exercises.  Offloading those wouldn’t have a big effect on Ford’s budgets.
      John, I agree, but I don’t think they had a choice…government intervention and whatnot.  It would have been nice if they had come up with something new and cool with our tax dollars, not just a parallel hybrid.

  • avatar

    “…but unless all those missing billions were being wasted…”

    They were.  When the axes started swinging, nobody was too surprised to hear the list of names who didn’t make it.  Same thing goes for the items that were cut out of the budgets.  They also delayed new computers, put a moratorium on new capital purchases, etc. which did hurt a bit, but most of the savings came from fat reduction.  We’re still able to design good cars.  Don’t jump to the conclusion that cutting dollars necessarily means bad cars.  Recent quality data speaks for itself.

  • avatar

    So no hybrid powered plug-in flying cars for a while?  Dang.  Guess I’ll make do w/ near full-size Camry’s and Fusions hitting 40+mpg with 200-ish HP, satelite internet enabled radios, and eleventy airbags.
    But seriously, looks like everyone (cept GM) is getting around 4% of sales R&D dollars.  And all those years (decades) of GM crap probably necessitate it having higher R&D

  • avatar

    Anybody know how these numbers are derived / calculated?
    I only checked for Volkswagen Group, but their annual financial report for 2009 states 5.429 Million € in “Research and Development cost recognized in the income statement” – which would translate to ~7,2 billion dollars (todays exchange rate).

    • 0 avatar

      On 12/31/09, the EUR bought 1.4333 USD (not too far from what it buys today.) Which translates into exactly 7.78 billion USD. In the words of a – sadly deceased – old school VW board member whom I remember fondly: “Never trust a statistic unless you forged it yourself.”

      Next to saving on advertising, saving on R&D is a great and quick fix to make your books look better. Both will bite you in the butt a few years later. R&D savings have a much bigger bite.

  • avatar
    John Horner

    ” … but unless all those missing billions were being wasted, …. “
    The law of diminishing returns certainly applies to R&D spending by the big companies. There is also the issue of making good use of global resources. Ford, for example, was duplicating efforts across a host of brands, platforms and regional development centers without getting a corresponding product return for all those billions being spent. Even post cuts, Ford spent almost $5B on R&D in 2009. That is a lot of money.
    Sometimes having too much money flowing through the labs and design studios can be just as bad as having too little.

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