Changing Tides: Can Ford And GM Control 40% Of The US Market By 2015?
The combined market share of GM and Ford will reach 40% of the US market by the end of 2015. Yes, you just read that correctly. That’s a full five percent more share than what they have today, or a gain of just one percent a year. Call me crazy… but recall that Farago and I called the GM bankruptcy way before most industry observers (and certainly before the BoD of Old GM) could see it coming. Long time TTAC readers will also remember my call to buy Ford’s stock in April 2009 when it was trading in the three buck range. So calm those gut-reactions for a few minutes and let’s walk through this.
We should begin by reviewing a few facts (while forgetting the fact that GM once owned 50% of the market among its six brands a long time ago): GM and Ford today are selling into approximately 35% of the market. In a normalized market (and that’s probably just two years away), the average SAAR will likely run in the 15+ million unit range. Each one percent of market share represents 150,000 units. Doing simple math, for GM and Ford to grow market share by five percent means that these two Detroit companies will need to gain additional sales of 750,000 units beyond what comes to them from market growth alone. Holy cow…that’s a gigantic increase – basically three full production plants worth of sales.
Will it be difficult to do? I don’t think so…other than the fact both companies are starting to run out of production capacity. GM North America production – in Q1/2011 – was running at 99% capacity on a two-shift basis. But GM does have some idled plants – like Spring Hill, TN – that it can restart. Ford is getting squeezed too but Ford hasn’t disclosed its capacity utilization and is actually closing some plants while retooling others. But let’s just believe for now that both companies will solve their capacity problems. (And why no comment from GM and Ford about new capacity for now? It’s being held as a bargaining chip with the UAW – more jobs in the USA means more UAW members but only if the UAW plays ball this summer during contract negotiations. Otherwise, bienvenidos a Mexico!)
So what is it going to take? It’s not the product any more (with a few exceptions). Rather, all GM and Ford need is greater consideration from consumers and increased penetration in the fleet market.
Fleet is the easiest to understand as it comprises daily rent cars, commercial accounts, and governments. For GM and Ford, fleet sales represent approximately 30% of their sales and in the overall industry fleet sales represent nearly one in five new vehicles sold.
For a fact check here, total new fleet registrations in CY2007 according to R.L.Polk were 3.0 million units but dropped to 1.8 million units by CY2009. While 2010 data is not yet available, fleet sales in 2010 likely rebounded from 2009 but were hardly at the level of 2007 or in years prior. Clearly, there’s room for growth in fleet sales ahead – and it’s doubtful GM and Ford will walk away from their 55% share of the fleet business. And we know now that the Japanese are going to have plenty of problems this year and maybe next year too building vehicles so it’s an opportunity to take business. (And the Koreans can only supply so much…)
So for arguments sake, let’s assume that the fleet business is going to reach a normalized level of 2.8 million units annually (19% of total sales of 15MM units). GM and Ford, without any share increase, would sell 1.5 million units to fleets. But allocating another five percent share increase to these two Detroit companies with their improved passenger car line-ups and with the problems facing the Japanese, there’s an additional 140,000 vehicles to be sold from share gains to fleet buyers.
So to meet my forecast of an increase of 750,000 units for GM and Ford in share growth, and with 140,000 units coming from fleet sales share increases, it means that 610,000 units will come from the retail side. Of course, all of the gains are business taken from competitors. And here’s the heart of the argument – Toyota and Honda are going to get clobbered in the marketplace. It’s all about product and reputation – and for as long as I can remember, neither GM nor Ford had competitive small or mid-size cars (or luxury cars too) worth a damn. Plus Detroit’s reputation for build quality, reliability, or even design wasn’t setting consumers’ hearts aglow. The Japanese captured these consumers, particularly along the coasts, and took share from Detroit.
But the tide is going out on the Japanese. Like Detroit pre-bankruptcy, the two Japanese stalwart manufacturers have gotten complacent. Long model cycle times, boring design, and replacement products (when they get here) that look like warmed over versions of the previous generation vehicles. (Nissan is somewhat of an exception to this.) The luxury brands for Toyota and Honda also appear stalled for the same reasons as their mass market siblings. Plus, the Japanese no longer offer superior fuel economy to the latest offerings from Detroit.
Detroit now just needs to convince those American consumers that won’t consider a Detroit product that it’s time to take another look. You can’t sell a Detroit product to a buyer that doesn’t put a domestic product on the shopping list. And here’s my idea of how Ford and GM can accomplish that – put a human face from within their respective companies (like a vehicle designer, an engineer, a factory worker, and a believable senior executive) to come out and ask for consideration in a series of TV spots. No pitchmen, no fancy graphics, just the speaker, the product, and the brand logo. Focus on some attribute of the product that makes it worthy of consideration. Then add the spokesperson’s contribution to making it a great product. No need to dismiss the competition. All that is being asked for is to take a look.
To add five full percentage points to market share in a short time period is a herculean task – but the only thing that prevents GM and Ford from doing so is no longer due to the products but this lack of consideration. Ask your friends, colleagues, family members, or anyone else who now drives a foreign brand product if they’d consider a domestic product for their next car purchase. I’d bet most would say something along the lines that “been there, tried that, had a horrible experience – won’t go back.” And that’s the biggest obstacle for GM and Ford today.
I believe that with the new product onslaught from GM and Ford, some focused advertising that asks for consideration and with growing positive word of mouth from satisfied customers, the sales needle will move in short order. The world is their oyster – as long as they stay focused on product at the RenCen and in Dearborn.
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You might have been right about Ford stock (unfortunately I didn't read TTAC back then or maybe I'd be a rich man!) but GM has been missing their retail market-share targets left and right and while Ford has improved their lineup that boost is temporary-now that they have their new products out in 2015 a lot of their lineup won't be quite as fresh. The problem isn't so much that they're not doing a decent job it's that the market will only get even more competitive by then and with more players in the game everyone's slice is likely to get smaller.
I'm not sure where the "product onslaught" that you write about relative to GM is coming from. It's pretty well documented that the next couple of years are pretty dry product-wise from GM.