05 October 2005

Do you think they get it yet?

I think we're seeing the beginning of the end of the North American car manufacturers as a dominant force in the global car market. Amazing what 30 years of obliviousness will do to you, right Rick Wagoner? Bill Ford?

Are Ford, GM fit to survive post-SUV world?

The good news is that big summer discounts helped ailing North American auto makers clear out most of their sport utility vehicles. The bad news is that their factories are still geared toward cranking out hulking autos that buyers no longer want. September's auto sales figures confirmed the end of a 15-year North American love affair with the SUV. Sales of the oversized autos plunged last month as car buyers reacted to the sudden spike in gasoline prices that followed hurricanes Katrina and Rita. The challenge now for US auto makers - most notably Ford and General Motors - is to retool for the new market reality: Gas miserly is in and the behemoth is out. "US companies have never been good at making small cars," said Susan Helper, an auto industry expert and economics professor at Case Western Reserve University in Cleveland. "So it's an adjustment in mindset as well as technology." And the industry has to undergo this transformation at a time of extreme financial stress.

One option for Ford and GM is to curtail production of its SUVs, while adding extra shifts at plants that make more fuel-efficient vehicles, such as the Ford Focus or Saturn Ion, Prof. Helper said. And to some extent, that's what they are doing already. Ford has just halted production of the Excursion, the 6-metre-long king of the company's SUV line. But that isn't a long-term solution, she said. Ultimately, the auto makers will have to revamp their entire marketing mix, and move aggressively into production of more fuel-efficient, but high-margin vehicles. That transformation could take as long as five to 10 years, Prof. Helper warned. Meanwhile, Asian and European brands - sedans and SUVs alike - continue to gain market share at the expense of domestic brands. SUV sales at Nissan were up in September. SUV sales at Toyota and Honda were down, but not nearly as precipitously as at Ford and GM. "The market may still be underestimating the implications of deteriorating market share and mix for US auto makers," DeutscheBank analyst Rod Lache said in a report to clients. “US auto makers have limited ability to mitigate these declines through the use of incentives. We do not see the discounting strategy as being a viable option.”
(Globe and Mail 051005)

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