Posted by: David Kiley on July 15, 2009
In its annual “Car Wars” study, the firm estimates that General Motors will give up 5 points of market share, or about 25% of its current business, while Chrysler will lose six points of share, roughly cutting the company in half from what it is today.
If GM and Chrysler are the big losers in the next few years, who are the winners? ML analyst John Murphy estimates that Hyundai-Kia, Ford and Honda will each gain 3 points of market share or more. Traditional Asian juggernauts Toyota and Nissan will also gain share, but at a slower rate.
Chrysler, which was recently taken over by Italian automaker Fiat with help from the U.S. government, will suffer, said Murphy, because of lack of investment in new products from Cerberus Capital Management in the last two years, as well as scant investment by Daimler the last two years it owned Chrysler before selling to the private equity firm.
Not surprisingly, new products are what drives share. The Merrill Lynch report notes that Hyundai will have the fastest flow of new products, replacing 27% of its showroom with new product a year for the next four years. Between Hyundai and Kia, says Murphy, the Korean tandem should gain 3.5 points of share. Meantime, Ford, says Murphy, is set to replace 25% of its showroom in the same time-frame, with an emphasis on small cars and fuel efficient crossover vehicles that are well timed to the market.
Honda is replacing 25% of its showroom a year for the next four years, with essentially almost all replacements for existing vehicles—Accord, Civic, Odyssey, CR-V. “There is a lesson in that—produce great product and keep improving it year after year,” says Murphy.
Toyota and Nissan, according to Merill Lynch’s research, will be launching new products in the next four years at a slower rate than they have in the past. And he projects that Toyota will only gain one additional share point, while Nissan should pick up a half point.
Europeans, despite an onslaught of new products from Volkswagen, should maintain the same level of market share.
Gains in market share will be crucial to future profitability. The recession has forced GM and Chrysler into Chapter 11 bankruptcy reorganization. Those two, along with Ford, have shed excess manufacturing facilities, onerous union contracts and healthcare liabilities, driving down each company’s break even point dramatically from what it was in years gone by. Chrysler, for example, has set its break-even point at 10% of a 10 million unit auto industry.
Ford is working on a plan to be profitable at it current market share of 15.5% with an industry selling 10.5 million. If Ford gains three share points in the next four years and industry sales rebound to 13 million to 14 million as many expect, Ford, for example, stands to be hugely profitable in North America. Three additional share points of a 14 million unit industry translates to 740,000 more vehicles per year than it is selling today.
GM’s forecast is more toubling. “We believe that GM’s 18%-19% market share target is optimistic and a more realistic range is 15%-16%,” said Murphy. Merrill Lunch estimates that GM will only be replacing 11% of its showroom per year over the next four years as it reorganizes around Chevrolet, Buick, GMC and Cadillac in North Americas, having sold or closed Saturn, Saab, Pontiac and Hummer.