Big 3's auto sales reign nears end
That may seem like ominous news, but it reflects a sea change in how the troubled automakers are selling cars and trucks in the USA. Instead of inflating their market shares by offering non-stop fire- sale prices and pumping massive numbers of vehicles into unprofitable rental fleets, the domestic automakers are scaling back and focusing on making a profit.
That strategy produced a domestic market share of 50.2% in June, down from a high of 81% in April 1984 and 56.1% last June, according to research firm Autodata. Industry analysts predict it will only get worse, settling somewhere in the mid-40% range, perhaps within months.
"From a historical perspective, the psychological impact of the domestics losing dominance in their own land is pretty significant," says Jesse Toprak, director of pricing and market analysis for website Edmunds.com. But it shows a "renewed emphasis on profitability. They are not blindly going after market share."
General Motors (GM), Ford (F) and Chrysler (DCX) have used varying strategies to increase sales and market split. After the Sept. 11 terrorist attacks, steep rebates topping $5,000 per vehicle were common. Consumers caught on, timing their vehicle purchases to coincide with the best rebates. Auto sales charts looked like rollercoaster tracks, the dips marking the times when the domestic carmakers tried backing off from discounting.
Pumping up rental fleets has also been common. Toprak says Ford and Chrysler still sell more than 30% of their overall volume into fleets, despite cutting back on those sales, and GM is down to about 25%. That compares with Toyota (TM) and Honda (HMC), which sell less than 10% of their vehicles into rental fleets. Sales to rental fleets are usually heavily discounted and hurt resale values when those worn-out rental cars get dumped into the used car market.
The automakers have realized that "market share is nice, but profits are absolutely essential," says David Cole, chairman of the Center for Automotive Research.
He predicts the automakers will eventually control about 40% of the market. "Until they get their costs in line with the competition, you will continue to see their market share shrink."
Controlling a dwindling piece of the pie will make it harder to turn these companies around, says Kevin Tynan, an analyst at Argus Research. So far, the automakers have been successful at trimming manufacturing costs.
"It makes it much more difficult to pull off a restructuring when your revenue line continues to retract," Tynan says.