with GM now in bankruptcy, it could fall to third place
Just five years ago, GM had a big lead on Ford and Toyota in U.S. sales.
But with GM now in bankruptcy, it could fall to third place. That might
not be a bad thing.
By Chris Isidore, CNNMoney.com senior writer
Last Updated: June 4, 2009: 12:00 PM ET
NEW YORK (CNNMoney.com) -- General Motors has been the largest automaker
in terms of U.S. sales for 78 years. Whether it runs that streak to 79
is an open question.
The gap between GM (GM, Fortune 500) and Toyota Motor (TM) has been
narrowing for years. Ford Motor (F, Fortune 500), the No. 3 automaker in
U.S. sales, has started to gain ground as well.
Both companies may gain even more share on GM now that the company is
shedding brands, plants and dealerships as part of its bankruptcy
Experts say they wouldn't be surprised if GM falls to second, or
possibly even third place, in U.S. sales later this year or by 2010.
GM lost the global sales title to Toyota in 2008, an event long
anticipated in the industry. But it wasn't that long ago that the idea
of GM being overtaken in U.S. sales seemed incredible. As recently as
2004, GM's market share was 27.3%. Its sales were nearly 50% greater
than then No. 2 Ford and more than double those of Toyota.
Today, GM's U.S. market share is just 19.5%, down from 22.3% in 2008.
Toyota is second in the market with a 16.2% share so far this year,
followed by Ford at 15.1%.
GM has said it expects its market share to be at 18% to 18.5% after it
exits bankruptcy protection. But Stephen Spivey, senior auto analyst for
business consultant Frost & Sullivan, said GM's U.S. market share could
fall as low as 12% to 13% as soon as next year.
That would put GM far behind the current market shares of Toyota and
Ford and just barely ahead of Honda Motor (HMC). Spiveyadded that GM is
likely to continue losing market share after it emerges from bankruptcy.
Other experts believe GM's market share should stay above 15% or 16%
going forward, but that it will be a battle to hold off Toyota and Ford.
"I think both Toyota and Ford are very serious competitors," said Tom
Libby, president of the Society of Automotive Analysts. "I think those
three will be close to each other for quite a while."
Getting rid of brands will eat into market share
GM has been losing share for years primarily because of tougher
competition from Asian rivals. That isn't going to change anytime soon.
But the fact that GM is planning to shed the Pontiac, Hummer, Saturn and
Saab brands will only add to the pressure on its market share. Those
four brands account for 2.8 percentage points of GM's current market share.
GM vice president Mark LaNeve, head of its North American sales and
marketing, said the company believes it will lose only 1 percentage
point of share from the loss of those four brands.
"We're very confident we can do that and stabilize the share once and
for all," LaNeve said Tuesday when discussing the company's May sales.
But to do that, GM will obviously have to do a better job of
convincingcustomers of the four discontinued brands to switch to
Chevrolet and Buick, two of the four "core" brands GM is retaining.
Fortunately for GM, it won't lose market share overnight from the brands
it is dropping. Pontiac, which is responsible for 1.6 percentage
pointsof GM's market share, is being phased out by 2010. And unlike the
other three brands, it is not in the process of being sold.
The Pontiac brand is also aligned closely with Chevy and Buick, which
means GM dealers that currently sell Pontiacs will have a chance to
convince consumers to switch to another GM brand.Still, experts believe
GM will ultimately wind up losing between a third and a half of former
Keeping the 1.1% of U.S. car customersnow turning to Hummer, Saturn or
Saab could be far more problematic, especially if the brands continue to
operate under new ownership in the U.S.
"Some Saturn buyers are actually anti-GM buyers," said Jesse Toprak, an
auto sales analyst with Edmunds.com. He said they're drawn to Saturn's
policy of no-haggle pricing unique to its dealership network, or the
image of it as a greener car brand.
"A lot of them aren't feeling great about GM's decision to get rid of
Saturn," said Toprak, adding that no more than a quarter of current
Saturn owners will stick with another GM brand.
There is a chance that Saturn owners might buy comparable models from
other GM brands. The Saturn Aura and the Chevy Malibu are similar, for
example. But convincing Saab and Hummer owners to buy another GM vehicle
will be a tougher sell since there are few similarities between Saab or
Hummer models and vehicles fromthe four continuing GM brands.
Why smaller might be better
Another reason GM is likely to take a hit in market share is because it
will probably lose sales to fleet customers, such as rental car
companies. Those sales accounted for 27% of its sales in 2008, and 25%
so far this year.
Some experts say that GM's fleet sales are likely to fall to between 15%
and 20% of its overall sales once it closes plants and dumps the Pontiac
brand. That would lead to a drop of between 1% and 2% in market share
all by itself.
But Jeff Schuster, executive director of global forecasting at J.D.
Power & Associates, said it's better for GM to cut back on its fleet
share, even if it means falling behind Toyota and Ford. Sales to rental
car companies and other fleet customers tend to be less profitable than
sales to individual consumers.
"Daily rental volume has been propping up the total number for years,"
he said. "That is not necessary healthy market share."
Schuster said that it's better for GM to focus on retail customers in
order to stem some of the gains made by Toyota, which has almost caught
up to GM in this portion of the market.
That will be a challenge since retail sales are handled at dealerships,
and GM plans to slash up to 40% of its network of 6,000 dealers by the
fall of 2010.
GM is hoping the loss in sales that results from axing these dealers
will be limited.
About 500 of the dealerships being dropped only sell the four brands
being discontinued. The rest are generally dealerships with small sales
volumes. All told, the first 1,100 of the dealers being notified that
they will be discontinued accounted for only 7% of GM sales in 2008.
Experts and GM officials believe most of those sales will shift to the
remaining GM dealers, which should be more profitable and thus better
able to market GM's better brands. But GM officials concede in company
documents that there could be some slight loss of sales due to fewer
Still, GM's LaNeve argued that rather than focus on the sales GM might
lose, it's more important to look at gains that he believes will be
possible for the brands the company is keeping because GM is slimming
down and becoming more focused.
"That's what core brand strategy is all about - to have more than
adequate marketing money to be able to support these products and not
just launch them and forget about them," he said.