Detroit hopes new models will slow Asian onslaught
By Jeff Green
Bloomberg News Service
Jason Lee represents trouble for U.S. automakers. After test-driving minivans from Ford Motor Co. and DaimlerChrysler AG's Chrysler, the satellite engineer decided last month to buy a Quest from overseas rival Nissan Motor Co.
"The Ford didn't seem right and the Chrysler didn't feel like a sturdy car," said Lee, 36, of Palo Alto, Calif. "The Nissan felt different, like the nice solid slam of the door."
This year for the first time, one in three cars and passenger trucks sold in the United States was made by an Asian automaker. Ford, General Motors Corp. and Chrysler are creating or redesigning 31 models next year, the most since 1986 while the combined market share of U.S. automakers is falling. It was 60 percent for the first 10 months of this year, down from 2002's record low of 62 percent.
Their share will fall as low as 53 percent by 2006, forecaster CSM Worldwide Inc. said, in part because U.S. car models have more defects and lower resale values than overseas rivals. General Motors, Ford and DaimlerChrysler held 77 percent of their home market as recently as 1989.
"I don't really see any scenario right now where they gain market share," said Sasha Kamper, a fixed-income analyst at Principal Financial Group, which holds debt of Ford, General Motors, DaimlerChrysler and Toyota. "They need these models just to defend their current positions."
Rising Asian share
The U.S. automakers' share of the world's biggest car market fell to 8.4 million cars and passenger trucks in the first 10 months, down from 70 percent, or 11 million vehicles, for all of 1998.
Asian automakers' share rose to 33 percent, or 4.59 million vehicles, from 25 percent, while Bayerische Motoren Werke AG led European makers in climbing to a record
7.1 percent from 4.9 percent. The best full-year U.S. market share for Asian makers was 32 percent in 2002, market data provider Ward's AutoInfoBank said.
Toyota has made gains by watching the competition and having senior engineers drive minivans made by U.S. rivals to try to come up with better designs, said Andy Lund, program manager at the Toyota Technical Center in Ann Arbor, Mich. For instance, the company redesigned its Sienna to hold a 4- by 8-foot piece of plywood and equipped it with at least 14 cup holders, he said.
Ford's inability to improve profit and cash flow was cited by Standard & Poor's in cutting its rating on Ford debt due in more than a year to a level above junk status this month. S&P dropped its rating on DaimlerChrysler to two levels above junk last month, the same grade as General Motors, saying the automaker did not have a convincing plan to compete. S&P gave Toyota the top rating, 10 levels above junk, and rates Honda Motor Co. five levels above junk.
"Honda and Toyota have superior profitability compared to the three major Detroit-based automakers," S&P analyst Scott Sprinzen said. "They each have a long record of growing market share, coupled with high product quality and operating efficiency."
Chrysler chief executive Dieter Zetsche said last week in Detroit at an introduction of nine models planned for next year, the first of 25 in the next three years, that the cars will help end the automaker's five-year streak of U.S. market- share losses next year.
General Motors chief financial officer John Devine and Ford CFO Don Leclair said on conference calls last month that their new models will reduce the need for discounting and increase sales.
Each point of U.S. market share represents about $1.16 billion in revenue from an automaker's operations, said David Bradley, a J.P. Morgan Securities Inc. analyst. U.S. automakers can't shut as many plants as they would like because they need sales to help pay for pension costs that average $1,000 per vehicle more than Toyota, according to a study by the Center for Automotive Research.
Market-share gains helped Toyota, Honda and Nissan, the three biggest Japanese automakers by sales, post record profits in their fiscal years ended in March, led by Toyota's $8.1 billion. General Motors, the largest and most profitable of the U.S.-based makers last year, had net income of $1.74 billion, about a fourth of its 1995 peak of $6.88 billion.
Automakers need to focus on protecting market share for minivans and sport-utility vehicles, said Burnham Securities Inc. analyst David Healy. While domestic automakers at best break even on cars, they have pretax profit of $2,000 to $3,000 on minivans and $4,000 to $5,000 on midsize to large SUVs, he estimates. The biggest models, like a Cadillac Escalade, may have pretax profit as high as $10,000, Healy said.
Toyota and other Asian automakers' cars and trucks remain more durable than domestic vehicles, buyer surveys show. Toyota had nine of 17 models place first in the most recent J.D. Power & Associates study of three-year-old cars and trucks. The Lexus luxury line was the highest-rated brand in the study, which surveyed 55,000 owners about 147 types of potential defects such as engine failure or wind noise.
In a study by Automotive Lease Guide, none of the five 004 automobile brands ranked highest for durability were built by U.S. automakers. The guide, used by banks to establish resale values and lease prices, placed Honda first and Toyota second, with Jeep as the highest-ranked U.S. line in sixth place.
U.S. automakers will still benefit from the new models. Even without market-share gains, the new models from domestic makers are likely to increase company profit because the cars and trucks save costs by sharing more parts, said Mike Wall, an analyst with CSM Worldwide.
"Many of these new models should end up being more profitable," he said.
The added models may have limited effect. Lee, whose family's second car is a 1990 Honda Accord, said he's likely to consider imports again. "My friends liked the Nissan, they were a little envious even, and it was nicer than I thought it was going to be," he said. "Some of my friends are considering buying it now."