2006 North American Market Review

Today’s vehicles are being built to last longer than ever before, and Canadian car buyers are sending their automotive dollars towards larger, luxury models of vehicles. These are just some of the many interesting findings Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc., gave last year during is well-attended presentation at CarFix World which highlighted emerging trends for the Canadian aftermarket.

Looking at overall vehicle sales in Canada, DesRosiers found the useful life of today’s North American vehicle is nearly 12 years with a lifetime repair cost of over $10,000. Entry level vehicles averaged some $700 in repair costs for 2005, mid-sized family vehicles some $900 and larger luxury vehicles up to $1,400.

DesRosiers discovered many Canadians have shifted their buying dollars away from the mid-sized and family vehicles for personal use, and moved those dollars instead over to the larger and luxury end of the vehicle market, with purchases jumping from 9.1 per cent of the total North American vehicles purchase in Canada in 1995 to 12.7 per cent in 2005. This growth in the luxury market means good news for the aftermarket, considering the repair costs of these higher-end vehicles.

As well, DeRosiers found repair and maintenance work was still going to independent garages in Canada. While new car dealers continued to remain strong, there was plenty of support for the independents, particularly as vehicles move out of their warranty periods. With vehicles lasting longer the opportunities for the independent service provider is tremendous as long as they remain on top of their skills, technologies and know how to read the emerging automotive trends.

SSGM is proud to offer DesRosiers’ “2006 North American Market Review,” a chance for independent service providers to understand the trends that emerged in 2006 and will continue into this new year, and thereby affect independent service providers and their future success.

Tom Venetis, ed

The beginning of a new year is always a time of analysis and reflection. This year was no different in that regard, and we witnessed the beginnings of some key trends that mark 2006 as something of a watershed year. With 342,762 fewer North American sales than in the previous year, 2006 represented the first “down” year since 2003. Furthermore, the Detroit-based automakers showed a combined loss of 7.3 per cent over their 2005 sales volume — the largest drop since 1991. In fact, not since 1992 have GM, Ford, and DaimlerChrysler together sold fewer vehicles in North America. Given the fact that this year’s sales results highlight such significant trends, it’s a good idea to look at both production and sales numbers in greater depth.

North American Light Vehicle Market Overview

In 2006, nearly 20 million vehicles (including medium and heavy duty trucks) were sold in North America, with over 1.6 million of that total purchased in Canada. The vehicle market is highly cyclical, and this cyclicality has traditionally manifested itself through short growth cycles (typically three to five years long) punctuated by short downturns (typically two to four years long).

In the present-day market, these cycles have become elongated.

Although the Canadian market performed at near-record levels in 2006, production capacity reductions (and the corresponding sales volume and market share reductions) at GM, Ford, and DaimlerChrysler brought the U.S. light vehicle sales total down to pre-2004 levels, dropping the overall North American number down to 19.8 million units.

Despite the lack of growth, the North American vehicle market remains in the midst of an extended up-cycle. The lead-in to this up-cycle began in 1993, peaked in 2000, and has been holding volume since that time. The extent of the current upside is unprecedented, buoyed in large part by a wave of new product, the growth of import-nameplate manufacturers, mortgage refinancing in the U.S., and the adoption of heavy sales incentives by GM, Ford, and DaimlerChrysler. As such, much of the added volume has contributed to a situation of “profitless prosperity,” whereby vehicles are being sold at an unprecedented rate but profit margins are slim or nonexistent (especially among the three U.S.-based automakers). Restructuring plans recently undertaken by the Detroit automakers have attempted to address this issue.

It is believed that the North American vehicle market is entering the beginning stages of a cyclical downturn. We foresee continued softening but no “free fall,” with long-term volumes likely to fluctuate in the 15 to 25 per cent range. There remains potential upside, but the likelihood of a cyclical downtown is much higher.

GM, Ford, and DaimlerChrysler Review

GM, Ford, and DaimlerChrysler have lost a significant amount of North American light vehicle market share in the past decade, with 2006 merely a continuation of the trend. Combined sales of these three automakers dropped another 7.3 per cent from 2005 to 2006. In the longer-term analysis, the U.S.-based automakers lost almost 20 per centage points of market share between 1995 and 2006, falling from 73.0 per cent to 53.4 per cent of the North American light vehicle market. Market share loss is forecasted to continue, with GM, Ford, and DaimlerChrysler expected to hold a combined North American market share of below 50 per cent in 2010.

There has been a concordant reduction in production share. Production at GM, Ford, and DaimlerChrysler represented 81.7 per cent of the North American light vehicle production total in 1990, but that figure was down to 61.0 per cent in 2006. Production has dropped 26.7 per cent since 2000, with 6.7 per cent of that decline occurring during the 2006 calendar year. North American production share is expected to continue falling, dropping below 50 per cent of the North American total by 2010.

Since 1980, General Motors has lost around 19 per centage points of market share in both the Canadian and U.S. markets. GM’s share of the Canadian market dropped from 46.7 per cent in 1980 to 25.9 per cent in 2006, and its share of the U.S. market dropped from 45 per cent to 24.1 per cent during the same 26-year period. However, despite losing nearly half of its market share, the growing vehicle market has ensured that General Motors’ production volumes have not fallen concordantly with its market share. GM’s North American production total has fallen 34.9 per cent since 1980, but total North American sales have only fallen 15.5 per cent during the same period (5,646,888 in 1980 vs. 4,769,644 in 2006).

Between 2000 and 2006, Ford’s North American production total fell by 39.5 per cent (from 4,670,662 units to 2,823,454 units). This drop-off in production outpaced the rest of the North American automotive industry, which registered a 10.0 per cent drop-off during the same period. Whereas Ford vehicles represented 26.4 per cent of North American production in 2000, they only comprised 17.8 per cent of the total in 2006. To alleviate the financial burden from these losses, Ford has announced the permanent closures of assembly plants to compensate. Capacity reduction is a key factor in ensuring future corporate profitability.

In similar fashion, Ford’s share of new vehicle sales has fallen considerably since 2000. Whereas the total North American vehicle market shrank 2.1 per cent between 2000 and 2006, Ford saw its sales drop 28 per cent. Ford’s share of the North American vehicle market fell from 23 per cent to 16.8 per cent during the same period.

DaimlerChrysler’s North American production has stayed relatively stable since 1995, rising from 2.46 million units in 1995 to 2.68 million units in 2005. In 2006, their production fell 8.2 per cent to 2.46 million units and only 15.5 per cent of the North American total. Sales of DaimlerChrysler products have also remained relatively flat, and total North American market share has dropped from a peak of 16.2 per cent in 1996 to 12.5 per
cent in 2006. DaimlerChrysler has experienced the least drop-off among the U.S. automakers, but it has also not managed to grow its market share or sell appreciably more vehicles since 1995.

North American employment at GM, Ford, and DaimlerChrysler has fallen considerably within the past decade. GM’s employment trend is illustrative of how negative employment trends have been for any worker tied to GM, Ford, or DaimlerChrysler. From a total of 457,000 people in 1985, GM’s workforce is projected to have a total North American employment roster of only 129,000 workers in 2006. Furthermore, very few new employees are entering the GM, Ford, or DaimlerChrysler employee ranks.

GM, Ford, and DaimlerChrysler together have seen U.S. employment levels drop from 316,000 in 2003 to a projected total of 183,700 employees in 2006.

Import Nameplate OEM Review

Production of import-nameplate vehicles in North America has risen considerably since 1990. Increased market demand has prompted the construction (or expansion) of new factories, and those new facilities have managed to double the import nameplate OEMs’ share of North American light vehicle production from 17.0 per cent in 1990 to 35.5 per cent in 2006 (2,135,876 units to 5,621,219 units). Import nameplates are expected to comprise 51 per cent of North American light vehicle production by 2010.

Market share of import nameplate vehicles has risen concordantly. European, Japanese, and Korean OEMs represented 46.6 per cent of North American sales in 2006, up from 34.8 per cent in 2000 and 27 per cent in 1995. By 2009, over 51 per cent of the North American light vehicle market is expected to fall under import nameplate control.

It would be a generalization to explain this growth using the popular sound-bite rationale of “superior product,” but it would also be reckless to assume that other factors outweigh this overriding truth. Volumes have been written on this issue, but suffice to say that super-competitive products (as well as historically under-competitive products from GM, Ford, and DaimlerChrysler) have had a lot to do with the ongoing success of import nameplate brands.