Automotive Industry Challenges

2009 will forever be remembered as an extremely turbulent year—filled with global automotive industry challenges. Global Light Vehicle sales for 2009 were approximately 61.9 million, down 5.1% from 2008. However, from a purely statistical point of view, the Global Automotive market demand seemed to be far more robust than expected at the beginning of 2009. November '09 sales were up 25% from the year before, and December '09 sales were up by about 22%! All together, fourth quarter sales were up about 17% over the final quarter of 2008, when sales bore the full brunt of the financial crisis.

Looking back we have to realize that demand was inflated by numerous government programs enacted to stimulate the automotive markets and as a result impact sales trends. On the other hand, it is astonishing how different the results were in most of the developed saturated automotive markets (e.g. the U.S.) compared to the upcoming "emerging markets" (e.g. China) which are still characterized by a very low density of vehicles on the road.

Stimulated by energetic government intervention, the global economy has stabilized in recent months so the basic economic outlook for 2010 is clearly better compared to the economic framework in 2009. Will the Global Automotive market follow this positive industry trend?

The latest Polk global light vehicle forecast report is available free for your download. This automotive forecast analyzes 2009 sales, Polk's economic outlook and light vehicle forecast for the year ahead. Take a look and let us know your expectations for 2010.

Global Light Vehicle Sales Forecast

Posted by Uwe Biastoch, Director Global Forecasting, Polk's Europe Operations (01.20.2010)

It was my honor to present the 14th Annual Polk Automotive Loyalty Awards at the Automotive News World Congress this week. We’ve discovered over the years that the more you know about customer loyalty, and the more you focus on it, the better. And I can tell you first-hand that we’re seeing more and more of our customers taking their loyalty objectives very seriously. Our 2009 Model Year winners are no exception!

Every year Polk recognizes automotive manufacturers for their superior performance in customer retention. Our Loyalty Awards are based on actual model year purchase and lease activity. This year, we analyzed over 4.5 million household records to determine our winners. In these days of struggling sales and overall automotive industry challenges, the winners this year are a testimony to those OEMs who recognized the importance of spending their resources wisely, and focusing on areas with bottom-line impact like customer retention; which we view as a “must” for automakers hoping to compete.

In our white paper, "Managing Customer Loyalty in the Auto Industry," we share three strategic tips automakers should consider when developing their plans to manage and build their owner loyalty. I hope you find it interesting.

In closing, and on behalf of R. L. Polk & Co., I want to congratulate all of the 2009 model year winners. I hope to see you all again next year at the 15th Annual Polk Automotive Loyalty Awards. Until then, continued success in your customer loyalty efforts!

Posted by Stephen Polk, Chairman/CEO, Polk (01.14.2010)

So there I was, sitting in my car at a local quick lube establishment, trying to stay awake, when I remembered I needed new wiper blades. I asked the attendant, who checked his stock and sadly told me he did not have blades that would fit my car. WHAT? How could that be? Sure my car is 12 years old...and a model that is no longer being built...by a brand that no longer exists. I still have the car and I still need to maintain it. I need this car, because I’m about to pass it down to my son as his first car. But I digress.

So why didn’t this oil change place have my wiper blades? They should know that there is a 12-year old Geo Prism in the area. It's basic parts and service etiquette! As a Polk employee I was curious to see what our vehicle population database said. So I did some research and there are 1,178 '97 Geo Prisms in the Detroit DMA. And nobody has a wiper blade for them?

But, maybe I'm being too harsh. The idea of stocking up for one specific vehicle is probably unreasonable, especially with all of the automotive industry challenges the aftermarket is currently facing. Yet, inventory efficiency is critical for automotive aftermarket companies. I know because I’ve been very fortunate to have met several companies that have implemented exceptional inventory management systems. These are the winners of Polk's Inventory Efficiency Award. How good are they? Check out their award-winning projects at: http://usa.polk.com/Industries/AfterMkt/videos.htm.

Want a deeper dive? Check out this case study about Uni-Select, a large automotive parts distributor who worked with Polk to develop an e-modeling tool to save their customers time and money. I think you will be impressed.

And hopefully the next time you need a car part—it will be in stock!

Posted by Jeffrey Stone, Senior Marketing Specialist, Polk (11.12.2009)

This has been a difficult year with many automotive industry challenges; consequently, marketing budgets have been cut significantly. I attended EquipAuto 2009 for the fifth time as a visitor, and the second time as an exhibitor. I must say that the show left me with a funny feeling.

Despite rumors of cancellation, the exhibition took place from the 13th to the 18th of October in the North of Paris. The limited number of exhibitors meant that the surface was reduced from six to two halls. I was even more surprised to discover that these two halls were not full. Last minute budget shortages left so many holes, it was like navigating your way through a piece of Swiss cheese. It really was unusual to have such a low turnout of exhibitors, yet the increased visibility worked to our advantage. The attendants could spend time on stands, discussing the technologies and the innovations.

The event included the traditional tooling, servicing and hardware exhibitors showing usual products supported by new sales concepts -- those mainly acting in the independent aftermarket. I've noticed the growing importance of computers in the traditional parts & service industry. The image of the greasy mechanic dressed in blue is quickly being replaced by a clean consultant, checking databases and launching programs to give you the expected answers and service for your car.

I noticed something else different – it seems the first steps are being taken to follow the path required by the many new regulations for environmentally-friendly cars. After years of heavy cars and big engines, we are living through a major change to more efficient, lighter, and safer cars. And to support that, parts and service suppliers brought new things to the table -- new technologies that go along with drastic reductions of carbon emissions. I’m talking about the growing number of dry cleaning solutions, the LED suppliers, the catalytic converters fabricants, etc. Innovations are following the evolution of cars. The more than necessary reaction and adaptation to change within the industry is finally here. It is costly, but the adaptation to the upcoming cars is necessary, especially since the scrappage premiums and the CO2 regulations in Europe are accelerating the phenomenon. Although, the crisis been difficult on the industry, the creativity and innovation remain!

Posted by Bertrand Rakoto, Analyst for Marketing and Consulting, Polk (11.11.2009)

There's still a lot of press regarding automotive industry challenges like the recent GM and Chrysler bankruptcies and related dealer closings, but has anyone looked at the domestic  OEM’s market share lately? I have and the industry trend is very sobering – GM, Ford and Chrysler combined retail market share has dropped over 10 percentage points during the last five years and is currently hovering around 40%. Yes, almost two out of every three vehicles currently purchased at retail in the U.S. is an import. I know that the definition of an import is fuzzy at best with Hondas built in Ohio and Subarus built in Indiana; but for the purposes of this discussion, let’s consider anything not made and/or distributed by the Detroit Three an import. We’ll also count future Fiats and Alfas as domestics since they will be distributed through Chrysler dealers.

My crystal ball is as cloudy as anyone else's, but I don’t see this sharp downward trend reversing in the near term. With the impending demise of Saturn and Pontiac, the reduction in GM and Chrysler dealerships and the heightened import competition (particularly Hyundai, Kia and VW), Detroit Three share can’t help but continue to slide even further. Add to the mix a newly refocused Toyota and vehicles from China and India on the horizon, and one can only wonder where the domestic share will bottom out.

I can say that from R. L. Polk's automotive forecast, we expect the Detroit Three total market share (including fleet units) to stabilize around 40% over the next five years. Even with Ford's recent uptick in share, I predict the Detroit Three to account for only 25% to 30% of the retail U.S. market within the next five years. What's your forecast, and what, if anything, can the Detroit Three do to become the Big Three again?

Posted by James Dimond, Vice President of Global Network Planning, Polk (10.28.2009)

Yet another entry in the book of automotive industry challenges this year...talks with GM's Saturn and the Penske Automotive Group fell through. There have to be some very heart-broken dealers out there right now and it's discouraging to see a hopeful marriage fall apart before the bride and groom chose a date.

But let's speculate on a scenario: What if an OEM such as Toyota or Hyundai took the Saturn brand? What a clever, defensive move that would be. Recall that Saturn was to be GM's "import-killer" when they launched the brand in 1985. But this never blossomed. In fact, past conquest analyses from our company showed that most of the Saturn buyers were mainly from other GM divisions. That's not doing the job.

While the Saturn retail model was refreshing and unique (hassle-free and highly customer-centric...recall their tagline? "A different kind of car company"), the product line got stale and investment in Saturn from GM waffled. However, there have been many people talking about what a great opportunity Saturn represented to give US domestic auto owners a taste of an import experience. I think many domestic "loyalists" would come running if they knew another established and growing import manufacturer took the helm. Particularly one with a strong brand image and talent for growth.

Or...would a Chinese entrant seeking to capitalize on an existing North American retail network want to pick up the tab? Is there something here?

Being in the auto industry, this is tough to watch. I feel for the Saturn retail network and their raised spirits which are likely falling today. Let's hope GM can find ways to nurture current Saturn owners and not erode customer loyalty through this brand elimination. GM put good product on the road with Saturn. Let's hope more can be done.

Posted by Lonnie Miller, Director of Industry Analysis, Polk (10.01.09)

In a recent Polk View on automotive industry challenges, we looked at the impact of Chrysler's and GM's bankruptcies, brand eliminations and dealership closings on consumer attitudes and likely buying behavior. Our ongoing consumer research program painted a picture that wasn’t particularly rosy just a few months back: over two-fifths (43%) of surveyed consumers were likely to defect if their local GM or Chrysler dealer closed; one-third (35%) would be less likely to purchase a brand being discontinued and a similar proportion (34%) said an auto company bankruptcy would make them less likely to buy.

Consumer Attitudes - Impact on Purchase Consideration
Level of Agreement: I am less likely to buy because of...

Fortunately, things are starting to look a little brighter for the U.S. auto industry, with positive signs emerging in a relatively short time. GM's and Chrysler's rapid emergence from bankruptcy and the government's highly successful Cash for Clunkers program have been big factors contributing to the improvement.

While we're clearly not out of the woods yet, there are some signs of an upturn. Chrysler recently announced it's re-signing 140 dealers of the almost 800 closed under bankruptcy protection. As reported in Automotive News, dramatic cost cutting and production cuts, along with Cash for Clunkers sales, have left auto inventories at their lowest levels since 1992 and now automakers are scrambling to build more of their popular models. GM just announced that it's increasing production and calling back laid-off workers at several plants to fill the void. Retailers also report a late model used car sales boom from shoppers who didn't qualify for Cash for Clunkers and the increased traffic is driving service and maintenance business, which are both quite profitable.

Things seem to be boding well for Ford, which gained market share due to the other Detroit manufacturers' duress. Also, Toyota has trimmed its huge losses from last quarter. Economic indicators add to the optimism: the stock market's up, GDP is shrinking less than previously, unemployment is slowing, the housing market may have hit bottom and consumer confidence is showing signs of renewed life.

Let's keep our fingers crossed that the economy, a leaner and meaner GM, and Fiat’s merger with Chrysler all mean that brighter days are ahead for a smaller but "better" auto industry. What do you think? Are things improving for the U.S. auto industry?

Posted by Bruce Giffin, Corporate Market Research Manager, Polk (08.24.2009)

There's been a lot of talk and media attention to the weak state of the auto industry, so I decided to take a look at a segment of the market that doesn't get covered quite as much: luxury vehicles. Surprisingly, we’re still not seeing the drop in luxury vehicle sales this year that might have been expected considering the current economic and automotive industry challenges.

Sales Trends

Industry trends are showing that luxury vehicle sales have declined 34% year-to-date compared to 2008, less of a decline than the 35.1% drop experienced by the overall category of cars and light trucks. Looking strictly at cars (not trucks), we see a drop of 35.8% from last year...still lower than the year-over-year 38.6% drop for non-luxury cars. We have noticed a slight shift to lower-priced luxury cars, with greater sales declines seen in the higher-end flagship cars such as the Mercedes-Benz S-Class, the BMW 7 Series, and the Lexus LS.
 

The sales trend is better for trucks, although the segment still experienced a decline. Sales of luxury trucks are down 30.4% year-over-year compared to a 31.9% drop for non-luxury trucks. And some brands are increasing market share and sales. The Lexus RX is the luxury truck leader, and has increased its share of the luxury truck market by four percentage points over last year. The new Audi Q5 and Mercedes-Benz GLK-Class have added almost 12,000 units this year through May.

Customer Loyalty

Tracking customer loyalty and competitive financing programs will help identify keys ways to increase share as the industry struggles to recover.

The luxury auto makers still have to contend with declining loyalty. Polk’s most recent loyalty study shows serious declines for Lexus, Infiniti, and Volvo. BMW, Porsche, and Jaguar have all improved their loyalty for Q1 2009, but loyalty in the luxury segment overall is down 1.5 points from the prior quarter.

Leasing

While leasing for luxury cars and trucks has declined from last year, it’s probably not the great leasing deals that are causing defections. Luxury truck leasing is down 47.8% from last year and leasing of luxury cars has dropped 44% since 2008. Leasing penetration is off for most makes, but as credit conditions ease, manufacturers with the best financing programs will increase both loyalty and conquest.

Careful management of customer retention to increase loyalty and implementation of competitive financing programs will be the key to increasing market share until the segment rebounds.

Posted by Rick Vicedomini, PolkInsight Advisor, Polk (07.30.2009)

With the rash of cost-cutting in the face of current automotive industry challenges, I feel like something should be said on behalf of digital investment. It’s no secret that the number of dealerships will drop dramatically this year and beyond. I think it's obvious that the economy has had a fairly dramatic effect on consumers, too.  But it’s more than just declining sales. The economy is also impacting how consumers are shopping for their next new car or truck.

If consumers are replacing vehicles at a slower rate, this means they are taking more time than ever to research their next purchase. Odds are they are staying away from the actual point of sale to avoid the perceived risk of being trapped by dealers desperate to get a sale. Instead, consumers are doing vehicle research via the Internet from the comfort of their homes.

With consumers spending more time online gathering information, digital marketing has become significantly more important. Yet I get the sense that some manufacturers and dealer groups are considering reductions in their online investment (e.g., less content and fewer features). 

Closing even one brick and mortar store is a difficult decision. The decision to cut digital investment is not one that should be taken lightly, either. In this difficult time, carmakers and retailers should make every effort to maintain or even increase their investment in their customers' online experience. Otherwise, they risk losing sales to dealers who realize the power and potential of digital marketing.

The eagerly awaited Cash for Clunkers program is one of the hot topics du jour in the automotive industry. Given the current automotive industry challenges, any additional incentive program could be an instrument in enabling the recovery of auto sales. Although experts in general are skeptical of the real impact on sales trends, many in the industry are wondering how many households qualify for this new program (although the budget cap on the program will make it impossible for everyone who qualifies to participate).

Here at Polk we created a model identifying the households likely to own a vehicle that qualifies for the Cash for Clunkers program. At the same time, independently of the Cash for Clunkers model, we segmented the entire US market into groups based on the type and number of vehicles they own, age and market value of the vehicles, income and ability to pay for a new vehicle (with or without extra incentives). Based on this segmentation and the Cash for Clunkers model, we came up with a rough estimate of the program's market potential: 4 million.

Let me explain how we arrived at that number.

Roughly 11 million households are highly likely to own clunkers. However, not all of these will be able to afford a new vehicle, will be interested in taking advantage of the program or will even be aware of it. Of the 11 million clunker owners, we identified a group (about 6.5 million), that have high income and can easily afford a new car. Most likely, these people keep the clunker as an extra vehicle in their garage. It is hard to tell without further research how many of these households will actually be interested in getting another new vehicle, but a fair estimate is about 3.5 million.

Another segment of 2.5 million clunker owners have relatively low incomes and will probably be challenged in securing funding for acquiring a new vehicle, even though they may actually need one. We estimate conservatively that about 500,000 consumers from this group will actually be able to acquire a new vehicle via the program.

Whether or not the Cash for Clunkers program results in the additional 4 million sales we estimate will depend on a series of factors that are difficult to control. First, the $1 billion budget cap allocated for the program limits severely the number of customers able to take advantage of the program. Even if the budget were unlimited, some households would want to purchase new vehicles that wouldn't qualify due to poor gas mileage. Other consumers will simply not want to incur payments for an extra new vehicle, even if they can afford it, and yet others may not even be aware of the program. Even with those caveats, we believe that the potential of the Cash for Clunkers program is significant.

I was joined on the panel by my colleague Jim Dimond, VP Dealer Network Planning, and the following:
 

• Rev. Jesse Jackson – World-renowned Minority Leader
• Damon Lester – President of NAMAD
• Sil Gonzales – Owner, Casa de Gonzales Automotive Group
• Jay Rivchin – Owner, Dadeland Chrysler, Dodge, Jeep
• Todd Bullard – Partner, Harris Beach Law Firm
• Randi Payton – Owner, On Wheels Magazine

The three-hour panel started with me sharing my thoughts on what happened, both in the auto industry and economically, that created the current dealer crisis, which lead to a discussion on group and individual dealer solutions.

First and foremost, the minority dealers MUST come together as a single voice and support a united vision if change is to occur. I was a little disappointed to see only 25% turnout at the National Conference (300 of the 1,200 minority dealers in attendance). Based on this, I agree and support both Jesse Jackson and Damon Lester when they suggested the group come together as one unit instead of continuing with their current fragmented approach and collectively work with Washington to get some short-term relief. The relief from Washington could include a share of the bailout money designated for the Minority Dealer Community or some form of guaranteed loans.

Secondarily, there are immediate solutions that each dealer could independently implement to improve their business position including:

• Recognizing the days of the “Fat Cat Dealer” are over and changing the way they’re doing business to align with the current industry.
• Understanding the numbers are the key to success. What do I mean by this? For example, if a Dealer Principle does not like analyzing the numbers, then they should hire someone that does. Organizations such as Polk have solutions that can help dealers sell more cars while realizing more Return on Investment.
• Building or strengthening their relationship with OEM regional representatives.
• Proactively posing questions to OEM Reps to better understand their current position and what changes need to be made to improve this position with the OEM.
• Re-assessing and improving their lead management strategy.

I recommend the extraordinary entrepreneurs and community role models who call themselves minority dealers go back to the basics that allowed them to become the successful Dealer Principles, Vice Presidents and General Managers they are today. Know your market including current strengths and weaknesses, focus on the customer, get behind the numbers and overall, remember it’s a business. If each minority dealer takes this approach with his or her dealership, then collectively the minority dealer community will persevere despite the current automotive industry challenges.

Posted by Marc Bland, Manager of Analytical Solutions, Polk (07.13.2009)
 

This week, President Obama signed the “cash for clunkers” bill.  So let’s talk about the impact this will have on auto sales this year. In case the basics of this bill are foreign to you, it's essentially a cash incentive. The goal is to motivate us to turn in an older vehicle (that has to then be destroyed) and purchase a new one. The government will provide a voucher worth up to $4,500 to help pay for the new set of wheels. And, you have to buy a new vehicle that’s more fuel efficient than the older one you’re turning in. 

How will this affect automotive sales trends?

Obviously, there have been a lot of estimates on how many more auto sales this type of government program will create.  To those hoping the automotive industry challenges facing so many can be put to rest, this legislation is one source of optimism. But, it can only go so far.

One thing to realize is that the funding for this bill was decreased to $1 billion dollars, down from a reported $4 billion in its earlier version.  Given the current details of the cash for clunkers bill and the dynamics of the car market right now, we know the bill can only fund roughly 200,000 additional sales.  While this newly-signed bill won’t make or break the year for any auto manufacturer, it’s a good sign of commitment to help stimulate sales and hopefully add to rebuilding consumer confidence. 

While sales of new cars or trucks are down across the globe, many countries in Western Europe implemented similar legislation earlier this year (aka "scrappage programs").  Between January and May 2009, roughly 500,000 additional passenger vehicles sold due to cash for clunkers programs in various European countries (here's a recent Polk press release on this).  By the time 2009 closes, it’s expected that more than 1.3 million additional sales in that part of the globe will occur. 

This is only one piece of a larger economic reform plan to get the U.S. economy back on its feet.  Selling cars is one part of that formula.  Will it be the single biggest deal benefitting our industry right now? No. But at a local level, it’ll drive traffic into the dealerships...and maybe give a few dealers some much needed cash flow now versus later. Those looking to get a deal on a new car or truck would be smart to see if they qualify...and take the money while it's still available.