Industry Trends

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)

Last week we recognized winners of Polk's annual Automotive Loyalty Awards. One category that gets a lot of attention by our customers is the overall "Make Loyalty" category which basically recognizes superior customer loyalty to an OEM's brand. Since many of the automakers have multiple divisions (i.e., makes or brands), they like to see how consumers react to these separate entities due to the unique position they try to create in the marketplace. This year, Honda won for the U.S. market. But by how much? And how many more repeat sales would have been needed by other brands to beat this year's winner? The point of these questions is an estimation process can be used by automotive marketing managers to figure out what the sales mix needs to be in order to help them predict how they'll help their companies reach their overall sales targets.

How Close Was Each Brand to Beating Honda's Make Loyalty Rate in 2009?

For the 2009 model year, the average make loyalty rate was 44.53%. Honda's make loyalty rate was 54.86%. Toyota missed beating this rate by 0.15 percentage points and Ford missed it by 0.74 percentage points. If I look at the brands, including Honda, that had an above average industry make loyalty rate, there are a total of 10 of them.

But here's what's intriguing to me: is there an "efficiency thing" going on for some brands? Meaning, what dynamic allows a relatively few more sales from past customers to make some brands "win" while other brands need far more sales from past customers to get the same outcome?

Take Subaru, for instance. They missed beating Honda by 6.03 percentage points. But they only needed another 3,914 sales from past customers to exceed Honda's make loyalty of 54.86%. Now if you're Subaru and you only sell just north of 200,000 units in the U.S., yielding another 3,900 units isn't an easy task. But it's worth noting what sales volume deficits exist in order to possibly reach a loyalty target. Now a brand like Chevrolet needed 27,781 additional past customer sales to make them win, yet Chevrolet's overall gap (5.10 percentage points) from beating Honda was smaller than Subaru's (6.03 percentage points). Cross-town rival, Toyota, missed getting the top spot by 849 sales from past customers. In these examples, we have two large volume OEMs and one relatively small volume OEM. So it's not always a size issue that creates the disparities I'm highlighting.

The point is that when companies set targets for sales, much of this will come from past customers. And if there are specific loyalty targets established, managers can conduct a sensitivity analysis to estimate "what's needed" to hit the number. Awards are something to be proud of, but more importantly, hitting sales targets that are built on a bit of science with the use of consumer research and knowing industry trends can make hitting targets a more plausible effort. Here's to 2010... may the best, and most efficient, brand win.

Posted by Lonnie Miller, Director, Industry Analysis, Polk (01.18.2010)

If you're like me, you're probably wondering why Ford has come out with a new product in the Medium Duty Commercial Vehicle Market segment this fiscal year, when industry sales are expected to be weaker than original forecasts. If you did wonder, then you haven't seen the Ford Transit Connect. An unabashed, small (don't dare call it mini) van that promises to be the vehicle version of a multi-tasking child that is watching television, playing a computer game, and text messaging their friends all at the same time.

The six-foot six-inch height is surprising and creates a roomy, if not downright capacious space for whatever application the owner can imagine. Plus, Edmunds lists the vehicle with a 23 mpg fuel rating and 135 cu. ft. of cargo space all at a price tag of $20.8K - welcome specs for the small business owner looking to save, in all areas of their business, without sacrificing quality. If you need power, though, then this vehicle may not be for you. The 4 cylinder engine is only putting out 128 lbs. ft. of torque at 4750 rpm. The horsepower story isn't much better with 136 hp at 6300 rpm.

I still think this vehicle has the opportunity to be a game-changing crossover in the commercial and consumer vehicle markets alike. The large space gives contractors, small business owners and shuttle services the opportunity to use a smaller, more fuel efficient vehicle with enough room to handle all of their needs. For the consumer, the Transit Connect has an optional three-across bench style second row seat. This could mean a multitude of uses for drivers with wheelchairs, families with an active lifestyle, small bands and folks who simply dig the quirkiness of the vehicle.

Ford has also reached out to the earth friendly crowd - they will be happy to know that Consumer Reports mentioned Ford's plans to come out with a battery-electric hybrid version this year. It seems as though the hits just keep on coming for Ford as they add to the ever-popular Mustang muscle car and F-Series trucks with the Connect, redesigned Fusion and Taurus. Suddenly Ford's vehicle lineup is looking quite strong and attractive. They may even prompt me to take the, "Have you driven a Ford lately" challenge to heart, and actually drive one instead of simply answering, "No."

I am excited to start seeing these vehicles on the road here in the U.S. instead of pictures from Europe but I'm even more excited to see what effect the vehicle will have on the industry trend to produce larger - more powerful and roomy - but less efficient vehicles. What effect do you think the new Ford Transit Connect will have on the market?

Posted by Therran Oliphant, Account Representative, Commercial Vehicle Truck Group, Polk (01.05.2010)

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)

I may be ridiculed for the next year about this, but I have to come clean. I love minivans. I'm a dying breed since industry trends show minivan sales in 2008 only represented 4% of the US market down from over 6% in 2004. And three of the nine OEMs that sold minivans over the past 5 years have exited the segment.

I don't own one (yet), but I think they are a family's best friend. If it weren't for an early turn in on a lease and a great deal on a Chevrolet Traverse, I'd be sitting pretty in a Chrysler Town & Country right now. Don't get me wrong, I love my Traverse. The DVD player with head phones, second row bucket seats, seating for seven and lots of cargo space make the Traverse a nice family ride, but I want more. I want the lower deck height of a minivan so I don’t have to hoist the car seat over my head to get it in the car. I want the stow and go storage for all the stuff we seem to collect in the car. I want the sliding doors that open at the push of a button.

My husband doesn't get my love of minivans and refuses to drive one. Am I just blinded by the functionality of them? Someone must agree with my love of minivans... But then again maybe not--2009 sales trends show minivans up only a quarter of a percent from 2008. Are you a minivan lover or hater? Sound off.

Posted by Margaret Zewatsky, Global Market Analyst, Polk (10.07.2009)

Why don't small diesel cars get bought or sold in the U.S.? The last time you were in Europe up to 40% of the cars driving next to you were diesels. They were getting up to 60 MPG and didn’t have complex recharging systems or heavy batteries. Could you tell? They weren’t smoking, they didn’t sound like an F350, they were probably going to last longer than the petrol version next to them and they are great mid and small sized cars. This industry trend seems almost absent in the U.S. consumer marketplace.

If you could buy the new Taurus as a Turbo Diesel and get 40 MPG, would you? If you could buy the same Saab, Audi or BMW that you buy here in the U.S. today and get double the mileage with none of the hybrid costs or future headaches of replacing batteries – would you? I know I would.

If you wouldn't buy one, why not? Most of these vehicles have been engineered to meet U.S. vehicle safety and crash standards. The diesel that you can buy here in the U.S. is now clean enough to put in their highly tuned engines without destroying them. What is stopping the OEMs from bringing them over by the boatload? VW is making a start – their TDIs appear to be selling well but this is a small manufacturer with few models. Is it really public opinion of diesels that is driving manufacturer behavior? Has there been no consumer research to gauge loyalty for this forgotten automotive engine segment? Or are the manufacturers overstating consumer concern and missing a huge opportunity to improve U.S. fuel consumption on new vehicles... and limiting consumer choices? I know that when I buy my next vehicle, it will be a diesel since I commute 86 miles to work each day.

Posted by Chris Royle, Director, Global Product Strategy, Polk (09.15.09)

Look out E85 owners – you may have a vintage model in your driveway. At the 2009 SAA Strategic Planning Summit last week, two presenters spoke about regulatory issues that are being addressed by decision-makers in D.C. right now that will affect upcoming industry trends. The California Air Resource Board (CARB) approved the Low Carbon Fuel Standard earlier this year which forces fuel producers to lower their product's "carbon intensity" by 10 percent by 2020. This approval comes after a University of Minnesota ethanol research study that suggested corn-based ethanol, which much of the U.S. ethanol production is dependent upon, may be more harmful to the environment than gasoline. CARB is encouraging cleaner energy options such as cellulosic ethanol, electricity and hydrogen. This attention is at a national level and I think it is going to impact automakers and their decisions to produce certain types of alternatively fueled models.

In 1998 Congress passed the Alternative Motor Fuels Act providing OEMs with credits toward the Corporate Average Fuel Economy (CAFE) standards. This essentially kept automaker's fleet fuel economy within federal standards while still producing the big gas-guzzlers America loved. How big is this market segment? Flex fuel vehicles represent 7% of retail sales between January and July of this year. This is a 2% increase from 2008. GM has made the commitment to have one-half of its annual U.S. vehicle production be E85 or biodiesel capable by 2012. GM leads the pack with 18 flex fuel vehicles along with seven other OEMs currently offering flex fuel models. Despite all of this OEM activity around flex fuel offerings, there are still less than 2000 fueling stations across the U.S. That's a problem if an OEM wants to build natural (or "national") demand for these types of vehicles.

If corn-based ethanol as we know it today will not be supported, where does this leave the E85 investment the OEMs and fueling stations have made to date? Is E85 being scrapped for greener energy sources like electric vehicles? (For more on electric vehicles, see our latest Polk View, "Who Will Buy Tomorrow’s Electric Vehicles?") If you are an E85 owner today, where does that leave you and how will you be able to reap the rewards of having this type of flex fuel vehicle?

Posted by Margaret Zewatsky, Global Market Analyst, Polk (09.11.09)

Everyone is talking about the market turbulences caused by the governmental scrappage schemes in different European countries. Much has been made of the fact that many consumers have "pre-bought" in 2009, which will have a negative effect on the sales trend in 2010. But, nobody is really talking about how the scrappage schemes have changed the market structure. I decided to look at the effect of the scrappage schemes on diesel-powered cars to see what the effect on that important vehicle segment might have been.

I found that the scrappage schemes had a significant and negative effect on diesel car sales. During 2008, the long-term upward trend of increased European market share for diesel vehicles came to an end, peaking at about 51% of total new car registrations. In contrast, during the first seven months of 2009, the share of diesel cars in the European market share fell to 45%.

Diesel Share Europe

Why did the scrappage incentives cause diesel sales to fall? People bought a heavier level of mini and small cars during the scrappage incentive period, which took away from diesel sales. As consumers who purchase mini and small vehicles typically use them for urban driving, they don't find that spending the extra money for diesel cars is justified by the savings in fuel costs. Also, since there are fewer diesel models in small or lower vehicle segments, consumers bought more non-diesel models as a result of the incentive programs.

Here is an example of the shift from diesel sales: In the German market for the first seven months, the share of diesel vehicles fell by 14 percentage points to 30% this year. I have not seen this low level of diesel penetration since about 10 years ago.

Diesel Share Germany

While we have to assume a total sales volume reduction in markets that are currently heavily supported by scrappage programs when the programs end, we also expect a normalisation in the market structures. We would expect to see sales in the small vehicle segment go down next year, which will automatically cause the market share of diesel vehicles to increase because of the higher diesel penetration in larger vehicle segments.

The scrappage schemes have given auto analysts a hard time – it is essential for them to get quick and detailed data in order to analyze the sales trends and distinguish short-term market reactions from real industry trends. From my perspective, the reduction in diesel sales is one example of a short-term sales trend.

Posted by Thomas Mawick, Manager, Automotive Studies, Polk, Essen, Germany (09.02.2009)

Impending emissions standards increases usually signal the flood of pre-orders for trucks. Yet, it is August and there still is no indication that there will be any pull-ahead sales. This got me to thinking...can the pull-ahead sales trends be predicted by the number of fleet purchases? More importantly, will 2009 resemble 2006 when new emissions standards slated to go into effect the next year help "pull" an increase of New Truck Sales?

The assumption is that there are fewer buyers in the market, so we need to find the actual number of potential purchasers because they are an important indicator of the commercial vehicle market's volume potential. Therefore, the first variable to measure - in my quest to calculate the industry's near-term fate - is an estimated number of companies that will need to buy based on prior activity. As was assumed, there are far fewer fleets purchasing in 2009 - somewhere to the tune of 25% fewer than at this same point in 2008.

Learning this particular fact made me feel like a young boy playing Super Mario Bros. 3 when a turtle would bite him and Mario lost a special power or shrunk to "Mini Mario" under the weight of the player's ineptitude. Instead, the economy is the player and the market conditions are the snapping turtles nipping at young Mario's heels (who of course is also known as industry variables). Usually, in those days, as the game player (or class 8 truck dealer in this case) I would tell myself that this is merely a setback; I will make it up by grabbing some extra stars to get an additional "man."

Undaunted, I figure that there may be some light at the end of the tunnel, so I go hunting for commercial vehicle market stars. I decide that I can estimate the average number of purchases by isolating all of the New Vehicle registrations each company has made during the year. I'm hoping that a lack of activity in the beginning of the year will indicate that everyone is playing the waiting game for the 4th quarter. When dissected by industry, fleet purchase averages seem to line up with other years - all years except 2006 when pull-ahead sales for new emissions standards stimulated the industry.

In other words, those who are purchasing are buying the same average number of vehicles per purchase as in past years. This statistic lets me know that the people that are buying have not treated this current emission reduction like the last fleet update period - buying light early to purchase heavy at the end of the year. Now, my first Mario has been killed and I'm getting a little upset. This is okay, because sometimes a little anger only makes you more focused to play the second man, so I know I can handle this.

Join me for Part 2 of this blog post when I continue my game of Super Mario and my look at near-term sales and industry trends in the commercial vehicle market.

Posted by Therran Oliphant, Account Representative, Commercial Vehicle Group, Polk (08.12.2009)

The much talked about U.S. automotive industry trend towards smaller and cleaner engines is picking up speed this fall. A look at the next three months' product launches shows that customers looking for fuel-efficient vehicles will have a greater choice.

Smaller engines are being introduced in vehicles typically powered by six or eight cylinders. The Audi A5, Buick LaCrosse and Chevrolet Equinox/GMC Terrain will for the first time use 4-cylinder powerplants. Given the current market conditions, those trims should quickly grab a significant share of their respective product mix. So does it mean that the U.S. automotive market is headed towards a more "European-like" engine mix type? It is likely. As of calendar year to-date May 2009, 4 cylinder engines still make up only 41% of the U.S. car and light truck industry. That share is bound to increase.

Much has already been said about Ford’s new 6-cylinder Turbo 'Ecoboost' engine. It is Ford’s way of replacing thirsty V8s without compromising performance. The Ecoboost is now available in the Ford Flex, Lincoln MKS and MKT vehicle lines. Interesting from a technology point of view, the V6 Ecoboost should only account for a small part of those model mixes. Next in line will be Ford’s higher volume 4-cylinder 'Ecoboost'.

One other way for manufacturers to improve on gas mileage is to "de-content". Mazda and Volvo will both launch non-turbo versions of their already-on-sale CX-7 and XC60 compact turbo SUVs. This is a smart and inexpensive way to offer customers a greener and cheaper alternative.

Acura will go a slightly different route to improve on its crossover's fuel efficiency. The RDX, on sale since 2006, will for the first time be available as a two-wheel drive and consequently get an additional two miles per gallon. It should be a success especially in the Sun Belt region where many luxury crossover customers do not need four-wheel drive vehicles.

Finally, a European manufacturer (a first!) is entering the hybrid vehicle market. Mercedes-Benz is adding new electric-gasoline powertrains to its S and M luxury vehicle lines. The ML450 will compete head-to-head with Lexus' new RX450h. If properly priced, and if the RX is any indication, we can expect the ML hybrid rate to quickly reach 20%. As for the S400 hybrid, it will be a unique proposition for customers looking for an environmental Über-Sedan; getting close to 30 mpg in a full-size luxury car is a first in the U.S.

As manufacturers venture into new niches, as more diversified powertrains become available and as customers ask for more trims, model launch frequency will keep rising. Who's next to the party?

Posted by Francois Gravigny, Senior PolkInsight Advisor, Polk (08.06.2009)

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)

I can almost see the headlines on CNBC or Fox Business noting that occult store stock has surged, due to the preponderant purchase of soothsayer assistance items. Magic 8 balls will reach the spire of their economic demand since being paired with lava lamps, and businesses will start hiring mystics to work with their economists and business analysts. Maybe that is more than a little far-fetched, but to assure ourselves we never reach the point of crystal ball and lucky rabbit's foot dependence, the commercial vehicle industry must go through some realistic and sound self-assessment. More than ever, my customers are looking toward forecasting tools in the hopes of gleaning enough  knowledge about their market and the business climate to make informed decisions that will mitigate the effects of the slumping economy on their businesses.

While the industry is extraordinarily complex and there are no one-size-fits-all solutions, there are some major points of emphasis that may act as a general indicator, applicable to most businesses looking for some direction. The three following issues can greatly impact the decision-making process of just about any business in the commercial vehicle market.

First, diesel engine emissions standards are becoming increasingly tough. This is especially true in the heavy duty segment, and it has already shown up in new vehicle registration volumes over the past 2-1/2 years. Meanwhile, at the other end of the spectrum, class 3-5 vehicles have increased their market share 3% - to 41.6% of the total truck market - in the same time frame. Look for this industry trend to continue as the projected Compound Annual Growth Rate (CAGR) of Class 8 vehicles looks very weak until 2013. 2009 new vehicle registration volumes will fall again, to 380,600 vehicles. This number is less than half of the new vehicle registrations of 2006. VIO is still expected to climb, which suggests there will also be much less scrappage than in years past. On the positive side, the combination of those two metrics should mean an increase in used vehicle volumes and parts and service activity. Third, we can safely say that the industry will start to recover by Q1 2010, with the overall business climate of the country and the world. Commercial vehicle registrations will rebound to above 2008 levels as early as next year. Survival is the key to reaping the benefits of the upcoming growth markets, but we know bear-like hibernation is not an option until then. 

How do you plan to maximize profit before the impending demand spurs need?
Polk Solutions Consultant Dave Goebel speaks about these issues in much greater depth in this Polk View, "The Future of the Commercial Vehicle Market." 

In a stormy business climate, navigating the troubled waters effectively can mean the difference between capsizing or making it safely back to harbor. Question is, are you using a compass or a talisman to get there?

Posted by Therran Oliphant, Account Representative, Commercial Vehicle Group, Polk (07.06.2009)

We’re seeing a definite change in the automotive industry. One of the most significant industry trends I’ve noticed recently is the shift toward used vehicles. Pre-owned cars and trucks have always been more popular than new ones, but with a weak U.S. economy, it’s evident that consumers are veering (even more) towards buying used versus new vehicles.

As everyone in the industry knows, sales trends are down.  A look at Polk registration data shows a decline of  35% from last year for new vehicles, while used sales are down just a mere 5%. Yet the ratio of used-to-new vehicle sales (a key industry metric) is growing steadily, quarter over quarter. In fact, in just the past year, we’ve seen the ratio of used-to-new vehicle sales decline two points from 3:1 in Q1 2008 to 5:1 in Q1 2009.

Polk recently released a 'Polk View' on this topic, titled "More Consumers Choose Used Vehicles in Weak Economy".  It’s very interesting to see where the automotive sales trends are going, what markets have been impacted, and which brands are thriving in the used market. Interestingly, yet not surprisingly, the used-to-new sales ratio for domestic brands increased over last year. In 2008, five used vehicles sold for every new domestic vehicle sold. In the first quarter of 2009, eight used vehicles sold for every new domestic vehicle sold. This is definitely a cause for concern for the domestic OEMs.

So how do OEMs, Dealers, and Aftermarket groups deal with this market shift?  What are we doing in this changing industry? What steps can we take to be proactive rather than reactive? I’d encourage you to read the Polk View for some insights on the matter… but what are your thoughts?

Posted by Tiffany Ng, PolkInsight Advisor, Polk (07.01.2009)