U.S. Carmakers Bleeding Market Share

Dec. 2, 2005 — -- Besieged by a steady drop in the overall share of U.S. sales, U.S. carmakers hope that downsizing their production capacity might lead to more profits. But analysts say that the days when the Big Three U.S. automakers dominate the America market are likely over.

Car sales for Ford, General Motors and Chrysler all dipped sharply last month. GM last week announced a plan to cut 30,000 jobs, and now there's a report that Ford is likely to do the same.

The Wall Street Journal reported that Ford is planning to announce the closure of five North American plants, affecting roughly 7,500 jobs. A Ford spokesman refused to confirm the newspaper report, but agreed that downsizing is likely in the near future.

"It's speculation, and we don't comment on speculation," said Ford spokesman Tom Hoyt.

Ford Chairman and CEO Bill Ford has said that some restructuring plans will be announced early next year, and Hoyt said that would most likely include some plant closures.

"What Bill Ford said was that we are going to be addressing our excess capacity. Certainly that will likely include some restructuring of our manufacturing capacity," Hoyt said.

Ford and GM have seen an erosion of their domestic market share in recent years as foreign companies, particularly Japanese manufacturers, have enjoyed increasing popularity with American car buyers. With fewer sales, a slowdown in production capacity was probably inevitable, analysts said.

"It's not a surprise at all," Global Insight auto analyst Rebecca Lindland said of the possible Ford plant closures. "They are in very much the same situation as GM, and in many ways we think Ford may be in a more difficult situation because their new product lineup isn't quite as strong as GM's."

GM, the world's largest automaker, sold 4.66 million cars in the United States in 2004, for a 27.6 percent market share. That number is expected to fall sharply this year to 4.4 million and only 26 percent of the market, according to Global Insight.

Ford is expected to see a similar drop, from 3.28 million cars sold in 2004 to 3.09 this year. The Ford market share is expected to slip to 18.3 percent from 19.4 percent last year.

Ford announced yesterday that November U.S. sales were down 15 percent from last year. Though only one month, the dip is indicative of steadily declining sales as the auto market becomes more diversified.

Japanese automakers, Toyota and Honda in particular, have experienced huge sales growth, and even smaller companies like South Korean carmaker Hyundai have made inroads and seen a larger share of overall sales.

"Domestic sales aren't necessarily slipping, but the market shares are changing -- the pie isn't growing, but there are more pieces," said Mike Chung, auto analyst with Edmunds.com.

Sales of sport utility vehicles, the longtime backbone of Ford's domestic business, have dropped sharply. Ford Explorer sales have fallen nearly 50 percent, from 400,000 at the height of the SUV's popularity, to only about 230,000 this year.

Chung said that Ford may be suffering from that shortfall for a while.

"They over-invested in the large truck and SUV segment, and they neglected the passenger car market," he said.

Ford and GM have failed to put out passenger cars that appeal to American consumers. Meanwhile, the Toyota Camry has been the best-selling car in the United States for the past several years -- and other models like the Honda Accord are increasingly popular.

Now the American companies face the challenge of not only developing new models that can give Japanese competitors a run, but also convincing consumers to buy them. This has led to an identity crisis of sorts.

"Ford and GM really haven't done a very good job of understanding what consumers want," Lindland said. "The current demographics very much favor the Asian brands. They are trying to lure some of those Asian buyers, but they run the risk of alienating some of their core customers."

The analysts said the dropping market share is a fact of life that Ford and GM must accept, and it's possible 2006 could see even more production cutbacks and layoffs.

The emphasis, Chung said, must be placed on catering to their existing customer base to keep the customers that are still loyal to the U.S. brands. Though Ford and GM are unlikely to regain their dominance of the past, they can at least try to slow the customer loss in the near term.

"They need to maintain the core consumer base that still has some brand loyalty," Chung said. "They've been bleeding market share for so long, right now they really need to just stop the bleeding."