How Auto Industry Shake-up Affects You
Asian and European brands will recover better than U.S. brands.
June 09, 2009— -- General Motors shareholders--set to lose their value upon the company's impending delisting from the Dow Jones Industrial Average--aren't the only consumers facing serious change in the wake of the American auto industry shake-up.
How and why buyers purchase a car and the ways in which luxury brands market themselves to such consumers are shifting. What's more, used cars are becoming more tolerable.
Perhaps the biggest change on the global landscape is the shift in market share and sales from Detroit to Europe and Asia. According to forecasting from R.L. Polk, Volkswagen will soon follow Toyota's lead and pass GM this year to become the second-largest global automaker in the world. European and Asian brands are set to gain U.S. market share by more than 1% and at least 2%, respectively. European brands currently hold 8.5% of the market in the U.S.; Asian brands hold 47.2%. Detroit's market share in the U.S. is expected to drop from 48% in 2008 to 41% by 2012.
That strength comes from an astute sense of timing. While the domestic automakers focused in the 1990s and 2000s on pickup trucks and SUVs, European brands focused largely on extreme luxury and performance. Asian automakers developed affordable hybrid and economy vehicles and engineered clever payment protection plans that resonate well with current consumer sentiment.
Tim Longnecker, an automotive industry executive for global marketing firm Acxiom, says he expects an "enhanced level of competitiveness" to be one of the signatures of the U.S. auto market in the next year, not to mention one of GM's main challenges. Its plan? To focus on four core brands--Chevrolet, Cadillac, Buick and GMC--and reduce its workforce by 22%.
Up-and-Comers Make Their Move
The shuffle at the top also gives lesser-known brands space to shine in the eyes of American consumers. As of last month, Hyundai cars, Kia light trucks and Subaru light trucks were the only brands to increase sales (1.5%, 9.8% and 31.3%, respectively) and market share (up 2.3%, 1.5% and 0.9%) over 2008 year to date.
Hyundai has done especially well making inroads with teenage and green-minded buyers, says Issa Sawabini, a partner at the youth-marketing firm Fuse. It won converts with its upscale Genesis sedan, and the 2010 Genesis coupe has also received positive reviews. The Hyundai and Kia registered the highest gain in brand value of any carmakers for 2009, according to Automotive Lease Guide, a provider of residual value information.
"They certainly are a brand you'd shop from a value standpoint," says Sawabini, "and now all of a sudden they're getting a little cool cache."
Capitalizing on Luxury
Luxury brands, on the other hand, are expected to most successfully navigate this new world by sticking to the ideals that make them upscale in the first place: customization, exclusivity, uniqueness, craftsmanship and heritage. Steven Treppo, a principal at the consulting firm Booz & Co., said at a seminar in New York last month that luxury retailers should reinforce their strengths by resisting the urge to slash prices.
"That is the last thing we want to do in recessionary time," Treppo says. "It is going to be a slippery slope if you start training the customer to look for lower prices."
The bottom line? People with wealth will still spend it on a Mercedes-Benz E-Class or a Porsche 911, but they want to feel like they're buying into an experience, not just a car.
Planning Ahead
One truth in the automotive industry that has not changed is the idea that product is king. In short, today's work will determine tomorrow's success.
That means automakers must remember that sales will eventually rebound, despite the currently bleak outlook. R.L. Polk analyst Lonnie Miller predicts that by 2012, global auto sales will reach 71.9 million units, up from 53.3 million in 2009. For the U.S., he expects a 14.2 million-unit industry by 2012. Light vehicle sales for 2009 will most likely hover near 10 million units, much less than the 13.2 million units sold in 2008.
If manufacturers focus too much on low consumer confidence levels and dismal forecasts, they may scale back on research or production, which could backfire, experts say. It can take years to regain an image if a product doesn't deliver on a brand promise. New products are also important for their ability to generate buzz about a brand--even if consumers don't buy a new car outright, it will draw them to showrooms and stay in their mind when the time for a purchase does come.
Chrysler, Ford and GM are already playing catch-up to the Hondas and Hyundais of the world when it comes to product offerings--they would do well to maintain as many development plans as they can, based on a realistic optimism that "demand for superbly built and well-positioned models will be a reality," Miller suggests.