American carmakers are still losing ground on their home turf, despite putting out higher-quality, more-competitive products. These short-term declines are actually part of the companies’ long-term strategies to improve profitability, but lingering consumer perception that domestic cars are inferior remains a problem.
The so-called Big Three — Chrysler, Ford and General Motors — saw sales figures continue to slump in June, while Japanese rivals Honda, Nissan and Toyota’s numbers were on the upswing. GM’s sales dropped 21 percent compared with June of last year, Ford’s numbers were down 8.1 percent and Chrysler was down 1.4 percent. By comparison, Nissan posted a 22.7 percent gain, Honda’s numbers increased by 11.5 percent and Toyota’s sales were up 10.2 percent.
In Ford’s case, the drop in sales was expected and intentional. Chief executive Alan Mulally has talked openly about Ford becoming a smaller, more-profitable company by relying less on truck and SUV business. Truck sales have been a large part of Ford’s U.S. market, as have sales to fleet companies such as cab, limo and rental services.
Traditionally, American carmakers have relied heavily on fleet sales in the past as a short-sighted tactic to boost market share. This allowed them to offload large numbers of vehicles they otherwise wouldn’t be able to sell to consumers — often for little or no profit.
Ford, General Motors and Chrysler have all been scaling back fleet sales. “Right now they’re investing in the longer term and taking short-term hits,” said David Alexander of ABI Research. He suggests that the Big Three continue to improve the engines in their vehicles. “Ford and GM should make better use of their resources outside the U.S. They’re very successful overseas with smaller vehicles. They have a good product that needs to be adapted to the U.S. market,” Alexander said.
Sales incentives, like cash rebates, have also negatively affected domestic vehicle sales, said Tom Libby, J.D. Power and Associates’ senior director of industry analysis. Besides diminishing profits, incentives tend to tarnish a company’s image because they make it seem as if its vehicles aren’t good enough to sell at full price. Japanese manufacturers have not had to offer as many incentives on their vehicles as domestic automakers have.
Domestic manufacturers have already curtailed sales incentives, though a majority of American vehicles still carried them in June. According to CNW Marketing Research, 61.4 percent of vehicles sold by the Big Three in June carried incentives, 4.5 percent less than in June 2006. By contrast, Asian manufacturers saw an increase in June sales incentives year over year; 34.2 percent of vehicles sold in June carried an incentive, versus 27.9 percent a year ago, an increase of 6.3 percent.
Source: ForbesAutos.com
