Atomization:

Atomization – Auto Industry Apocalypse Ahead – Vehicle Nameplates Soar as Sales Fall

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Over the past decades, the American auto industry has “atomized” with more and more new car and light truck models being added to the lineups each year.  The reason for this rapid addition of nameplates – atomization – has been an attempt by auto designers and marketers to provide products targeted to much more finely defined product niches.  Consumers demand more and more focused products and today’s automotive consumer research can identify exactly what those consumers want.  Current product development techniques allow vehicles to be developed more quickly and efficiently than in the past.  So, why not develop a vehicle targeted at each well-defined buyer group?

17-million Sales Years Not Sustainable

During the ‘90s, a good year was 15 million car and light truck sales.  By early in the first decade of the 2000s, the industry was expecting 17 million units per year.  Companies began adding more and more nameplates to take advantage of these robust sales numbers and to target their customers more closely.  As more nameplates were added, the market softened.

At the industry peak in 2000, sales hit 17.3 million units and there were 232 car and light truck nameplates on the market in the United States. This resulted in an average sales volume of about 73,000 units per nameplate.  In 2010 the industry cratered to 10.2 million units. There were 301 nameplates resulting in an average of only 34,000 units sold per nameplate; a whopping 39,000-unit deterioration in the average sales volume per nameplate from 2000.

Jump forward to 2017, the next peak sales year when sales hit 17.2 million units.  The nameplate count remained stable at 302 nameplates.  Average sales per nameplate in 2017 were about 57,000 units.  However, due to adding nameplates, the average was still 16,000 lower than in the year 2000 on average.  In a 17 million unit year, a lot of nameplates can be fed.

Forecast for 2023 – 15.7-million Sales but 80 more Nameplates to Sell – Atomization

But, as history has shown, 17 million unit sales years are not sustainable.  AutoPacific’s Industry Analysis team forecasts sales for 2023 will be 15.7 million units.  Automakers have plans to add 80 more nameplates between 2017 and 2023.  This means that 382 nameplates will average just 41,000 sales apiece.

In 2017, there were 163 car nameplates and 139 truck (pickups, SUVs, crossovers and vans) nameplates.  In 2019 there will be more truck nameplates than cars and by 2023 there are forecast to be 214 truck nameplates.  Most of these added trucks are SUVs and crossovers.  Truck penetration in the market is expected to be 72% in 2023.  Crossover SUVs alone will add about 70 nameplates between 2017 and 2023!

Top Ten Vehicles Account for 27% of Sales

To add to the challenge, the top ten best-selling vehicles, like the Ford F-Series, Chevrolet Silverado, Ram 1500, etc., account for 27% of the market.  In 2023, that leaves 372 nameplates to battle over about 11,500,000 sales after removing the top ten volume.  The result is a further drop in average sales per nameplate to about 31,000.

This is a very simplistic analysis, but it is clear that the next five years will be a marketing challenge for the automotive industry.  “The marketing challenge is real,” says AutoPacific president George Peterson. “AutoPacific has helped many automakers launch targeted new vehicles and how they navigate this impending crisis should result in a marketing war that hasn’t been seen in years.”

•     •     •     •     •

AutoPacific is an automotive specialist research and product planning consulting firm headquartered in North Tustin, California.  Since 1986, AutoPacific has been providing market and product research services to automotive OEMs and Tier 1 suppliers around the world.  This press release is based on an analysis by AutoPacific’s Industry Analysis team “Atomization – the 2018 View Looking to 2023 – Auto Crisis on the Horizon.”

Contact George Peterson at 714.838.4234 or Ed Kim at 562.541.5360 to discuss these results.


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Atomization – Sales per New Vehicle Nameplate Will Drop

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 Atomization Continues Unabated  The American car and light truck market is undergoing atomization.  There are 313 car and truck nameplates on sale today in the United States.  By 2022 – just five years in the future – there are going to be 377.  A nameplate is a vehicle name like Ford Explorer, Renge Rover Evoque or Toyota Camry.

Car to Truck Shift Permanent  Manufacturers are adding new products to more tightly appeal to customers with more diverse tastes.  Buyers have shifted to crossover sport utility vehicles (XSUVs) in droves.  Automakers are adding more XSUVs to satisfy every whim.  Trucks began outselling cars in 2001, but since 2012 when cars last had 50% of the market truck sales have boomed.  Today, truck sales are about 61% of the market and AutoPacific forecasts that truck sales will reach 69% of the American light vehicle market by then.  In 2016 there were 178 car nameplates on sale.  Today there are 192.  In 2016, there were 147 truck nameplates on sales; now there are 153.  In 2022, there will be 199 truck nameplates and 178 car nameplates.

Atomization Means Fewer Sales Per Nameplate on Average  In 2016, sales per name were about 54,000 units each on average in a 17 million sales year.  This was up dramatically from the 2009 downturn year when there were 34,500 units sold per nameplate.  But the bad news is that all nameplates are not equal in sales.  Some sell in the thousands while others sell in the hundreds of thousands.

The top ten vehicles, led by the Ford F-Series pickups, accounted for 25% of the sales in 2016.  If you take the top ten sales out, average sales per nameplate in 2016 was 42,000 sales per year.  In 2022 it gets even worse.  AutoPacific is forecasting 16,200,000 sales in 2022, but there are 377 nameplates.  Taking the top ten nameplates out, the remaining 367 nameplates will sell only 32,700 each.  This puts average sales per nameplate in 2022 about the same as the downturn year of 2009.

Auto Marketing Wars to Continue  With so many individual nameplates on the market it will be difficult for auto marketers to support them.  Marketing budgets are not large enough to get this number of new nameplates in the car buyer’s consideration set.  As XSUVs continue to grow in popularity, traditional sedans will be allowed to languish or be dropped altogether.  At best, strong marketing support will be during the vehicle’s launch period and then taper off.  If a vehicle is a hit, it may continue to get TV time, but more and more targeted internet advertising will become the name of the game.  If a vehicle is not a hit, it will quickly become an unloved cash cow.

It’s no surprise that the Chief Marketing Officers at American automotive brands have a target on their back.  Failing to create the magic potion that will keep this huge number of nameplates moving off of dealer lots is hugely challenging.  Creative talent and huge amounts of money are required to continue succeeding in the upcoming more crowded vehicle market.

And… don’t forget the disruptive influence of electric vehicles, autonomous vehicles and the changing driving/vehicle ownership environment of the next ten years.


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AutoPacific White Paper: Impact of Atomization on the American Auto Industry

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Atomization Causes Car Makers to Lose, Not Gain, Focus
Definition of Atomization: Adding new, incremental car and light truck nameplates to more accurately hit customer target needs, wants and desires, resulting in increased overall sales.
Over the past decade, AutoPacific has been monitoring and evaluating the impact and rationale behind the automotive industry’s rampant atomization. With annual industry sales in the 16- to 17-million unit range, it appeared that carmakers could profitably continue to add models more closely targeted to specific buyers–if they could keep development costs, manufacturing costs and marketing costs in line. In other words, carmakers needed to make a profit while selling a lower volume of cars or trucks per nameplate. Since 2004, we have cautioned that atomization was shifting the battleground from product development to product marketing.
With 2007 showing more models and fewer industry sales, the industry became unstable. By the end of 2008, with the industry selling at a 10-million per year rate, sales per nameplate cratered. 2009 promises to be even more dire.
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Background: More and more new car and light truck models are being added to manufacturer lineups each year, the phenomenon AutoPacific defines as atomization. This rapid addition of nameplates to the American auto industry is a result of auto product strategists and marketers attempting to provide products targeted at much more finely defined product niches. Consumers prefer more and more focused products, and today’s automotive consumer research can identify exactly what those consumers want. Current product development techniques allow vehicles to be developed more quickly and efficiently than in the past. The conclusion has been to develop a vehicle targeted at each identified buyer group.
The risks in adopting this strategy are numerous, chief among them making profitability much more difficult to achieve. When sales of cars and light trucks remain constant and the number of models increases, the sales per nameplate must decrease. This means a vehicle has to be profitable at a lower volume. In down sales years, like 2007 and 2008, sales per nameplate drop precipitously and profitability becomes nearly impossible.
AutoPacific’s Industry Analysis office shows that 2008 was the worst year in decades for sales per nameplate and 2009 promises to be worse. Why should manufacturers care about sales per nameplate? Higher sales per nameplate usually mean that the vehicle is popular and profitable. Lower sales per nameplate often indicate the vehicle is struggling to sell manufacturer projected volumes and grasping at profitability. Industry-wide, in 2008 nearly every nameplate saw lower sales and presumably lower profits.
At the previous industry peak, in 2000 when sales hit 17.3 million units, there were 208 car and light-truck nameplates sold in the United States. This indicated an average volume of slightly more than 83,000 units per nameplate. In 2008, when sales were 13.2 million units, there were 285 nameplates, dropping the average volume to only 46,300 units sold per nameplate. This was a whopping 36,700-unit deterioration (~44%) in the sales volume per nameplate. In just one year – from the end of 2007 through 2008 – sales per nameplate fell over 10,000 units.
In 2008 sales volume in 2008 fell dramatically. In the first half of 2008, spiking fuel prices drove buyers away from high-profit pickup trucks and traditional sport utility vehicles. These were followed by housing, stock market and credit crises. By mid-September there was a belated recognition that the United States has been in a recession since December 2007. These factors led to sales slowing to a trickle from September 15 through the end of 2008.
In the past, the industry grew dependent on sales driven by desire – emotion. Today, most new vehicle buyers buy out of necessity. Their old car needs too many repairs to keep running. Their old car has too many miles on it. They need a vehicle that gets better fuel economy. Their old car was stolen.
Sales Per Nameplate
During the 1990s, a good year for car and light truck sales was 15 million units. By early in the first decade of the 2000s, growing use of incentives caused the industry to expect 17 million sales per year. Companies began adding more and more nameplates to take advantage of these robust sales numbers and to target their customers more closely. But while more nameplates were being added, the market softened. Many models were left exposed to lower demand, and at a time when marketing dollars for incentives and advertising also dried out.
Future Viability May Depend on Surgically Removing Nameplates: As sales per nameplate in 2009 are projected to fall precipitously at forecast sales levels (11.5-million units), manufacturers must attack their offerings to maintain viable and profitable sales for each nameplate. Using a simplistic method of dropping nameplates and losing ALL their volume, for General Motors to get its sales per nameplate back to healthy levels they would have to drop 23 nameplates and 4 brands. Chrysler would have to drop one brand and at least 5 nameplates. More on that later.
This analysis is simplistic but leads to very rational conclusions…
Conclusion #1: There is a strong correlation between sales per nameplate and profitability. With the exception of premium luxury brands, those manufacturers with higher sales per nameplate tend to be more profitable and viable. While the era of pursuing every niche was exciting and might have been supportable in a 16-million to 17-million sales year, it is very, very tough to feed niche models in soft sales years like 2008 and 2009.
Conclusion #2: The customer rarely benefits from additional models. Many badge-engineered models do not result in enough incremental sales to justify their existence. So, why do they exist? These redundant badge-engineered vehicles exist to populate the sales lots of dealers who are themselves no longer necessary. Think Chevrolet Cobalt and Pontiac G5; Ford Fusion and Mercury Milan; Chrysler Sebring and Dodge Avenger.
Conclusion #3: Reducing nameplates means reducing brands (among the Detroit Big Three). Reducing nameplates means eliminating dealers. Both require a serious reorganization of the DB3 including eliminating nameplates, reducing the number of dealers, eliminating assembly capacity, reducing hourly and salaried headcount, restructuring union wage agreements. These actions likely cannot happen without bankruptcy of one or more of the DB3. Since “bankruptcy” is such a taboo word in Detroit perhaps the Car Czar can be given bankruptcy-like powers to be able to implement the necessary actions without referring to those actions as a “bankruptcy”.
Conclusion #4: These reductions WILL happen over time. The MARKET WILL force it. The very viability of the Detroit Big 3 is at stake.


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