Auto Industry Report: Detroit 3 to Hold Steady, Honda to Gain Market Share

Honda will gain market share, Nissan and the Korean automakers could slip, and the rest, including the Detroit Three (General Motors, Ford and Fiat Chrysler Automobiles), should hold their own over the next four years, according to the most recent edition of the influential Car Wars report, released Wednesday.

General Motors’ product plans, including accelerating its next generation of full-size pickups to the 2019 model year, are strong enough to maintain market share and pricing.

Ford is well-positioned to sustain the strong prices it is getting for its new vehicles, including three new models for Lincoln, while leveraging its global platforms.

Fiat Chrysler Automobiles will be hard-pressed to meet the ambitious targets in its five-year plan but should retain current share.

These are among the conclusions in the 25th annual Car Wars report from Bank of America Merrill Lynch that gauges corporate health by the strength of the products in the pipeline for the 2016 through 2019 model years.

A fresh showroom is key and drives market-share shifts, said BofA Merrill Lynch Analyst John Murphy, the leader of the report, released at an Automotive Press Association event in Detroit.

The product cadence is solid across the board as the industry continues to recover with a vengeance.

In May, the industry hit levels not seen in a decade with a monthly adjusted sales rate of 17.8 million vehicles.

Looking ahead, Murphy and his team see an industry where quality and cost are no longer big differentiators, which means product must be.

As a result, automakers are introducing new vehicles more frequently. It used to be that Detroit’s automakers replaced their lineup every seven or eight years while the competition did so every four to five years, which the report’s authors think contributed to GM, Ford and Chrysler losing share in the past. That is no longer the case as all companies have picked up the pace.

The Car Wars report expects automakers to launch 193 new models for the 2016 through 2019 model years, or an average of 48 per year, which is 26 percent more than the average since 1996. Crossovers will account for 66 models, or 32 percent of the upcoming launches.

Companies are expected to replace 80 percent of their volume over the next four years, making global platforms crucial to keeping costs down on the investment required to keep up this pace.

Which is good business.

“We believe that the replacement rate drives showroom age, which drives market share, which in turn drives profits and ultimately stock prices,” the report concludes. Carmakers aim to spur demand by launching fresh products rather than discounting stale models and eating into profit margins.

Based on that thesis: “Honda clearly leads,” Murphy said, noting key launches include the Pilot and CR-V crossovers, the Civic and the Odyssey minivan.

“Honda should be the biggest market share gainer,” the report finds, with the only hurdle being possible capacity constraints for the automaker that follows a judicious product-redesign cycle.

Rival Toyota is replacing most of its high-volume vehicles, including the Camry, RAV4, Corolla, Tundra, Sienna and Prius, as well as focusing on the Lexus luxury brand.

GM is expected to remain solid with a new Malibu coming, new crossovers and an expectation that the next-generation Chevrolet Silverado and GMC Sierra pickups will be pulled ahead to the 2019 model year.

“Ford’s solid product cadence remains above average,” Murphy said. Replacement rates may be low, but the automaker is still ramping up the new F-150 pickup that accounts for a quarter of its volume. And investors should appreciate management’s willingness to trade share for higher profits and margins.

The analysts expect the three new Lincoln models promised to be a coupe for the 2017 model year, a new sedan for 2018 and a full-size crossover for 2019.

Murphy expresses concern about the ability of FCA US (formerly Chrysler) to reach its market-share targets because there is not a lot of new product for the 2016 model year, but the cadence picks up in 2017.

The report expects the new minivan-based large crossover for the 2018 model year, as well as a new Dodge car and the Jeep Grand Wagoneer for 2019.

Nissan is one of the companies most at risk of losing market share, Murphy found, with a replacement rate that lags the industry.

Korea’s Hyundai and Kia see their lineups pick up next year but then fade. With their concentration on small cars in a truck world, their market share is at risk, the report finds.

European automakers also are expected to see their market share slip slightly, with an average replacement rate of 18 percent of the lineup, which is below the anticipated industry average of 20 percent.

This article appeared in print in the June 4th, 2015 edition of Hamodia.