Don’t Push Panic Button Just Yet

Commentary

Everyone, please remain calm.

Of course, that may be a tall order, given the relentless headlines of late: “Foreign Rivals Outsell Big 3.” “Weak Sales…Cloud Detroit’s Path.” “Toyota On Pace to Top GM in Sales.”

When General Motors, Ford and Chrysler slid below a 50% share of the U.S. light-vehicle market in July, news stories labeled it the “darkest month” in U.S. automotive history and characterized the event as “grim.”

But while it’s OK to shed a tear as each Big Three barrier falls or long for the old days when Detroit ruled the automotive world, shrinking market shares and a slip in the rankings for GM, Ford and Chrysler shouldn’t come as a huge shock to anyone.

This path was carved out months ago when the three auto makers began slashing a combined 100,000 jobs and earmarked more than a dozen plants for closure.

It is, in fact, both a result and part of the shrink-to-grow game plan that has seen the Big Three strategically adjust new-vehicle pricing, throttle down retail incentive programs and dial back on the number of cars and trucks unprofitably rammed through daily rental companies simply to keep plants humming.

Although the Detroit auto makers may have hoped to stave off near-term market share losses as they moved to right-size their businesses, that always was a long shot at best.

Unfortunately for them, even more of these milestone dominoes are set to fall.

Toyota, for example, is certain to supplant Ford as No.2 in the U.S. once Ford jettisons its Jaguar and Land Rover operations. Honda is hot on the heels of Chrysler, outselling the U.S. auto maker in two of the past 12 months, while Toyota already has passed Chevrolet as the No.1 brand in the U.S.

Want a hint of the unending battles to come? Just look at the fullsize pickup market, which is under pressure from Toyota’s new Tundra and the total of nine entries in the segment that long held only four. Ford, GM and Chrysler’s share of that sector, virtually 100% as recently as 1998, currently stands at 88%.

But rather than hand-wringing over each and every headline marking the foreign guys’ latest achievements, try to relax, and keep a keen lookout for the less obvious indicators of whether the bottom has been reached or any or all of the Detroit auto makers are doomed to go bust.

Key will be whether GM, Ford and Chrysler can continue to resist widespread sales incentives and steadily boost average transaction prices for the cars and trucks they sell. Other telltale signs of progress include incremental but steady increases in market share – a tenth of a point now and then without retreat; good reviews on new models; strategic production hikes to meet demand for a hot car or two and sales gains in critical emerging markets such as China, India, Russia and Brazil.

Best of all would be one or more of the Big Three delivering a breakthrough product that has competitors scrambling to catch up.

Meanwhile, simply mourn the era’s end if you must.

Just nobody panic – at least, not yet.

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