Automotive R&D Spending Down Last Year, Study ShowsAutomotive R&D Spending Down Last Year, Study Shows

Auto industry research-and-development budgets have been battered by the global recession, losing $12 billion last year, according to a new report.

The precipitous drop represents a 14.3% year-over-year decline, slightly outpacing the industry’s 12.7% loss in total revenue in the period, according to the “2010 Global Innovation 1000” study conducted by consulting-firm Booz & Co. Inc.

The report, which ranks the total R&D spending among all industries, includes five auto makers among the top-20 companies: General Motors Co., Ford Motor Co., Toyota Motor Corp., Volkswagen AG and Honda Motor Co. Ltd.

Automotive ranked third behind the computing and electronics and healthcare industries in 2009 R&D spending, the study finds.

Additionally, the auto industry accounted for nearly one-third of the total $18 billion contraction in R&D spending among all industries in 2009.

“Clearly, automotive was one of the hardest hit by the recession,” Barry Jaruzelski, a co-author of the study, tells Ward’s.

“If you look at the data, (auto makers) cut R&D to sustain their business models,” he says. “As a percentage of their total revenue, it’s not just the largest dollar amount cut but also the largest percentage reduction of any industry we followed.”

Despite R&D budget cuts by Ford in 2009, Fusion sales rose 22.4%.

Toyota, which in 2008 ranked No.1 in global R&D expenditures, slipped to No.4 in 2009 after trimming 19.8% costs from its budget. The pharmaceutical-company Roche Holding AG now holds the top spot.

Among auto makers on the list, Toyota spent $7.8 billion on R&D last year, followed by GM with a $6 billion outlay. VW was next with $5.4 billion. Honda accounted for $5.0 billion and Ford spent $4.9 billion.

Ford, which ranked No.20 on the list, saw the most dramatic drop in spending from 2008 to 2009, cutting 32.9% from its budget. Honda at No.19 trimmed 17.7%, while GM skimmed off 25.0%. VW was the lone auto maker to spend more on R&D in 2009 than prior-year, posting a 3.6% increase.

<link rel=

Enlarge Chart

">

As evidenced by Ford’s sales growth, Jaruzelski says expenditure totals don’t necessarily have a significant impact on profits, noting it’s more about how the money is spent rather than the amount of money.

Ward’s data shows Ford, which slashed its R&D budget to the greatest degree, saw sales tumble 14.7% in 2009, while VW, which increased its spending, suffered a 20.2% decline.

Jaruzelski says there also is no direct correlation between profitability and R&D spending, noting Apple Inc. ranked 81st in R&D expenditures among computing and electronic companies, but still is one of the segment leaders.

“As long as you’re not in the bottom 10% of your competitor set (in spending) it won’t hurt your business,” he says.

[email protected]