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Wind Tunnel: Consolidation

The Big Nine and atomization

Jim McCraw
Jul 7, 2004 SHARE
0408ec_windtunnel01_z Photo 1/1   |   Wind Tunnel: Consolidation

The world automotive industry is approaching 120 years of age, dating from 1886 when Gottlieb Daimler and Karl Benz got their enterprises up and running. During that time, automotive technology has progressed far, far faster than the human race itself (we still have murder and war and famine, don't we?), and we have better, quicker, faster, safer cars, and more model choices than we have ever had before.

We are headed at full throttle for a time when fewer and fewer manufacturers will be making more and more of our cars, and a time when the U.S. car market will move from its present mix of large segments, small segments, and niches, to what one market research organization has called atomization. More about that in a moment.

As of the middle of 2004, there are several car brands that are in big trouble, a subset that includes Fiat, which doesn't do business here, having been chased off the U.S. market in 1979 by abysmal quality and quirky designs, but owns and controls Alfa Romeo, not yet back on the U.S. market and not likely to return, Maserati, which loses money hand over fist, and Ferrari, which does not. Fiat Auto, which is 20% owned by GM, recently got a whole new top management structure upon the death of Umberto Agnelli, brother of the late Fiat strongman Gianni Agnelli, and that structure includes new capo di tutti capi Luca di Montezomolo, the Ferrari boss who will now run the whole group.

Saab is so small and so continuously unprofitable that no less a personage than Robert A. Lutz, vice-chairman of GM, which owns Saab, recently said that Saabs don't necessarily have to be made in Sweden anymore (the new 9-2X is really a Subaru Impreza underneath, and the coming 9-7 SUV has Chevrolet and GMC genes). A few weeks before this pronunciamento, GM announced that Saab Cars USA was moving from suburban Atlanta to Detroit to become a permanent part of the mothership. There is only one European brand that has gone away and come back with any kind of success, and that would be the fabulously successful MINI, under the protection and encouragement of giant BMW, which also saved Rolls-Royce from the trash heap. Memo: Volkswagen AG owns or controls VW, Audi, Skoda, SEAT, Lamborghini and Bugatti, and at the rate it's going, the vaunted Bugatti Veyron may never see the light of day. It's been years since it announced it, and it will be more years before we see the first one.

Then there's Mitsubishi, which has been caught lying to the world and to its owner about various aspects of its own business again and again and was recently divorced by its majority stockholder, DaimerChrysler. No more support money will be forthcoming from Stuttgart to prop up the maker of the vicious little Lancer Evo 8 rally street car. Isuzu, another Japanese partner of GM that no longer makes cars, only SUVs, is on its last legs in this market, with almost no brand recognition, no advertising, no new models, and no future.

Domestically, Oldsmobile has just ceased production forever after 104 years on the market, joining the much younger Plymouth, which went off the market and headed for the big nameplate ranch in the sky 2 years ago. Many astute observers of the Big Three insist that there is really no longer a need for Mercury, and that Ford needs only Ford, Lincoln and Ford Truck to survive profitably in the future, since all current Mercury cars are clones of Fords and have been, almost entirely, since 1939 when Mercury was invented. Okay, we'll grant you the German Capri and the later Australian Capri and the Belgian-built Merkur, but that's it.

As more and more brands disappear or are grabbed up by members of the Big Nine (BMW, Daimler, Fiat, Ford, GM, Honda, Nissan, Toyota, and VW), there will inevitably be more of what is now called platform sharing, which used to be called, derisively, badge engineering, with front ends, rear ends and rooflines differentiating what used to be uniquely interesting cars with their own engines, suspensions, and character. Damn shame, but that's the way it's going, and there is almost no way to reverse it.

Now, about this atomization thing. Two guys I have known for a very long time each recently issued a report from their company that says we are heading from segments and niches to even smaller divisions of the market, a phenomenon which they have chosen to call atomization. George Peterson, a very, very smart guy who used to work as a product planner down the hall from my office at Ford in Dearborn, is the founder and president of a company called AutoPacific, with headquarters in Tustin, California and a branch office in Southfield, Michigan, just north of Detroit. The Detroit office is run by AutoPacific vice-president Jim Hall, one half of a pair of genius-level identical twins who, taken together, know more about the history of the automobile than any other two people I know.

Peterson and Hall together crafted their atomization report, which shows that there were only 33 different models available to U.S. buyers in 1947, when your grandfather was just back from the war. By 1967, that number had nearly tripled, to 93. It nearly doubled again in one generation, 20 years, to 181 offerings in 1987. Their report projects that by 2009, there will be 274 different models available on the U.S. market, to include cars, trucks, SUVs, crossovers and hybrids. They tell us that nearly 50 new nameplates will be added between now and 2009, while sales growth will increase about eight percent.

Peterson and Hall saved the best and most interesting part for last, and we quote: "Just after World War Two, there were few nameplates and a rapidly expanding market. Sales per major nameplate approached 200,000 units per year. As time progressed, additional nameplates were introduced and sales per nameplate decreased dramatically even as market volumes reached sales peak after sales peak. The last peak in sales per nameplate came in the record sales years of 1999 and 2000. An average of 85,100 units per nameplate were sold in 1999 and 83,300 in 2000. Given the dynamics of today's light vehicle market in the United States, this level of sales per nameplate will never be achieved again. By 2009, a manufacturer will have to be profitable with about 65,000 units per year for the average nameplate.... In some respects, models are like children, cheap to conceive, but expensive to maintain."

Aside from that last hilarious canard, we know and respect both of these men, and we have to believe in what they say. The future portends nine or even fewer companies knocking out small handfuls of vehicles based on common architectures, built in smaller and smaller batches and sprinkled all over Europe, Asia and America. That may be a good thing, or a bad thing, depending on your point of view as a car freak of the present and future.

There you'll be, in 2030, telling your buddies, "They only made 1,500 of these Series Twos with the supercharger, the good suspension, and the big tires back in 2015, and I have the only red convertible built in the first year of production." Sound familiar? Even when the whole world changes, some things never change.

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By Jim McCraw
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