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U.S. market resembling Europe, with no dominant firm

November 11, 2010

Bankruptcies and recalls have opened the U.S. car market to new players and narrowed the gap that once-dominant automakers had over the rest of the field.

The old order—Detroit’s Big Three, the leading Japanese automakers and everyone else—is rapidly being replaced by a much less stratified hierarchy where no single company dominates and the biggest players constantly jockey for small gains.

High-profile quality problems have dented Toyota Motor Corp.’s once-stellar reputation, forcing it to fight for share like never before. General Motors and Chrysler went bankrupt last year and survive only because American taxpayers bailed them out, prompting some customers to take their business elsewhere.

Ford Motor Co. passed on government aid, avoided bankruptcy and now builds cars and trucks that rival Toyota and Honda in quality. Against the backdrop of one of the worst car markets in history, Ford has not just stopped losing share but is steadily regaining it.

And while the giants in America and Japan have struggled to meet the challenge of a global recession, South Korea’s Hyundai Kia Automotive Group—once dismissed as a joke because of its poor quality and uninspired designs—has emerged as the fastest-growing car company in America.

All of this has created new challenges and new opportunities for all of the players. The U.S. car market increasingly resembles Europe’s, where just 8 percentage points separate most of the top nine automakers.

"We used to have the Big Three, followed by Japan’s Big Three, followed by everybody else," said Michael Robinet, head of vehicle forecasting for IHS Global Insight.

"There’s no such thing as a tiered market now. There’s been a shift to a more egalitarian distribution of market share. There are no clear lines of demarcation anymore."

An influential annual survey of the U.S. market released recently by Merrill Lynch also concluded that the gap separating the big automakers is narrowing.

"In the future," said Merrill Lynch analyst John Murphy, "we expect a handful of mass-market automakers with market share in the 15 percent to 20 percent range, with fluctuations around their product cycles."

Just a few years ago, GM executives were walking around the Renaissance Center wearing "29" pins on their lapels -- a reference to the automaker being on the verge of regaining 29 percent of U.S. car and truck sales.

These days, GM’s share is below 21 percent, and it has yet to find the brakes. Robinet says its new products, many based on global platforms, should help. But he also said the government’s 61 percent ownership stake in GM following last year’s bankruptcy still keeps some customers away.

Steve Carlisle, vice president of U.S. sales for GM, said restructuring in bankruptcy put the company in a better position to react to market changes.

"We need to stay focused on being the best, offering the best choice," he said. "It’s back to being ‘the best car wins.’ I don’t think you’re going to see anyone cede a position that they’ve worked very hard to gain."

But Murphy says GM could soon find itself neck-and-neck with Ford, whose market share is 17.4 percent. He predicted that GM’s share will stabilize between 18 percent and 19 percent, while Ford should continue to grow as high as 18 percent this year.

Chrysler, too, is coping with bankruptcy fallout. It has been losing market share more rapidly than its crosstown rivals for years, and now stands at 9.5 percent. But analysts say Chrysler’s alliance with Italy’s Fiat SpA, forced by the government as part of the bailout, could give the company the global scale it needs.

The disruption in the U.S. market could benefit Chrysler, said sales chief Steven Beahm.

Brand loyalty is becoming a thing of the past, he said, with consumers more willing to consider products from manufacturers they have never shopped before. Chrysler has a stable of new cars and trucks ready to hit showrooms in the last half of the year, when most experts expect retail sales to pick up.

"It really fits into our hand perfectly," Beahm said. "Everybody keeps trying to raise the bar, and those that were higher are finding it harder to keep raising theirs."

But Chrysler’s quality remains the worst of any full-line manufacturer, and Merrill Lynch’s Murphy said its products "are likely to have a tough time in a competitive market."

The one Detroit manufacturer to reverse this trend is Ford. The automaker has consistently gained market share during the past 18 months. It added more in the first quarter this year than in any three-month period since 1977. The gains are a testament to the quality and appeal of the company’s new products, said GeorgePipas, head of sales analysis and forecasting at Ford.

"People say we have benefited from the bankruptcies of GM and Chrysler, as well as from Toyota’s quality problems," Pipas said. "We have. But if we weren’t building products that people wanted to buy, we couldn’t take advantage of those opportunities."