Summary
The WSJ article focuses on the immediate and medium term financial improvement that GM and Chrysler will enjoy as a result of the U.S. taxpayer bailout. But this does not necessaily translate into sales. Toyota and Ford still have the potential to take significant market share from GM and Chrysler. If you can't sell the cars to consumers, then profits are not in the cards.
Analysis
The premise of the WSJ article is that due to the taxpayer funded bailout of GM and Chrysler, Ford will encounter difficulty competing in the years ahead. While the concessions and sacrifices made from creditors, dealders, and labor is significant, this does not translate into a key showroom traffic. That is driven by product execution,marketing and brand identity, service, and reliability. These will not come from a government bailout. In fact, government intervention tends to disable these fundamental selling principles of Business 101.
First to Chrysler; two sick and anemic companies combined, does not make a stronger company. Fiat and Chrysler, independently would qualify as companies with considerable product, marketing, and service weakness. Combining the two simply will not yield greater sales for either in the United States. In addition, Fiat would face significant Asian competition - Japanese, Korean, and Ciniese - in the small and medium car segment with any entry in the U.S. market. Financial relief will not be an enabler for any of this.
GM will most deifinitely lose market share as more brands are shed - Hummer, Saturn, Opel, and others that have disappeared along the way such as Pontiac and Oldsmobile. GM is currently at 19.1% market share in the US, with Toyota at 16%, and Ford at 15%. With the loss of these brands, GM will settle in as either second or third. And during this period of distraction, it is conceivable that GM market share will fall even closer to Honda at around 12 or 13%. GM has a lot of work to do to once again focus on product, branding and marketing, service, and reliability. This is especially difficult to do when all focus is on the financials. In the interim, Ford will most definitely take advantage of this and gain this lost GM market share. So will Toyota, Honda, and Hyundai/Kia.
Although Ford does not have the current financial unburdening benefit that GM and Chrylser are experiencing, the company did begin a product focus and an organizational efficiency focus more than 4 years ago. The manufacturing organization has been revamped, product quality has improved, and brand image has strengthened. In addition, Ford engineering has focused on meeting CAFE standards with technology that is proven and reliable. All of this should generate showroom traffic. Ford will still have to focus on the dealer network inefficiency and labor concessions as the company moves forward. some of that is already in the works.
My expectation is to see more former GM and Chrysler owners with Ford products in their driveway as the market shares unfold in the coming years. Along with this, should be profitability that was internally driven by true organizational culture change and not by government mandate.
