Summary
A recent study shows that market demand is most heavily impacted by "new product." Not so much by price, advertising, etc. Where does that leave the Detroit Three?
Analysis
A recent study from Virginia Commonwealth University suggests that the domestic automakers slumping market share since 1996 has been caused by a lack of new-product launches.
The study found that auto industry demand is most heavily impacted by "new product," which analysts said is measured by restyling.
Such factors as price, advertising, rebranding, new safety features and improvements in reliability only have a minimal impact on demand.
A 10% reduction in relative price would yield only one-tenth the market share impact of a restyling. And an automaker would have to double one's respective advertising to match the impact of a restyling.
Specifically, market share for the Detroit 3 dropped from 72.9% to 47.4% between 1996 and 2008.
Looking at 1995-2006 model year units, Japanese OEMs revamped vehicle styles, on average, every three years. Meanwhile, domestics only changed styles every four years..
This difference in styling (frequency) better explains the 25.5% market loss share for domestics than more often cited factors such as reliability and safety improvements. Japanese and Korean makes, and to a lesser degree, European brands, have been much more aggressive in restyling and introducing new products than the U.S. brands.
Interestingly, the Detroit 3 used more frequent restyling 50 years ago to drive independent OEMs such as Packard, Hudson and Kaiser out of business.
So, what happened?
The study suggests increased fragmentation and the misallocation of styling resources. To recoup some of its lost market share, the Detroit 3 would be best served by increasing the frequency of restyling and not discarding an established vehicle line name.
