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Marchionne vs. Market Watchers

by Bill Cawthon on

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Last Monday, John Murphy, senior auto analyst for Bank of America Merrill Lynch Global Research, was in Detroit to present the latest version of the company’s industry forecast. Entitled “Car Wars 2015-2018: the U.S. Automotive Product Pipeline,” the study looks at products coming from the major automakers and makes predictions about costs, profitability and market share over the next three years.

In his paper, Murphy predicts that Chrysler’s market share will remain flat at 11.5%, GM’s will also remain constant at about 17.9% and that Ford’s will increase from 15.7% at the end of 2013 to 16.2% by 2017.

Murphy bases his predictions on strong Ford product rollouts but the gang in Dearborn is rolling the dice on two of the biggest changes.

sergio marchionneThe new aluminum-bodied F-series pickup and the U.S. introduction of the European Transit van are major gambles. They critical to Ford because the vehicles they replace, the current steel-bodied pickup and the E-series van, accounted for 36% of Ford Motor Company’s total 2013 sales. Each has been the leader in its segment for more than three decades. The new pickup’s aluminum body has already created some controversy and the new van will be facing a market that is notoriously conservative when it comes to change. The Mercedes-Benz Sprinter has been available in the U.S. since 2001 and its total deliveries for 2013 wouldn’t have made two month’s sales for the E-series.

In addition, it’s unlikely the latest new Mustang will make as much of a sales splash as the last new Mustang did. In 2005, Ford sold 168,530 of the newly retro-styled Mustang. At the time, the Ford pony car was the only player in the segment and the design was a major draw. By the end of 2013, Mustang sales had fallen 54% and it was being outsold by the Chevrolet Camaro.

Speaking of Fiat Chrysler Automobiles, Murphy said: “I think Marchionne’s targets of gaining four points of market share in the U.S. market are pretty aggressive and almost unattainable unless they do something very aggressive on pricing to take market share.”

However, looking at the Fiat Chrysler product plans through 2018, there seems to be no shortage of growth potential as all brands are looking at expansion into fresh turf. Entries into new segments, like B- and C-segment cars, new CUVs, the introduction of the Jeep Renegade and the return of the Wagoneer, the addition of the Doblo commercial van should all serve to grow Chrysler’s piece of the sales pie.

Murphy predicts an annual sales volume of 18 million light vehicles by 2018. An 11.5% share of that would be 2,070,000 sales. Chrysler had 1.8 million sales in 2013 and May 2014’s year-to-date results are 13% ahead of where they were in May 2013. If Chrysler can average even 6% growth in 2014, 2015, 2016 and 2017, its share of that 18-million-sale market will be 12.6%

Murphy’s share predictions are off to a poor start. Since the end of 2013, Ford’s market share has dropped from 15.9% to 15.5% while Chrysler’s has grown from 11.6% to 12.6% for the five months that ended in May. GM also lost a few tenths of a point.

About 3,750 miles east of Detroit, London-based market watchers were also critical of Fiat Chrysler Automobiles plans and want Marchionne to cut brands. But rather than cut brands, Marchionne has cut competition within the brands by realigning their target markets and focusing development on products that are unique to each brand while leveraging platforms to serve as many models as possible. When viewed as a whole, Marchionne’s plan is an implementation of GM president Alfred P. Sloan’s 1924 dictum, “A car for every purse and purpose.”

While past performance is no guarantee for future results, critics of FCA’s roadmap to the next five years might wish to consider which looks to be more difficult to achieve: the plan unveiled in May or the plan presented in November 2009?

Bill Cawthon grew up in the auto industry in the 1950s. His Dad worked for Chrysler and Bill spent a number of Saturdays down on the plant floor at Dodge Main in Hamtramck. Bill is also the U.S. market correspondent for just-auto.com, a British auto industry publication, and a member of the Texas Auto Writers Association, which has named the Jeep Grand Cherokee the “SUV of Texas” several times and named the Ram 1500 as the “Truck of Texas” two years running.

Bill has owned five Plymouths (including the only 1962 “Texan”), one Dodge and one Chrysler and is still trying to figure out how to justify a Wrangler. He also has owned at least one of every 1:87 scale model of a Chrysler product. You can reach him directly at (206) 888-7324 or by using the form.

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