DETROIT – Ford is tops among automakers in terms of product-replacement rate over the next four years, followed by Honda, according to the Bank of America Merrill Lynch “Car Wars” study.
A high replacement rate drives down showroom age, which increases market share, and in turn fuels profits and stock prices, the study says. Automakers with the highest replacement rate and youngest relative showroom age generally have gained market share from 2004-2014.
“Model-introduction activity is picking up aggressively in the next four years with 48 models per year on average, which is above the traditional average of 38,” John Murphy, an analyst for Bank of America Merrill Lynch, says at an Automotive Press Assn. meeting here. “Companies have had time to recover from the trough in 2009 and ramp up investment and pull some stuff forward a little bit.”
Ford’s product-replacement rate of 111% over the next four years should benefit the automaker with a slight increase in market share, ultimately settling in the low 16% range, up from 15.7% today, the study says. Upcoming product launches include the aluminum-intensive ’15 Ford F-150 pickup, ’15 Mustang, ’15 Transit commercial van and ’15 Lincoln MKC CUV.
“Ford has gotten the idea it has to keep its replacement rate high for market share and pricing,” Murphy says. “It’s leveraging its global platforms and taking advantage of economies of scale.”
Automakers lagging in product replacement in the next four years include Nissan, which Lynch describes as a “ship without a rudder in terms of product launches,” and European makes, including Volkswagen.
“VW seems to be similar to Nissan in that its product launches are perplexing and not robust going forward, especially with their targets for market share,” he says.
VW product launches on the horizon include the ’15 VW Golf and ’16 Audi TT, while Nissan is expected to introduce the ’15 Nissan Murano CUV and Frontier pickup, as well as the ’16 Nissan Maxima and Infiniti electric vehicle.
Nissan, with a low 76% replacement rate, is at risk to lose market share in the 4-year timeframe because its replacement rate lags the industry, the study says, adding refreshed versions of the Sentra, Rogue and Pathfinder, which account for almost 30% of Nissan’s volume, fall outside the forecast period.
Despite the recall crisis plaguing GM, Murphy says the automaker is in good shape, with an 85% product-replacement rate forecasted for the next four years, placing it just below the industry average.
Citing past large recalls as examples, Murphy says any consumer ill will toward GM is unlikely to linger.
“Traditionally what you get is a very temporary impact on share and fairly quick recovery,” he says. “In 6-12 months, if crisis management is good, you’re relatively clear and share recovers in that window, if not faster. It’s being handled as good as possibly can be.”
New GM products include the ’15 Chevrolet Tahoe, Colorado and Suburban, as well as the ’15 Cadillac Escalade.
“We think GM’s replacement rate is good enough over the next four years to maintain its current market share,” Murphy says.
Fiat Chrysler Automobiles’ launch cadence is light in ’15-’16, but picks up materially in ’17-’18, which Murphy says should be enough to support market share. However, he says it won’t be enough to achieve the targeted four points of marketshare gains called for by CEO Sergio Marchionne.
“Marchionne’s target of four points of U.S. share is pretty aggressive and almost unattainable unless they start aggressive pricing to take market share, which we don’t see them doing,” he says, noting FCA’s 4-year replacement rate is 93%. “It’s a pie-in-the-sky target.”
Murphy says the U.S. seasonally adjusted annual rate should hit 18 million units by 2018, but adds there’s unlikely to be any large changes among automaker market share, because most are at full capacity and unlikely to build more production into their systems.
“All OEMs are operating at high capacity levels and sales are rising,” he says. “There’s not any motivation for any manufacturer to cut price and take share, because there’s no mismatch between share and demand. It’s a huge change in the industry.”
