Detroit Three Slowly Expand in Car Segment

DETROIT -- ( TheStreet) -- In September, Ford ( F) sold more small cars than in any September since 2002, GM ( GM) car sales rose 29% and Chrysler's new compact Dodge Dart sold 5,235 units.

The gains provide an indication that the Detroit Three are slowly making progress in one of the most important components of their historic transformation following the 2008 recession. They are moving beyond being pickup truck companies with a side business in cars to being, like most of their global competitors, integrated automotive companies.

The transition is a slow one. According to figures compiled by LMC Automotive, in 2000 the Detroit Three had 53% of the U.S. car market, as distinct from the pickup truck market. That share eroded quickly, declining each year until it reached a low point of 32.5% in 2009. The share increased slightly in 2010 to 33.1% and then increased to 34% in 2011, reflecting primarily a diminished presence by Honda ( HMC) and Toyota ( TM). For year-to-date 2012, the Detroit Three have 32.6% of the car market.

While the market share gain so far is slight, the trend is clear, said Jeff Schuster, senior vice president for LMC Automotive. Detroit Three cars are "immensely more competitive than they were," he said. "It's a completely different makeup across the cars they have available and how competitive those are in styling, features and quality."

So far, however, "it's more of an issue of stabilizing the decline than completely rebounding," he said. analyst Jesse Toprak said: "The domestics gave up on small cars, allowed the Asian automakers to have that market and introduced subpar products to have a presence. (Here the Chevrolet Vega Vega comes immediately to mind.)

"But in the last three years they have introduced the best small cars they have ever had, small cars that are highly competitive, show great taste in design, introduce new technology and significantly improve gas mileage," Toprak said, naming the Cruze, Spark, Dodge Dart and (mid-sized) Fusion as distinctive new cars from U.S. automakers.

Each of the Detroit Three have shown declines in the car market since 2000 but have rebounded from their low points, according to LMC figures. GM had a 27.9% share of the car market in 2000. That declined to a low of 15.6% in 2010 before rising to 16.4% in 2011. Year to date, the share is 14.9%, the lowest in decades.

Ford's share was 17.1% in 2000, declining to a low of 9.6% in 2008, then rebounding to 12.3% in 2010 and 12% in 2011. Year-to-date share is 10.8%. "We're in a much different position now, with Fiesta, Focus, and the recent introduction of C-MAX and the all-new 2013 Fusion," said Ford analyst Erich Merkle. Chrysler, meanwhile, had 8.3% in 2000,declining to a low of 4.5% in 2009 before rebounding to 5.2% in 2010, to 5.6% in 2011 and, year to date to 6.3% (not including Fiat).

Two key factors have impacted the Detroit Three's car share since 2000. The model was failing in the first part of the millennium, when Ford, GM and Chrysler all built too many vehicles at too high a cost and sold them at too many dealers. Industry restructuring, which brought brand consolidation as Oldsmobile, Pontiac, Mercury and Saturn disappeared, initially reduced the market share of cars manufactured by Detroit.

In 2009, the earthquake and tsunami in Japan reduced production by the automakers who represent the Detroit Three's primary competition in the car market. That temporarily increased the market share of cars manufactured by Detroit.

Over the long term, steadily rising gasoline prices are probably the principal factor in the growth of the car market and Detroit's acceptance of the necessity of competing there. "Look at the correlation of how gas prices have fared and how cars have done," Toprak said. "Even when there are dips in car sales, for every dip we see in the graph, (the level) is higher than the preceding one."

As for September sales, while the Detroit Three's car sales surged, other factors were also at play. "September was unseasonably strong for small cars," Toprak noted. "Normally, September is a month when we start seeing a preference for trucks," but high gas prices favored cars. In fact, Toprak said, truck sales could rise disproportionately in the fourth quarter to make up for the lag.

Schuster said the Detroit Three sold more cars in September despite their lack of incentive spending. The three "were not seeing gains and stability in the car market due to artificial means," he said. "Pricing is up and content is up, which are strong signs that they are more competitive in these markets."

-- Written by Ted Reed in Charlotte, N.C.

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