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The Auto Industry in 2010 and Beyond
by James Bleeker

The first half of 2010 saw several claims of quality improvement and some hints of decline. Some of each have merit.

For each of Ford Motor Company, Chrysler LLC, General Motors Corporation, Toyota Motor Corporation, Honda Motor Company, and Hyundai Motor Company, the manufacturer's 2010 quality stature and future quality and market prospects are discussed below.

Ford Motor Company in 2010 and Beyond

2010   

 

Of the Detroit Three, Ford Motor Company offers the best evidence of past quality improvement.

At the bottom end, Ford has reduced its share of of Consumer Reports' Worst Cars from 23% in 1992 to 10% in 2010. If this rate were to continue into the future, it would achieve 0% to 1% in about 15 years, as the following graph indicates:

Ford Motor Company's Percent Share of CR's Worst with Extrapolation

At the upper end, Ford currently has three vehicles with a 2010 Auto Reliability Grade Point Average of 3.50 or more over a 3-year data history or longer. They are:

The front-wheel-drive Lincoln MKZ, Zephyr, with a 2010 Auto Reliability GPA of 4.00 over a 4-year data history,
The 4-cylinder Mercury Milan, with a 2010 Auto Reliability GPA of 4.00 over a 4-year data history,
The V6 front-wheel-drive Ford Fusion, with a 2010 Auto Reliability GPA of 3.63 over a 4-year data history.

Beyond   

Likely Ford Motor Company will continue to show improvement in the quality of its coupes, sedans, hatchbacks, SUVs, and pickup trucks; however, the likelihood that its overall quality will match that of Toyota Motor Corporation or Honda Motor Company within the next two decades seems small, for several reasons:

1. Ford's three vehicles with a 2010 Auto Reliability GPA above 3.50 over a 4-year data history are very atypical, as the following scatter diagram indicates.

The 2010 Reliability Grade Point Averages for Models with at Least a 4-Year Auto Reliability History, for Toyota, Honda, Hyundai, Ford, Chrysler, and General Motors

2. Ford's overall 2010 Auto Reliability GPA is a modest 2.15, a mid-C. As Ford's Reliability Percentrank Average for Model Year 1998 is 0.51, a typical Ford vehicle has remained stubbornly mediocre.

3. Ford is a large company, constrained both by enduring union rules and by hundreds, if not thousands, of decision makers with a long history of standards, values, and thought and behavioral preferences.

To these 3 points may be added the observation that the three models holding more notable 2010 Auto Reliability GPAs over a 4-year data history may have good, mediocre, or abysmal Reliability GPAs as they age. At this point, their Reliability GPAs in the middle and outer years are anyone's guess.

Disclosure

Site manager is currently a very small shareholder of Ford Motor Company (2010-07-14). I am not, and have not been, a shareholder of any other motor vehicle manufacturer.

Chrysler LLC in 2010 and Beyond

2010   

 

Chrysler LLC offers much weaker evidence of quality improvement.

At the bottom end, its share of CR's Worst Cars has fallen from 25% in 1992 to 18% in 2010. The following graph depicts Chrysler's share of the Used Cars to Avoid and provides an extrapolation to 2030, a liner regression of degree one.

The Chrysler Group's Percent Share of CR's Used Cars to Avoid from 1992 to 2010 with Extrapolation to 2030 

While the graph shows a modest reduction in Chrysler's share of the Worst, this reduction may only reflect the greatly expanded North American product offerings by non-North-American-based auto manufacturers. As Chrysler LLC's overall 2010 Auto Reliability GPA is 1.02, a D in letter grade, it seems safe to attribute its declining share of CR's Worst to increased product offerings by others.

Beyond   

Little or no quality improvement in Chrysler LLC's motor vehicle offerings is seen by site manager in the near future. Another bankruptcy reorganization may be in the offing.

General Motors Corporation in 2010 and Beyond

2010   

 

It is difficult to find improvement in General Motors Corporation's product quality.

Its share of CR's Worst declined by a minuscule 2 percentage points, from 43% in 1992 to 41% in 2001. When an extrapolation is made of GM's share of the Worst, we obtain a horizontal line, indicating no long-term reduction.

General Motors' Percent Share of CR's Used Cars to Avoid from 1992 to 2010 with Extrapolation to 2030

And when account is taken of the greatly increased number of model offerings from abroad, the reliability of GM's models may have significantly, or dramatically, declined.

Nonetheless, General Motors' overall 2010 Auto Reliability GPA beats Chrysler's by a bit, 1.41 versus 1.02, although GM's modestly higher GPA may be attributable to frequent model name changes, limiting model reliability ratings for the outer years, and to the inflationary effect of its one very remote, high-flying outlier (see the scatter diagram in the Beyond section of Ford Motor Company), a Toyota-engineered model marketed by General Motors.

Beyond   

Little or no quality improvement in General Motors' motor vehicle offerings is seen by site manager in the near future. However, another bankruptcy reorganization within the next decade seems unlikely (barring another recession), as with clever marketing ploys GM should be able to limit its annual U.S. new car market share loss to one percentage point per year, closely matching its decade-plus decline, which should be well manageable without resort to a bankruptcy court. In this regard, General Motors should be helped by the very low performance of U.S. high school students on international math exams over the past century and by the general absence of even a rudimentary statistics course at the high school level.

The unlikelihood of another GM bankruptcy reorganization in the near future should be good news for prospective investors in GM's 2010 public offering. For long-term investors, better news is that if GM devises a long-term downsizing strategy (that works), its share price may appreciate over the next decade. For short-term investors, site manager thinks good marketing ploys, together with a sympathetic press, may well mean a bump-up in sales, revenue, and profit for a year or two.

Toyota Motor Corporation in 2010 and Beyond

2010   

 

Toyota Motor Corporation remains the most successful at avoiding CR's Worst list. Its long-term share of this list of avoidables remains at, or close to, 0%, as the following chart depicts. 

Toyota's Percent Share of CR's Used Cars to Avoid from 1992 to 2010 with Extrapolation to 2030

Nonetheless, Toyota is struggling some. Its 2010 share of CR's Worst is 1%. Furthermore, its overall Auto Reliability GPA fell to 3.48 in 2010 (putting it in second place after Honda) from 3.67 in 2009 (last year's first place). And outliers are apparent on the scatter diagram displaying the 2010 Reliability GPAs of its models (see the scatter diagram in the Beyond section of Ford Motor Company).

Beyond   

With Toyota's drop in quality, there will likely be a pause in the growth of Toyota's U.S. new car market share, which has dramatically exceeded Honda's as the following graph depicts.

Percent Shares of the U.S. New Car Market for Toyota and Honda from 1993 to 2009

The pause in growth should give Toyota time to focus more intensely on quality and then to expand anew its new car market share.

Honda Motor Company in 2010 and Beyond

2010   

 

Honda Motor Company increased its Auto Reliability GPA from 3.47 (a high B) in 2009 to 3.55 (a low A) in 2010. It currently is the standard bearer.

Honda's percent share of CR's Worst is depicted below. The slope of the extrapolation has a slightly positive value.

Honda's Percent Share of CR's Used Cars to Avoid from 1992 to 2010 with Extrapolation to 2030

Beyond   

Honda and Toyota should remain the auto industry's reliability leaders for a decade or more to come, as the following scatter diagram suggests.

The 2010 Reliability Grade Point Averages for Models with at Least a 4-Year Auto Reliability History, for Toyota, Honda, Hyundai, Ford, Chrysler, and General Motors, as well as Each Manufacturer's Average

Hyundai Motor Company in 2010 and Beyond

2010   

 

Hyundai Motor Company is the dark horse in the race to quality, if there be such a race.

Hyundai's Auto Reliability GPA leaped past those of the of the Detroit Three in 2010 to 2.54 (versus 2.15, 1.41, and 1.02 for Ford, GM, and Chrysler, respectively) from 1.97 in 2009. Also, Hyundai has no outliers in the above scatter diagram depicting the 2010 GPAs of its model offerings.

This contrasts sharply with Hyundai's Reliability Percentrank Averages of 0.00 and 0.01 for model years 1988 and 1989, placing its models at the very bottom for that two-year time period. So, at least for a newer, smaller company, a quarter of a century can mean quite a difference in quality.

Beyond   

Hyundai is the best, maybe only, prospect for matching Toyota and Honda vehicular reliability and durability within the next two decades. It provides hope for a third competitor in the high-reliability car market segment.

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