GM's No. 1 sales title at risk
Just five years ago, GM had a big lead on Ford and Toyota in U.S. sales. But with GM now in bankruptcy, it could fall to third place. That might not be a bad thing.
NEW YORK (CNNMoney.com) -- General Motors has been the largest automaker in terms of U.S. sales for 78 years. Whether it runs that streak to 79 is an open question.
The gap between GM (GM, Fortune 500) and Toyota Motor (TM) has been narrowing for years. Ford Motor (F, Fortune 500), the No. 3 automaker in U.S. sales, has started to gain ground as well.
Both companies may gain even more share on GM now that the company is shedding brands, plants and dealerships as part of its bankruptcy reorganization.
Experts say they wouldn't be surprised if GM falls to second, or possibly even third place, in U.S. sales later this year or by 2010.
GM lost the global sales title to Toyota in 2008, an event long anticipated in the industry. But it wasn't that long ago that the idea of GM being overtaken in U.S. sales seemed incredible. As recently as 2004, GM's market share was 27.3%. Its sales were nearly 50% greater than then No. 2 Ford and more than double those of Toyota.
Today, GM's U.S. market share is just 19.5%, down from 22.3% in 2008. Toyota is second in the market with a 16.2% share so far this year, followed by Ford at 15.1%.
GM has said it expects its market share to be at 18% to 18.5% after it exits bankruptcy protection. But Stephen Spivey, senior auto analyst for business consultant Frost & Sullivan, said GM's U.S. market share could fall as low as 12% to 13% as soon as next year.
That would put GM far behind the current market shares of Toyota and Ford and just barely ahead of Honda Motor (HMC). Spivey added that GM is likely to continue losing market share after it emerges from bankruptcy.
Other experts believe GM's market share should stay above 15% or 16% going forward, but that it will be a battle to hold off Toyota and Ford.
"I think both Toyota and Ford are very serious competitors," said Tom Libby, president of the Society of Automotive Analysts. "I think those three will be close to each other for quite a while."
GM has been losing share for years primarily because of tougher competition from Asian rivals. That isn't going to change anytime soon.
But the fact that GM is planning to shed the Pontiac, Hummer, Saturn and Saab brands will only add to the pressure on its market share. Those four brands account for 2.8 percentage points of GM's current market share.
GM vice president Mark LaNeve, head of its North American sales and marketing, said the company believes it will lose only 1 percentage point of share from the loss of those four brands.
"We're very confident we can do that and stabilize the share once and for all," LaNeve said Tuesday when discussing the company's May sales.
But to do that, GM will obviously have to do a better job of convincing customers of the four discontinued brands to switch to Chevrolet and Buick, two of the four "core" brands GM is retaining.
Fortunately for GM, it won't lose market share overnight from the brands it is dropping. Pontiac, which is responsible for 1.6 percentage points of GM's market share, is being phased out by 2010. And unlike the other three brands, it is not in the process of being sold.
The Pontiac brand is also aligned closely with Chevy and Buick, which means GM dealers that currently sell Pontiacs will have a chance to convince consumers to switch to another GM brand. Still, experts believe GM will ultimately wind up losing between a third and a half of former Pontiac buyers.
Keeping the 1.1% of U.S. car customers now turning to Hummer, Saturn or Saab could be far more problematic, especially if the brands continue to operate under new ownership in the U.S.
"Some Saturn buyers are actually anti-GM buyers," said Jesse Toprak, an auto sales analyst with Edmunds.com. He said they're drawn to Saturn's policy of no-haggle pricing unique to its dealership network, or the image of it as a greener car brand.
"A lot of them aren't feeling great about GM's decision to get rid of Saturn," said Toprak, adding that no more than a quarter of current Saturn owners will stick with another GM brand.
There is a chance that Saturn owners might buy comparable models from other GM brands. The Saturn Aura and the Chevy Malibu are similar, for example. But convincing Saab and Hummer owners to buy another GM vehicle will be a tougher sell since there are few similarities between Saab or Hummer models and vehicles from the four continuing GM brands.
Another reason GM is likely to take a hit in market share is because it will probably lose sales to fleet customers, such as rental car companies. Those sales accounted for 27% of its sales in 2008, and 25% so far this year.
Some experts say that GM's fleet sales are likely to fall to between 15% and 20% of its overall sales once it closes plants and dumps the Pontiac brand. That would lead to a drop of between 1% and 2% in market share all by itself.
But Jeff Schuster, executive director of global forecasting at J.D. Power & Associates, said it's better for GM to cut back on its fleet share, even if it means falling behind Toyota and Ford. Sales to rental car companies and other fleet customers tend to be less profitable than sales to individual consumers.
"Daily rental volume has been propping up the total number for years," he said. "That is not necessary healthy market share."
Schuster said that it's better for GM to focus on retail customers in order to stem some of the gains made by Toyota, which has almost caught up to GM in this portion of the market.
That will be a challenge since retail sales are handled at dealerships, and GM plans to slash up to 40% of its network of 6,000 dealers by the fall of 2010.
GM is hoping the loss in sales that results from axing these dealers will be limited.
About 500 of the dealerships being dropped only sell the four brands being discontinued. The rest are generally dealerships with small sales volumes. All told, the first 1,100 of the dealers being notified that they will be discontinued accounted for only 7% of GM sales in 2008.
Experts and GM officials believe most of those sales will shift to the remaining GM dealers, which should be more profitable and thus better able to market GM's better brands. But GM officials concede in company documents that there could be some slight loss of sales due to fewer dealerships.
Still, GM's LaNeve argued that rather than focus on the sales GM might lose, it's more important to look at gains that he believes will be possible for the brands the company is keeping because GM is slimming down and becoming more focused.
"That's what core brand strategy is all about - to have more than adequate marketing money to be able to support these products and not just launch them and forget about them," he said. 
