ibisworld industry report 33611b light truck & sport ... us auto... light truck & sport...

WWW.IBISWORLD.COM� Light�Truck�&�Sport�Utility�Vehicle�Manufacturing�in�the�US July 2010 1

IBISWorld Industry Report 33611bLight Truck & Sport Utility Vehicle Manufacturing in the USJuly�2010� Casey�Thormahlen

Engine restart: Economic recovery and fuel-efficient models are the keys to ignition

2� About�this�Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3� Industry�at�a�Glance

4� Industry�Performance4 Executive Summary

4 Key External Drivers

5 Current Performance

7 Industry Outlook

8 Industry Life Cycle

10� Products�&�Markets10 Supply Chain

10 Products & Services

12 Demand Determinants

12 Major Markets

13 International Trade

14 Business Locations

16� Competitive�Landscape16 Market Share Concentration

16 Key Success Factors

16 Cost Structure Benchmarks

18 Basis of Competition

19 Barriers to Entry

19 Industry Globalization

21� Major�Companies21 General Motors Corporation

22 Ford Motor Company

23 Toyota Motor Corporation

24 Honda Motor Co., Ltd.

26� Operating�Conditions26 Structural Risk Index

26 Investment Requirements

27 Technology & Systems

28 Industry Volatility

28 Regulation & Policy

30 Industry Assistance

30 Taxation Issues

31� Key�Statistics31 Industry Data

31 Annual Change

31 Key Ratios

32 Historical Performance

33� Jargon�&�Glossary

www.ibisworld.com��|��1-800-330-3772��| ��[email protected]


Companies in this industry manufacture light trucks and utility vehicles such as vans, pickups and sport-utility vehicles (SUVs). They also manufacture light

truck and utility vehicle chassis. This industry does not include the manufacturing of cars and motorcycles.

The�primary�activities�of�this�industry�are

Van manufacturing

Pickup truck manufacturing

Sport-utility vehicles manufacturing

Light truck and utility chassis manufacturing

33611a Car�&�Automobile�Manufacturing�in�the�USCompanies in this industry manufacture cars.

33612 Truck�&�Bus�Manufacturing�in�the�USFirms in this industry manufacture heavy trucks and buses.

33621a Motor�Vehicle�Body�Manufacturing�in�the�USEnterprises in this industry manufacture car, truck and bus bodies and assemble vehicles on a purchased chassis.

Industry�Definition

Main�Activities�

Similar�Industries

Additional�Resources

About�this�Industry

For�additional�information�on�this�industry

www.automotivenews.com�Automotive News

www.nada.org�National Automobile Dealers Association

www.census.gov�US Census Bureau

The�major�products�and�services�in�this�industry�are

CUVs

Large pickups

Large vans

Small pickups

Small vans

SUVs


Inde

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100

60

70

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90

1602 04 06 08 10 12 14Year

Consumer sentiment index

SOURCE: WWW.IBISWORLD.COM

% c

hang

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Revenue Employment

Revenue vs. employment growth

Business locations

28Great Lakes

6Mid-Atlantic

23Southeast

2Rocky

Mountains1

New England

16West

8Southwest

7Plains


Key�Statistics�Snapshot

Industry�at�a�GlanceLight�Truck�&�Sport�Utility�Vehicle�Manufacturing�in�2010

Industry�Structure Life Cycle Stage Decline

Revenue Volatility High

Investment Requirements High

Industry Assistance Medium

Concentration Level High

Regulation Level Medium

Technology Change High

Barriers to Entry High

Industry Globalization High

Competition Level High

Revenue

$93.6bnProfit

$2.3bnExports

$13.2bnBusinesses

88

Annual�Growth�10-15

3.0%Annual�Growth�05-10

-10.8%

Key�External�DriversConsumer�sentiment�indexPrice�of�retail�gasolineLegislative�compliance�requirementsYield�on�three-month�billsAggregate�disposable�income

Market�ShareGeneral Motors Corporation 23.1%

Ford Motor Company 20.3%

Toyota Motor Corporation 13.4%

Chrysler Group LLC 13.1%

p. 21

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31



Key�External�Drivers Consumer sentiment indexConsumer sentiment is an important indicator of vehicle sales. Cars and trucks are expensive discretionary items, which consumers tend not to buy when times are tough.

Price of retail gasolineThe price of gas has always been important to the automotive sector, as it represents a significant part of a vehicle’s running costs. Trucks and SUVs are particularly fuel inefficient, making them more sensitive to gasoline prices.

Legislative compliance requirementsAutomakers are fined when vehicles do not meet US fuel economy standards. Fuel efficiency standards have a negative effect on the profitability of automakers. The research and development of new fuel efficiency technology is costly and, once the vehicles are ready, they are not profitable to manufacture. Even though the demand for fuel-efficient vehicles is present due to increased environmental concern, it will not be enough to offset the high costs of putting those vehicles on the road.

Executive�Summary

High gas prices and environmental concerns have decimated light truck and sport-utility vehicle (SUV) sales volumes since 2005. The sudden decline in demand brought General Motors and Chrysler down in 2009, but the companies will emerge better prepared to compete on a global scale. Automakers are responding to consumers’ environmental concerns by offering expanded hybrid and crossover-utility vehicle (CUV) offerings. The popularity of these vehicles supplanted most SUV demand but failed to create additional vehicle demand. In 2010 industry revenue is estimated to hit $93.58 billion, an 18.7% increase over 2009 but an overall decrease of 10.8% since 2005.

Light-truck and SUV manufacturers witnessed extreme erosion in vehicle markets over 2009, with light-truck and SUV sales dropping from 8.4 million vehicles in 2007 to 4.8 million vehicles in 2009. Light-truck sales are on pace to reach 5.7 million in 2010, an expected increase of 18.1%. Trouble in the financial sector forced lenders to severely tighten credit access and availability, further contracting vehicle demand. In the summer of 2009, the federal government launched its Car Allowance Rebate

System (CARS), also known as “cash for clunkers.” The program generated 677,081 vehicle sales, helping clear new car dealers’ bloated inventories.

Domestic automakers’ mounting problems of overcapacity and expensive labor contracts have been settled, but the turmoil they experienced during 2009 ultimately helped save the industry. An inventory surplus amid wage negotiations encouraged the industry to shrink in order for the Big Three to survive on a long-term basis. Their problems stemmed from the fixed nature of automaker cost structures, which made it more attractive to pursue high-volume production of high-priced vehicles like the Cadillac Escalade even amid declining demand. In the end, pay scales were reduced and product offerings whittled to a core roster of vehicles in an effort to maximize output with minimal input.

Over the next five years, automakers are expected to focus on producing CUVs and trucks with an emphasis on improved fuel efficiency. Additional power train options, including clean diesel and hybrids, will fuel revenue gains. Industry revenue is expected to grow at a 3.0% annual rate to $108.23 billion over the five years to 2015.

Industry�PerformanceExecutive�Summary�� |�� Key�External�Drivers�� |�� Current�PerformanceIndustry�Outlook�� |�� Life�Cycle�Stage


Industry�Performance

Current�Performance

The industry has had a dismal five years. From 2005 to 2010, industry revenue fell at an estimated 10.8% per year to $93.58 billion. But in 2010, industry revenue is expected to grow 18.7% as manufacturers increase production at plants that were idle during 2009. High gas prices began to unwind an industry boom in 2004, when light-truck and SUV output peaked at 9.3 million vehicles. New vehicle models offering super fuel economy, known as CUVs, are rapidly replacing traditional SUV models. CUVs captured substantial market share in 2009 but proved insufficient to boost overall demand. Consumer preferences have moved decidedly in favor of smaller,

more fuel-efficient vehicles. The sudden shift of consumer preferences contributed to the 2009 bankruptcies of General Motors and Chrysler, which relied heavily on profitable SUV and light-truck sales for most of the decade. The bankruptcy of these automakers will bring about long-needed structural changes to the companies.

Key�External�Driverscontinued

Yield on three-month treasury billsInterest rates have a direct effect on consumers’ ability to purchase vehicles. When interest rates are relatively high, consumers effectively receive less vehicle for a given payment amount.

Aggregate disposable incomePersonal disposable income determines what kind of vehicle a consumer can afford and whether it must be financed or could be purchased outright.

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1400 02 04 06 08 10 12Year

Price of retail gasoline


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1602 04 06 08 10 12 14Year

Consumer sentiment index

� Consumer preference away from large vehicles contributed to GM and Chrysler going bankrupt



Fuel�economy Light trucks and SUVs tend to have poor fuel economy due to their body-on-frame construction, large engines and aerodynamics. The national average of gas prices more than doubled from $1.39 per gallon in 2002 to $3.39 per gallon in 2008, severely cutting into industry demand. Growing concern over climate change began to penetrate the minds of mainstream Americans sometime in this period, and eco-minded consumers are critical of the environmental effects of driving large, inefficient vehicles like SUVs. Efforts to introduce fuel-saving technologies, such as GM’s Chevrolet Silverado Hybrid, have had limited

success due to insignificant fuel economy gains and added expense. CUVs blend features of SUVs (ample interior space) with the lighter construction of cars, and the CUV segment now accounts for 46.0% of industry sales. Domestic manufacturers are introducing smaller, more fuel-efficient gasoline engines throughout their lineup, which is showing initial signs of success.

Dealers�despair Automotive industries depend on car dealerships to sell their products. When dealers are unable to sell vehicles, they have no need to purchase additional inventory from automakers. The New Car Dealer industry had a catastrophic year in 2009, with revenue falling 30.2% year-over-year and vehicle sales off more than 40% from 2007 levels. Rising unemployment and tight credit

conditions curtailed consumers’ ability to purchase vehicles. The federal government provided temporary stimulus late in the summer with its Cash Allowance Rebate System (CARS), also known as cash for clunkers. Trucks fared exceptionally well over this period, as small business owners took advantage of the opportunity to trade older pickup trucks for newer models.

Bailout�and�bankruptcy

The automotive sector was in disarray in 2009, as General Motors (GM) and Chrysler entered chapter 11 bankruptcies less than six months after accepting over $50 billion in government bailouts. Ford, the only domestic automaker not to take government funds or enter bankruptcy, avoided the fate of its peers by tapping a $10 billion credit line. Domestic automakers relied heavily on light truck and SUV sales during this decade, as the vehicles were more profitable than small vehicles under their cost structure arrangements. Bankruptcy has given automakers leverage and an opportunity to realign their cost structures to current demand levels.

In its bankruptcy, General Motors eliminated one third of its US workforce and manufacturing capacity, nearly 40% of its dealer network and four under-performing brands: Hummer, Saab, Saturn and Pontiac. Prior to its bankruptcy, GM had persistent problems with excess capacity, unsustainable labor contracts and debt. The reorganized GM will take on approximately 17% of its pre-bankruptcy debt obligations, or $17 billion. According to the company, future ventures into the light truck and SUV market will be focused on CUVs and more fuel efficient light trucks.

Chrysler, the smallest of the three domestic automakers, took $15 billion in

� The CUV segment now accounts for 46.0% of industry sales



Industry�Outlook

In 2010, the industry will begin recovering from 2009’s abyssal lows. Industry revenue is expected to increase 5.6% in 2011, and, over the five years to 2015, revenue is expected to grow at a 2.95% annual rate as the economy recovers and more fuel-efficient models are introduced. Industry operators are planning a series of ambitious product launches from 2011 to 2012, on which their future prospects will depend. Fiat, now a major stakeholder in Chrysler, will introduce its fuel-efficient Panda CUV, multi-air engine technology and new clean diesel engines for Jeep. Industry revenue is forecast to reach $108.23 billion by 2015, slightly lower than in 2008.

The industry will struggle to reach revenue levels seen from 2004 to 2007 because environmental concerns and high gasoline prices will impede growth. CUVs and other car-based vehicle platforms will increasingly take over the consumer SUV segment due to their superior fuel economy and lighter weight. Business customers, especially construction and agricultural companies, will continue to buy trucks and vans regularly because the accelerated depreciation these vehicles are allowed. Also, trucks and vans exhibit superior off-road driving characteristics that, in some cases, may outweigh the effects of increased gas prices.

Over the next five years, automakers will introduce hybrid, fully-electric or clean diesel editions of most light trucks and SUVs. Aggressive corporate average

fuel economy (CAFE) standards will make this an attractive development path whether the vehicles sell in large numbers or not. Fiat’s entrance into the US market through its recent partnership with Chrysler will bring revived diesel Jeeps and Fiat Pandas. Ford’s “One Ford” initiative will bring more small cars and electric vehicle technology from Ford’s European operations, and the company’s “EcoBoost” engines will begin appearing in full-size trucks late in 2010, boosting demand for the already popular F-series truck. GM is also ramping up production of its new “Ecotec” engines, based on technologies essentially identical to Ford’s.

Over the next five years industry operators will produce barely more than half as many light trucks and SUVs as they did at their peak in 2004. Reductions in production capacity and labor costs, particularly at GM and Chrysler, will begin paying dividends in 2010 and 2011. Eliminating these long-standing structural issues will allow automakers to pursue more sustainable long-term strategies. Among the domestic automakers, Ford will emerge stronger and with significant market share gains.

Bailout�and�bankruptcycontinued

government funds before filing for chapter 11 bankruptcy; Chrysler’s bankruptcy ended with Fiat, an Italian automaker, taking a 20% stake in the company and offering its advanced small-engine technologies. Chrysler’s sales declined the most of any automaker in 2009, selling

less than one million vehicles for the first time since the 1960s. Over the course of the year, Chrysler shuttered recently-opened plants producing its Aspen SUV. Efforts to modernize and promote the new Ram truck brand as well as Jeep SUVs and CUVs will be crucial in 2010.

� Operators are planning a series of ambitious product launches on which their future prospects depend


Industry�PerformanceDemand for light trucks and SUVs has declined since 2005

Brand consolidation and vehicle phase-outs are common

Technological changes may revive demand in the next five years

Life�Cycle�Stage


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DeclineCrash or Grow?

Potential�Hidden�GemsFuture Industries

Quality�GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

Time�WastersHobby Industries

MaturityCompany consolidation;level of economic importance stable

Shake-out

Shake-out

Quantity�GrowthMany new companies; minor growth in economic importance; substantial technology change

Key�Features�of�a�Decline�Industry

Revenue grows slower than economyFalling company numbers; large fi rms dominateLittle technology & process changeDeclining per capita consumption of goodStable & clearly segmented products & brands

Car�&�Automobile�Manufacturing

Automobile�Wholesaling

Iron�&�Steel�Manufacturing

New�Car�DealersLight�Truck�&�Sport�Utility�Vehicle�Manufacturing



Industry�Life�Cycle The industry is in a precipitous state of decline. High gasoline prices have rapidly eroded the popularity and affordability of the industry’s products, especially among consumers. Industry revenue has fallen at a 10.8% annual pace over the five years to 2010. While automakers have responded to customer criticisms by developing more fuel-efficient vehicles (CUVs) the onset of the recession and turmoil in the automotive sector has prevented a turnaround. Two major industry operators, General Motors and Chrysler, went bankrupt during 2009. Hybrid drivetrains and other alternative fuel technologies give hope for recovery

in the future, though these technologies are currently expensive and limited in effectiveness for such heavy vehicles.

For the five years to 2015, industry revenue is expected to grow at a 3.0% annual rate. While the last five years have been marked with decline, the following five are expected to be stable. From 2007 to 2009, the industry experienced an unprecedented decline due to the confluence of two forces: the Great Recession and rising gas prices. Fuel prices are widely expected to be on an upward trajectory through the outlook period, which will limit the broad appeal of trucks and SUVs.

�This industry is Declining


Products�&�Services

�Products�&�MarketsSupply�Chain�� |�� Products�&�Services�� |�� Demand�DeterminantsMajor�Markets�� |�� International�Trade�� |�� Business�Locations

KEY�BUYING�INDUSTRIES

42111� Automobile�Wholesaling�in�the�US�The industry distributes light duty trucks and utility vehicles to franchised and independent dealerships.

44111� New�Car�Dealers�in�the�US�New car dealers retail light trucks and SUVs across the US.

53211� Rental�Car�Services�&�Leasing�in�the�US�Car rental and leasing companies are significant purchasers of new light trucks and utility vehicles.

KEY�SELLING�INDUSTRIES

33111� Iron�&�Steel�Manufacturing�in�the�US�Major supplier of raw materials to the industry to produce stamped products.

33591� Battery�Manufacturing�in�the�US�Supplier of motor vehicle batteries to industry.

33631� Automobile�Engine�&�Parts�Manufacturing�in�the�US�Major supplier of motor vehicle engines to this industry.

33632� Automobile�Electric�&�Electronics�Manufacturing�in�the�US�Major supplier of electrical and electronic equipment to the industry.

33633� Automobile�Steering�&�Suspension�Components�Manufacturing�in�the�US�Major supplier of steering modules and suspension components to the industry.

33634� Automobile�Brakes�Manufacturing�in�the�US�Major supplier of brakes to this industry.

33635� Automobile�Transmission�&�Power�Train�Parts�Manufacturing�in�the�US�Major supplier of transmission and power train equipment to the industry.

33636� Automobile�Seating�&�Interior�Manufacturing�in�the�US�Major supplier of seating modules and interior trim products to the industry.

33637� Automobile�Metal�Stamping�in�the�US�Major suppliers of stamped products to the industry.

Supply�Chain

Products and services segmentation (2010)

Total $93.6bn

46%CUVs

3.2%Large vans

22.5%Large pickups

14%SUVs

8.6%Small vans

5.7%Small

pickups



Products�&�Markets

Products�&�Servicescontinued

This industry produces vans, trucks and SUVs. The automotive marketplace is one of constant change and innovation, which continuously creates new product platforms from old. The three main product types of this industry (vans, trucks and SUVs) now consist of two subcategories each.

Pickup trucksCompact pickup trucks represent a small portion of total industry sales at 5.7%. This segment emerged in the 1980s with the importation of small Japanese trucks. Domestic automakers quickly followed suit. Compact trucks are oriented for use by consumers who value mileage over towing capacity. Since 2005, compact trucks have grown in size to be only slightly smaller than full-size models. The Ford Ranger and Mazda B-series are the only compact trucks that have not been enlarged.

Full-size pickup trucks account for 22.5% of industry sales. These vehicles are appropriate for use by small businesses and consumers with significant towing needs, but most models come with a large displacement V8 engine standard, resulting in poor fuel economy. This segment is particularly resilient to fluctuations in gasoline prices, as few vehicles offer comparable utility. The most popular full-size pickups are the Ford F-series, Chevrolet Silverado, Dodge Ram and Toyota Tundra.

Minivans and vansSmall vans, also known as minivans, are geared to transport six or more people comfortably and are particularly popular with taxi services and suburban families. Minivans are equipped with relatively small engines, offering good fuel economy relative to the size and passenger capacity of the vehicle.

Minivans, unlike SUVs or trucks, are typically front-wheel drive, and this arrangement reduces weight by eliminating the need for a differential but offers less desirable handling characteristics. Minivans account for 8.6% of industry sales.

Large vans represent a smaller share of industry revenue at 3.2% Vans are large, boxy vehicles designed to carry as many passengers or as much cargo as possible. Cargo vans come equipped with two seats in the front of the vehicle, with the rest of the space left empty for cargo. This type of van is popular with small businesses and transport services. Passenger vans typically come equipped with three to four rows of bench seating behind the driver. This segment has shrunk over the last decade due to competition from similarly capable SUVs.

SUVs and CUVsSport-utility vehicles are fully enclosed vehicles similar to station wagons but built on a light truck chassis. These vehicles were originally known for their excellent off-road capabilities, as in the Jeep Wrangler. This segment grew considerably until 2006 as a sportier alternative to minivans and station wagons. Standard SUVs get very poor gas mileage comparable to a full-size pickup truck. High gas prices caused a rapid shift in the popularity of these vehicles, which has declined rapidly since 2006. SUVs represent 14.0% of industry revenue.

Crossover-utility vehicles (CUVs) are similar in form to SUVs but are built on a passenger car chassis. CUVs lack the towing and off-road capabilities of SUVs but offer superior gas mileage and safety characteristics. Examples of CUVs include the Toyota Venza and Dodge Journey. CUVs now account for 46.0% of industry sales.



Major�Markets

Automakers use a variety of distribution channels to sell their vehicles to the public. Car dealerships and wholesalers sell vehicles primarily to consumers and businesses, respectively. Exports take up 16.5% of industry demand, with nearly

30% destined for Canada. Government agencies, including local and federal law enforcement, directly purchase 10.3% of all light trucks and SUVs. Vehicle leasing companies, including automaker subsidiaries and independent

DemandDeterminants

Gasoline prices, disposable income, vehicle affordability and interest rates all influence demand for trucks and SUVs. This industry’s products are heavily used by small and large businesses, particularly in the construction and agriculture sectors; businesses tend to be reliable and frequent customers, though sensitive to business cycles. Additionally, qualitative factors, such as consumer preferences, can shift demand to and from other automotive industries.

Gasoline prices have a particularly strong relationship with truck sales; trucks are particularly fuel inefficient vehicles. Since 2006, consumers have been purchasing fewer trucks as high gasoline prices and rising concern over climate change made fuel efficiency a high priority. Industry operators like General Motors introduced hybrid power trains for some truck models with limited success because early hybrid truck

models provided limited fuel economy benefits at an expensive premium over conventional models. Companies in this industry are seeking to limit risk from high gasoline prices by offering more fuel-efficient diesel and hybrid trucks.

Vehicle affordability, disposable income and interest rates influence truck sales because they affect consumer purchasing power. When interest rates are relatively high, consumers’ cost of leasing vehicles increases. The more expensive a vehicle is relative to the purchaser’s disposable income, the less likely a sale.

American consumers have been changing their automotive preferences rapidly since 2006. For much of the decade fuel prices were low, allowing Americans to become accustomed to driving large vehicles, but the rapid escalation of gasoline prices from 2006 to 2008 caused a major shift toward smaller vehicles.

Major market segmentation (2010)

Total $93.6bn

32.5%Wholesalers

31.7%Automobile dealers

16.5%Exports

10.3%Government

9%Leasing

companies




International�Trade Over the five years to 2009, exports have grown by 3.9% annually, from a meager 6.0% of revenue in 2004 to an estimated 16.5% of revenue in 2009. Major trading partners for exports were Canada and Germany. The North American Free Trade Agreement (NAFTA) eliminated tariff barriers between America, Mexico and Canada; manufacturers maintain many facilities on either side of the border, which tends to inflate export figures. General Motors’ ownership of Opel, a Germany-based automaker, accounts for much of the shipments to Germany, where GM vehicles are often re-badged as Opel vehicles. Over the next five years, exports as a percentage of revenue will fall as domestic demand regains strength.

Imports will decrease by 10.7% annually over the five years to 2009, due to declining domestic demand and foreign automakers’ shift toward smaller vehicles. Imports as a percentage of domestic

demand will rise from 27.9% in 2004 to 36.0% in 2009. Most trucks and SUVs were sourced from Japan, Canada and Germany. Imports will fall over the next five years, as depreciation of the US dollar discourages importation and consumers shift toward smaller cars.

Major�Marketscontinued

companies, lease vehicles out to consumers and businesses.

Wholesalers are the largest market segment of this industry, at 32.5%. Wholesalers buy large volumes of identical vehicles from automakers. Wholesalers sell vehicle fleets to businesses like taxi services, rental companies and dealerships. Demand from wholesalers is driven by business investment and gasoline prices. Dealerships buy vehicles from wholesalers to supplement inventories; wholesalers provide faster delivery than directly purchasing from automakers.

Car dealerships directly purchase 31.7% of this industry’s products. Dealers sell the vast majority of their vehicles

directly to consumers. New car dealerships took a drastic beating in 2009, losing over 30% of revenue compared to 2008. Sales to dealerships are sensitive to interest rates, consumer sentiment and disposable income variations.

Exports account for 16.5% of industry revenue. Canada (29.7%), Germany (17.5%) and Mexico (8.1%) are the top destinations for light trucks and SUVs; these have been the top destinations since 1998. Foreign operations of domestic automakers such as GM’s Opel in Germany explain most of this activity. Exports tend to fall when the dollar strengthens against other trading partners’ currencies.

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Exports Imports Balance

Industry trade balance


Level�&�Trend��Exports in the industry are Medium and Increasing

Imports in the industry are��Medium �and��Increasing


�Products�&�Markets

Business�Locations�2010

MO3.3

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

Great Lakes

VT0.0

MA1.1

RI0.0

NJ1.1

DE1.1

NH0.0

CT0.0

MD1.1

DC0.0

1

5

3

7

2

6

4

8 9

Additional�States�(as marked on map)

AZ2.2

CA13.2

NV0.0

OR2.2

WA2.2

MT0.0

NE0.0

MN1.1

IA1.1

OH6.6 VA

0.0

FL3.3

KS1.1

CO1.1

UT1.1

ID0.0

TX5.5

OK1.1

NC4.4

AK0.0

WY0.0

TN2.2

KY3.3

GA2.2

IL5.5

ME0.0

ND1.1

WI2.2 MI

11.0 PA1.1

WV0.0

SD0.0

NM0.0

AR2.2

MS1.1

AL3.3

SC2.2

LA1.1

HI0.0

IN5.5

NY2.2 5

67

8

321

4

9


Mid- Atlantic

Industry�establishments��(%)�

� Less�than�3%� 3%�to�less�than�10%� 10%�to�less�than�20%� 20%�or�more


�Products�&�Markets

Business�Locations Automotive manufacturing activities are most prevalent in the Great Lakes region, where the three domestic manufacturers are headquartered. The Southeast and West regions have also become automotive hubs over the last 20 years, as foreign manufacturers began production within the United States.

California has 13.2% of industry establishments, more than any other state; Asian automakers typically import near-complete vehicles from overseas factories and perform final assembly in California. California is also home to the American headquarters of the Japanese and Korean automakers. Michigan has the next largest number of establishments, at 11.0% of the industry total.

The Southeast region has grown rapidly over the last two decades as Toyota, Honda and Nissan manufacture complete vehicles there. Toyota’s facilities are primarily in Alabama, Kentucky and West Virginia. Honda and Nissan have plants in Alabama and Tennessee,

respectively. State governments in the Southeast have been eager to attract these employers, offering incentives and tax breaks for new facilities.

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Industry establishments Population

Distribution of industry establishments vs. population



Cost�Structure�Benchmarks

Light-truck and SUV manufacturing requires a large array of component parts produced by parts suppliers. For the most part, firms in this industry perform the final assembly and design of vehicles; as a

result, purchases account for the majority of industry costs at 72.2%. Industry operators purchase vehicle components from engines and transmissions to radiators and electronics. Firms contain

Key�Success�Factors Product portfolio matches customer demandConsumers’ vehicle preferences are subject to radical change from year to year. SUVs began losing favor in 2006 due to rising gas prices.

Flexible cost structuresWidespread and powerful unions make labor expenses highly rigid in this industry; this inflexibility makes it difficult to operate profitably when demand falls.

Establishment of export marketsEmerging markets are expected to account for an increasing share of global automotive demand. Successful manufacturers need a foothold in such markets.

Access to the latest available and most efficient technology and techniquesThe most successful manufacturers use the most advanced manufacturing technologies. In particular, a high level of automation and quality control is necessary.

Optimum capacity utilizationManufacturers with high levels of idle production capacity will have difficulty making profits. Successful manufacturers need to constantly align capacity to market demand.

Development of new productsManufacturers must constantly introduce new products or change existing products to maintain consumer interest. Development includes the introduction of new technologies like hybrid drivetrains.

Market�Share�Concentration

Vehicle manufacturing is a highly competitive business dominated by companies with a significant international presence. The four largest producers of light trucks and SUVs are GM, Ford, Toyota and Chrysler. In 2009, these four companies will account for an estimated 69.9% of industry revenue. The next largest producers, Honda and Nissan, account for a combined 13.5% of industry revenue. Import manufacturers like Toyota and Honda have been gaining market share in the truck segment since the late 1980s when the three domestic manufacturers accounted for over 80% of industry revenue. Import manufacturers have had difficulty

penetrating the full-size pickup truck segment but excel in the SUV and small-van segments.

Market share concentration has gradually declined for over a decade and will continue to do so over the next five years. New entrants and products dilute market share of established players. Mahindra & Mahindra, an India-based vehicle manufacturer, will introduce its first light truck to the US market in the first quarter of 2010. Mahindra’s efforts are backed by heavy truck manufacturer Navistar. Automotive firms able to produce vehicles with superior gas mileage, adequate towing capacity and low cost will find a sizable market.

Competitive�LandscapeMarket�Share�Concentration�� |�� Key�Success�Factors�� |�� Cost�Structure�BenchmarksBasis�of�Competition�� |�� Barriers�to�Entry�� |�� Industry�Globalization

Level��Concentration in this industry is High

�IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive�Landscape

Cost�Structure�Benchmarkscontinued

cost fluctuations by purchasing parts under contract with suppliers, which usually include provisions mandating annual price decreases. Automakers typically have very long-term relationships and contracts with a handful of large automotive suppliers.

Interest expense and wages make up the next largest components of this industry’s cost structure. The three domestic automakers have struggled to maintain profitability under very expensive labor contracts, which include defined-benefit pensions and limits firms’ ability to fire union workers; average wages tend to be highly inflated in this industry, at over $80,000 annually. High operating costs, excess capacity and declining popularity of their products has resulted in large losses for the three

domestic manufacturers; losses and illiquid assets force these firms to cover operating costs with loans, resulting in relatively high interest expenses.

The long-term relationship between the automakers and the United Auto Workers (UAW) union, which remains in question, will play a tremendous role in the future cost structure and success of this industry. Artificially high labor costs (guaranteed under union contracts) has historically been a major impetus to poor short-term management decisions: the US automakers began to rely on truck and SUV sales, which have higher gross margins, because these vehicles could be made profitably even with expensive labor. Manufacturers that continue signing labor contracts favoring the UAW will struggle to compete with

Industry�Costs�and�Average�Sector�Costs■�Profi�t■�Rent■�Utilities■�Depreciation■�Other■�Wages■�Purchases

Industry�Costs�(2010)�

Average�Costs�of�all�Industries�in�sector�(2010)�

72.25.613.9

9.1Profit

57.512.913.05.2

INDUSTRY�CODE�AND�TITLE� 2005-2010� 2011-2015

33111� Iron�&�Steel�Manufacturing� •� •33591� Battery�Manufacturing� •� •33631� Automobile�Engine�&�Parts�Manufacturing� •� •33632� Automobile�Electric�&�Electronics�Manufacturing� •� −33633� Automobile�Steering�&�Suspension�Components�Manufacturing�•� •Costs for operators in the Light Truck & Sport Utility Vehicle Manufacturing industry are affected by the price of goods and services from supplier industries. IBISWorld has estimated the trends of key input prices over the previous fi ve years and for the coming fi ve years. − is good news for this industry as IBISWorld expects the price of key inputs to fall; • shows where this industry is negatively affected as IBISWorld expects the price of key inputs to rise; - means price changes will not be a key issue for the industry.



0 100%1.0

1.0

3.82.5Profit

1.0

1.2



Basis�of�Competition For light trucks and SUVs, automakers compete primarily on the basis of price, fuel economy, reliability, styling and utility. Business customers and consumers place different weights on each trait; businesses tend to emphasize utility and reliability, while consumers are more concerned with price and styling. Automakers periodically redesign a vehicle’s styling (typically every five years) but only occasionally change the vehicle’s mechanics. From a sales perspective, stylistic changes are more important for SUVs, CUVs and minivans than for trucks because these vehicles, unlike trucks, are purchased in greater numbers by consumers than businesses.

Industry customers choose their vehicle purchases on the basis of price. Each vehicle platform (SUVs, CUVs, vans and trucks) has a premium subcategory resulting in a range of prices. For example, new trucks range in base price from $15,000 for the Toyota Tacoma compact truck to $66,000 for the Cadillac Escalade EXT premium full-size truck. The two vehicles are marketed to different market segments.

Business customers and consumers have become increasingly concerned with fuel economy over the last five years. Fuel economy is gradually diminishing the

SUV product segment, which are inefficient compared to similar alternatives. Depending on vehicle type and automaker, manufacturers are addressing these concerns with smaller engines, hybrid drivetrains or revised vehicle platforms. Ford will begin offering a V6 Ecoboost engine in its F-series pickups in 2010. The V6 Ecoboost engine produces power comparable to a much larger V8 engine but with 15% less fuel.

Reliability is a pervasive concern of all vehicle shoppers. These concerns were more pressing a decade ago when domestic automakers noticeably lagged Toyota and Honda in reliability. Enhanced quality control procedures and superior manufacturing equipment have since mitigated the disparity.

Business customers and consumers may define utility differently. A typical consumer would be interested in a vehicle’s towing capacity, seating arrangements and cargo space. A typical business owner would be more concerned with cargo or truck bed space. Compact trucks like the Ford Ranger or Toyota Tacoma are quickly disappearing in favor of full-size trucks, which offer much greater space with minor penalties to fuel economy.

Cost�Structure�Benchmarkscontinued

non-union manufacturers, which will be able to offer mass-market trucks and SUVs with lower prices or higher quality than unionized competitors.

The industry has struggled to make profits since 2004, when gasoline prices began to rise significantly. In the case of the three domestic automakers, weakening demand for their products and structural inefficiencies have prevented meaningful recovery. Chapter 11 bankruptcies for General Motors and Chrysler forced new contract negotiations

with the unions and the elimination of pension liabilities. This industry turbulence provides the first real opportunity for domestic automakers to restructure and form more sustainable business models. In 2010, the automakers are expected to turn profits of about 2.5% of revenue due to a combination of improved retail sales conditions (specifically credit access and consumer confidence) and lower labor expenses (due to union concessions made during 2009).

Level�&�Trend��Competition in this industry is High and the trend is Steady



Industry�Globalization

Automotive manufacturing is a highly globalized industry with joint ventures and minority interest stakes in foreign companies common. Mergers and acquisitions have been common for over a decade, though the pace quickened considerably in 2009. In mid-2009, Fiat SpA, an Italian automaker, bought a minority stake in Chrysler with options for later increases. Ford and GM sold off brands and subsidiary companies to foreign buyers including Chinese

automakers. The automotive landscape will continue to change at a breakneck pace through 2010.

The three domestic manufacturers have large interests in foreign automakers. Ford has large stakes in Mazda and Volvo, Japanese and Swedish manufacturers, respectively. GM wholly owns European manufacturers Saab and Opel and several other companies. These subsidiaries are prime targets for asset sales in the wake of automaker bankruptcies.

Barriers�to�Entry Manufacturing light trucks and SUVs is a capital-intensive enterprise requiring sophisticated manufacturing facilities and robust supply chains. Production facilities use specialized equipment and substantial floor space. In addition, prospective automakers need proprietary or licensed vehicle designs and an experienced workforce. Vehicles are made from thousands of separate parts, so sufficient volumes of reliable supplies typically require long-term contracts with several parts supply firms.

New entrants must comply with strict regulatory standards for safety and environmental concerns. These standards are subject to periodic revisions, which

may require additional research and development. R&D expenses can be reduced by forming a partnership with an existing automaker as many foreign manufacturers have done.

Barriers�to�Entry�checklist� Level

Competition HighConcentration HighLife Cycle Stage DeclineInvestment Requirements HighTechnology Change HighRegulation & Policy MediumIndustry Assistance Medium


Level�&�Trend��Barriers to Entry in this industry are High and Steady


Trade�Globalization Going�Global:�Light�Truck�&�Sport�Utility�Vehicle�Manufacturing�1997-2010

Expo

rts/

Reve

nue

Expo

rts/

Reve

nue

200

150

100

50

0

200

150

100

50

0

Imports/Domestic�Demand Imports/Domestic�Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalization.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal1997

2010

Light�Truck�&�Sport�Utility�Vehicle�Manufacturing

Level�&�Trend��Globalization in this industry is High and the trend is Steady



Industry�Globalizationcontinued

The three domestic manufacturers are extensive users of globalized supply chains. Virtually all vehicles manufactured domestically have a significant number of components manufactured in Mexico, Canada, Japan or China. These foreign

facilities are usually owned by automakers themselves or affiliate suppliers. As emerging markets grow, a larger share of automotive activity will take place abroad. In 2009, more vehicles were sold in China than in America.


Player�Performance General Motors is one of the world’s largest automakers and the largest domestic manufacturer of light trucks and SUVs. General Motors is one of the three domestic automakers based in Detroit, MI. General Motors brought in approximately $107.27 billion in revenue in 2009, down from $148.98 billion in 2008. GM operates manufacturing facilities and distribution networks in Europe, Asia, Africa, Australia, North America and South America. During the five years to 2010, GM is expected to post an annualized revenue decline of 8.7%, to $121.75 billion in 2010.

General Motors had a historic year in 2009: the company went bankrupt, closed one-third of its US dealerships, dropped half of its domestic brands and renegotiated its labor contracts. Amid this wave of change, the US auto market took its sharpest decline in decades. The new GM has better capacity allocation, operating structure and financial position. Over the next two years, GM will begin markedly changing its product portfolio as well. For example, the Chevrolet Volt, a plug-in electric vehicle, will go on sale late in 2010. GM is expected to share the Volt’s technology across an array of unannounced vehicles.

The road to bankruptcyGeneral Motors’ bankruptcy reflects the confluence of 20-year-old institutional problems and a contraction of the US automotive market. GM had been operating with excessive production capacity and labor costs throughout the

decade as the United Auto Workers labor union managed to negotiate extremely generous wages and benefits for their members, who make up the majority of GM’s production workforce. The rigidity of this cost structure encouraged GM to pursue production of relatively high-margin vehicles like trucks and SUVs until high gas prices reduced demand for these vehicles. With few vehicles customers wanted to buy, GM has made multi-billion dollar losses since 2005, when revenue was $192.60 billion.

The road aheadGM’s bankruptcy allowed the resolution of difficult institutional issues that crippled the company in an environment of declining demand. With optimized production capacity and reduced labor costs, GM can now produce small vehicles and more fuel-efficient trucks profitably. GM is currently occupied with preparation for the launch of its new Chevrolet Volt plug-in hybrid vehicle and the re-launch of its Buick brand in America. The new GM has far fewer brands and less re-branded vehicles than before; Pontiac, Saturn, Hummer and Saab have been decommissioned or sold off. Trucks and SUVs will primarily carry GMC or Chevrolet branding with a few luxury models for Cadillac and Buick.

Technology developmentGM is active in research and development efforts, especially toward new engine and drive train technologies. GM is currently researching at least

�Major�CompaniesGeneral�Motors�Corporation�� |�� Ford�Motor�Company�� |�� Toyota�Motor�CorporationChrysler�Group�LLC�� |�� Honda�Motor�Co.,�Ltd.�� |�� Other

21.5%Other

General�Motors�Corporation�23.1%

Ford�Motor�Company�20.3%

Toyota�Motor�Corporation�13.4%

Chrysler�Group�LLC�13.1%

Honda�Motor�Co.,�Ltd.�8.6%SOURCE: WWW.IBISWORLD.COM

Major�players(Market share)

General�Motors�Corporation��Market share: 23.1% Industry�Brand�NamesGMC Chevrolet Cadillac Buick


Major�Companies

Player�Performance Ford is the second-largest domestic automaker and one of the largest manufacturers in the world. Ford is based in Dearborn, MI, a suburb of Detroit. Ford produces vehicles under the Ford, Lincoln and Mercury nameplates. Ford also has controlling and influential stakes in Volvo and Mazda, respectively. Ford operates in the same regions and market segments as its rival General Motors. In 2009, Ford generated $118.31 billion in revenue and $2.72 billion in net income, its first profitable year since 2005. During the five years to 2010, Ford is expected to post an annualized revenue decline of 3.9%, to $144.93 billion in 2010.

Ford is the only domestic automaker to emerge from 2009 without taking federal

bailout funds or entering bankruptcy. Like GM, Ford has suffered from a poor product lineup and excessive labor costs for years. Ford’s avoidance of the industry’s bad press increased its popularity in domestic markets. In 2009, Ford increased its share of the total automotive market from 14.7% to 15.7%; GM and Chrysler each lost more than 2% market share over the same period.

The Ford wayLike its rivals, Ford has considerable restructuring and development efforts ahead. While GM and Chrysler were granted beneficial new contracts with the UAW, Ford was left out in the cold. In December 2009, Ford offered buyout packages to all of its 41,000 UAW

Player�Performancecontinued

three disruptive technologies that could greatly reduce fuel consumption and emissions. GM’s highly-publicized Chevrolet Volt will be the first vehicle to use a range-extended electric vehicle arrangement. The Volt uses electric motors to drive the wheels and a very-small displacement engine to recharge batteries on trips longer than 40 miles. GM continues to develop hydrogen fuel-cell technology as well. While fuel cells can offer emissions-free driving and

high energy efficiency, costs will need to be significantly reduced to be commercially viable. Finally, GM is developing homogenous charge compression ignition (HCCI) engines. HCCI engines can operate on gasoline, diesel or natural gas while offering the high-fuel economy of diesel engines. Investing in such technologies is essential to meet ever-increasing emissions regulations and reduce sensitivity to fuel price fluctuations.

General�Motors�Corporation�–�fi�nancial�performance

YearRevenue�

($ million) (% change)Net�Income�

($ million) (% change)

2005 192,604 -0.5 -10,567 N/C

2006 204,467 6.2 -2,423 -77.1

2007 179,984 -12.0 -43,297 1,686.9

2008 148,979 -17.2 -30,860 -28.7

2009 107,265 -28.0 -22,219 -28.0

2010* 121,745 13.5 -10,318 -53.6

*EstimateSOURCE: ANNUAL REPORT AND IBISWORLD

Ford�Motor�Company��Market share: 20.3% Industry�Brand�NamesFord Lincoln Mercury Volvo Mazda


Major�Companies

Player�Performance Toyota is one of the world’s largest automotive manufacturers. Prior to idling most of its North American production capacity, Toyota was the single largest automaker. Toyota’s presence in America has accelerated exponentially since the 1980s when it began widespread offerings of its Camry and Corolla compact cars. Over the years, Toyota has developed a reputation for frugality, efficiency and reliability. This image was tarnished in 2010 as the company was forced to recall 4.87 million vehicles due to improper pedal installation. The pedals were installed in a number of Toyota and Lexus vehicles and caused some vehicles to

accelerate uncontrollably. Toyota has a strong lineup of minivans, SUVs and CUVs, but its trucks have never sold exceptionally well in America. During the five years to 2010, Toyota is expected to post annual revenue growth of 4.3% to $213 billion globally.

Toyota was the first major automaker to sell hybrid vehicles on a mass market basis with its Prius hatchback. The small car, which gets 50 miles per gallon, has become an industry example for efficiency. The Toyota Highlander and Lexus RX450h SUVs now offer hybrid drive train options. Future minivan and truck platforms will likely receive the technology


employees, at an estimated value of $75,000 per employee. New workers would be hired at $14 per hour, half of the wage existing workers earn.

Ford aptly calls its restructuring program “One Ford.” Under the plan, Ford will reduce domestic production capacity, accelerate new vehicle development and avoid redundancies. Ford will break from industry norms by using its global product portfolio in domestic markets rather than develop market-specific vehicles, so American consumers will finally get access to the successful European-market Ford Fiesta

and Focus as well as turbocharged and hybrid drive train offerings. The introduction of the new Ford Flex is emblematic of Ford’s new accelerated development initiative. The Ford Flex is a large crossover-utility vehicle that offers seating for seven and the fuel economy of a much smaller vehicle. Over the next two years, Ford will introduce reduced-displacement turbocharged engines under the EcoBoost brand on most of its vehicles. EcoBoost engines reduce fuel consumption by about 15% but with similar performance to larger engines.

Ford�Motor�Company�–�fi�nancial�performance

YearRevenue�



2005 176,896 3.1 1,440 -58.7

2006 160,065 -9.5 -12,613 N/C

2007 172,455 7.7 -2,723 -78.4

2008 146,277 -15.2 -14,672 438.8

2009 118,308 -19.1 2,717 N/C

2010* 144,927 22.5 3,581 31.8


Toyota�Motor�Corporation��Market share: 13.4% Industry�Brand�NamesToyota Lexus


Major�Companies

Player�Performance Honda, based in Japan, is one of the largest automakers in the world. In America, the company sells vehicles under the Honda and Acura brand names, and most Acura vehicles are luxury-versions of Honda cars. Honda’s practical and affordable small cars have earned it a loyal US following. Honda’s minivans, CUVs and trucks perform well in a very crowded market, but trucks and larger SUVs account for less than 30% of Honda’s overall sales. Like rival Toyota, Honda focuses on technology development and affordable passenger cars.

During the five years to 2010, Honda was largely overshadowed by its larger rival, Toyota. Honda pursued a much more modest expansion strategy in America, whereas Toyota aggressively reached for higher sales and market share. Honda’s gradual expansion strategy appears to be paying off in 2010, as Toyota suffers major reputation damage related to manufacturing and safety defects.

Honda is known for innovative vehicle platforms and designs that emphasize simplicity and frugality. Honda developed the first commercially available hybrid car: the 2000 Honda Insight. The three-cylinder vehicle was never intended for mass market appeal, unlike the more successful Toyota Prius. In 2005, Honda introduced its first full-size pickup, the unibody Honda Ridgeline; this move was a particularly bold play, because previous unibody-based trucks failed to sell in significant numbers in America. Motor Trend, an automotive enthusiast magazine, gave the Honda Ridgeline its Truck of the Year award in 2006. The truck boasts the best non-hybrid fuel efficiency in its class but has struggled in sales terms since its release despite critical acclaim. The truck’s key weaknesses are its relatively short truck bed and poor off-roading capabilities (due to unibody construction), limiting its appeal to the key contractor customer base.


in the near future. Toyota’s innovation puts it ahead of other automakers refining their hybrid technologies in response. At the same time, Toyota has ground to cover repairing its reputation for quality following its 2010 recall woes. In JD Power’s 2010 initial quality study,

Toyota slipped to a 3/5 rating. Ford scored 4/5, GM scored 3/5, Honda scored 4/5 and Chrysler scored 3/5. In previous studies, Toyota consistently scored a 4/5 initial quality rating but is expected to lose market share while repairing its reputation.

Toyota�Motor�Corporation�–�fi�nancial�performance

YearRevenue�



2005 172,749 5.6 10,907 -0.8

2006 179,083 3.7 11,681 7.1

2007 202,864 13.3 13,927 19.2

2008 262,394 29.3 17,146 23.1

2009 198,545 -24.3 -4,226 N/C

2010* 213,436 7.5 1,216 N/C


Honda�Motor�Co.,�Ltd.��Market share: 8.6% Industry�Brand�NamesHonda Acura


Major�Companies

Honda�Motor�Co.,�Ltd.�–�fi�nancial�performance

Year*Revenue�



2004-05 78,324 3.9 4,402 2.6

2005-06 85,142 8.7 5,130 16.5

2006-07 94,262 10.7 5,036 -1.8

2007-08 116,138 23.2 5,806 15.3

2008-09 105,381 -9.3 1,442 -75.2

2009-10 92,023 -12.7 1,259 -12.7

*Year�end�MarchSOURCE: ANNUAL REPORT AND IBISWORLD

Other�Companies Fiat, the co-owner of Chrysler, became an important player in this industry in mid 2009. Fiat’s partnership with Chrysler will allow it to begin offering Fiat vehicles in the US for the first time in over a decade. Fiat’s practical and small vehicles are very popular in Europe. Fiat vehicles will be introduced in the US between 2010 and 2012.

Nissan has an estimated market share of 4.0%. Nissan offers SUVs, CUVs and trucks under the Nissan and Infiniti brands; Nissan is the smallest of the major three Japanese manufacturers. The future of Nissan’s popular full-size

truck, the Nissan Titan, remains in limbo; the truck was built on the Dodge Ram platform in a partnership with Chrysler which has since been terminated.

Mahindra & Mahindra, an Indian automaker, plans to offer a compact diesel pickup truck in the US sometime in 2010; diesel engines are currently rare in the US light truck market due to stringent emissions standards. Mahindra & Mahindra have partnered with Navistar, a heavy duty truck manufacturer, to develop and distribute its Mahindra Scorpio compact truck.



InvestmentRequirements

Assembly plants are highly automated production lines fitted with high-tech machinery and equipment. Firms in this industry must spend large sums on their plants and equipment, with periodic reinvestment in the case of equipment failure. Industry operators spend $1.60 on labor expenses for every $1 spent on capital. This ratio is skewed toward labor because of the generosity of union compensation agreements. For example, the average wage of employees in this industry including pensions for currently employed workers is $82,000. Foreign-owned manufacturers operating domestically pay their production

�Operating�ConditionsStructural�Risk�Index�� |�� Investment�Requirements�� |�� Technology�&�SystemsIndustry�Volatility�� |�� Regulation�&�Policy�� |�� Industry�Assistance�� |�� Taxation�Issues

IBISWorld has scored key elements of industry structure on a scale of 1 to 9 – the higher the figure, the greater the risks to businesses operating in the industry.

Operating conditions in the Light Truck & Sport Utility Vehicle Manufacturing industry are more risky

than in other industries in the Manufacturing division. The industry structural risk index totals 63.5 points compared to 61.9 points for the Manufacturing division as a whole (100 points equates to extremely poor operating conditions).

Light�Truck�&�Sport�Utility��Vehicle�Manufacturing

Manufacturing

Re

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Barriers to Entry Com

petition Exports

Life Cycle Stage Levels of Assistance Imports


Structural�Risk�Index

Industry�Relax�PointsBarriers�to�EntryExportsLevels�of�Assistance

Industry�Pressure�PointsCompetitionImportsLife�Cycle�StageRevenue�Volatility

61.9Score

Re

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Barriers to Entry Com

petition Exports

Life Cycle Stage Levels of Assistance Imports

63.5Score

Capital intensity

1.0

0.0

0.2

0.4

0.6

0.8

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Light Truck & Sport Utility

Vehicle

ManufacturingEconomy

Level��The level of investment required is High


Operating�Conditions

Technology&�Systems

Modern vehicle design processes make heavy use of computer-assisted design software, allowing an initial concept to be developed in days rather than months. The latest vehicle assembly plants are automated with most labor performed by specially designed robotic arms. In December 2009, General Motors passed an industry milestone by announcing it would begin operating three of its

assembly plants on a 24-hour basis. Traditionally, these factories operate with two eight-hour production shifts and one eight-hour resupply shift. GM plans to adjust its production processes to allow single stages of the assembly line to be re-supplied independently during production.

Automakers are heavily involved in the research and development of vehicle

InvestmentRequirementscontinued

workers roughly half this amount. General Motors and Chrysler began reducing labor expenses after bankruptcy, eliminating liability for pensions to retired employees and reducing starting wages for new employees. Despite months

of negotiations, Ford was left out of this arrangement. In December 2009, Ford issued an open offer of $70,000 for each of its union employees to quit while new employees would earn half the wage of current employees.

Tools�of�the�Trade:�Growth�Strategies�for�Success


Labo

r�Int

ensi

veCapital�Intensive

Change�in�Share�of�the�Economy

New�Age�Economy

Recreation,�Personal�Services,�Health�and�Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional�Service�Economy

Wholesale�and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old�Economy

Agriculture�and�Manufacturing.�Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment�Economy

Information,�Communications,�Mining,�Finance�and�Real�Estate.�To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Car�&�Automobile�Manufacturing

Automobile�Wholesaling

Iron�&�Steel�Manufacturing

Truck�&�Bus�Manufacturing

New�Car�Dealers


Level��The level of Technology Change is High



Regulation�&�Policy Automakers are required to comply with government regulations regarding safety, fuel consumption and pollution control. Federal law requires that a manufacturer recall a vehicle if it finds a defect that “poses an unreasonable risk to safety.” The National Highway Traffic and Safety Administration (NHTSA) compiles complaints from consumers and can prod

a manufacturer to recall a vehicle; this is a rare occurrence today, as automakers are keen to preemptively recall products.

Since 2004, the NHTSA has ranked vehicles for risk of rollovers, using a percent-risk rating system. Light trucks and SUVs with a high center of gravity are the most prone to rollover. Since 2006, automakers have advertised

Revenue�Volatility Retail gasoline prices influence demand for light trucks and SUVs, which rose rapidly from 2004 to 2008. Trucks and SUVs are particularly fuel inefficient, making them relatively expensive to operate when gas prices are high. Increasing concern over global warming has strengthened the public’s aversion to these vehicles.

Despite these conditions, small businesses and sports-oriented consumers provide a basis for truck demand.

A sudden shift in demand can also occur when consumer preferences change. Consumers have been demanding fewer light trucks and SUVs since 2004, though automakers have been reluctant to shift production to small cars because automakers earn higher margins on sales of light trucks and SUVs.

More fuel-efficient trucks and SUVs, including hybrids, will continue to attract consumers though at reduced levels.

Technology&�Systemscontinued

technologies, including electric and fuel-cell vehicles. Spending on research is an important component of an automaker’s long-term business strategy. GM and other automakers are developing

several technologies that could change the industry if they become commercially viable. Cars and trucks are host to an ever-increasing array of electronic gadgets typically designed with a supply firm.


Volatility�vs�Growth

Reve

nue�

vola

tility

*�(%

)�

1000

100

10

1

0.1

Five�year�annualized�revenue�growth�(%)�–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue�Chip

* Axis is in logarithmic scale

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.


Level��The level of Volatility is High

Level�&�Trend��The level of Regulation is Medium and the trend is Increasing



Regulation�&�Policycontinued

vehicle safety ratings with stickers on new vehicles. All vehicle window stickers display the star ratings awarded by the NHTSA for frontal, side and rollover crash-safety test ratings.

Chicken taxA 1963 law imposes a 25% tax on imported light trucks. The law was originally intended as retaliation to a European tax on American chicken imports, though the law has not been repealed since. The North American Free Trade Agreement (NAFTA) created exemptions for Canada and Mexico, but complete trucks manufactured elsewhere are still subject to the tax. Manufacturers circumvent the tax by importing vehicles in nearly-complete kits, known as complete knock downs (CKDs). These kits are shipped to US assembly facilities where workers reassemble the vehicle.

EmissionsThe Environmental Protection Agency (EPA) sets regulatory standards for vehicle emissions of nitric oxide, particulate matter and carbon monoxide. A 2007 US Supreme Court ruling granted the EPA authority to regulate “green house gases,” principally carbon dioxide. The EPA is expected to unveil such regulations in 2010. Regulatory schemes are complicated by activity from California’s Air Resources Board (CARB), which frequently issues regulations even stricter than those from the EPA. This

additional set of standards can make it prohibitively expensive for automakers to sell non-compliant vehicles in California.

Fuel efficiencyIn early April 2003, federal regulators approved the first increase in US fuel economy regulations in nine years, requiring vehicle makers to increase the average fuel efficiency of light trucks by 1.5 miles per gallon by 2007. The regulation required light-truck fleets to average 21.0 miles per gallon (mpg) in the 2005 model year, 21.6 mpg in 2006 and 22.5 mpg in 2007. Automakers met most of these modest targets by reducing vehicle weight and offering smaller engine options.

In March 2006, the NHTSA and EPA outlined the new corporate average fuel economy (CAFE) standards to include light trucks. Prior to 2006, CAFE covered cars but not light trucks. In 2008, the CAFE standards were revised: light trucks will have to average 23.5 mpg in 2010 and 28.6 mpg by 2015. In May 2009, the Obama administration proposed changes to the 2007 standards. The President announced that by 2016, rather than the previously stated 2020, an automaker’s fleet of vehicles will have to average 35.5 mpg. This allows for automakers to have individual vehicles that get above or below the set mileage as long as their entire fleet has an average of 35.5 mpg. These new standards also meet goals set by CARB, simplifying the regulatory regime.



Taxation�Issues Automakers are net beneficiaries of several tax laws. Current US tax law allows any vehicle that weighs 6,000 pounds or more to qualify as business equipment, permitting greater depreciation in the first year of a purchase, typically a deduction of more than $30,000 instead of less than $12,000 for a car.

Imported trucks have slight tax advantages over US trucks due to the

structure of value-added taxes (VAT) in Japan and the European Union (EU). VAT taxes are a form of sales tax imposed at each level of production and represent a very large share of government revenues in EU countries. The EU and Japan reimburse corporations the value of any VAT on products exported for use abroad, including truck systems. US corporate taxes are based on income and do not provide provisions favoring exports.

Industry�Assistance Light-truck manufacturers are frequent beneficiaries of government assistance. Automakers have a powerful lobbying presence, which often results in policies that favor the industry. In recent years, these policies have centered on research subsidies and the highly publicized bailout of General Motors (GM) and Chrysler. In addition to these high-profile cases, government agencies at all levels are required to purchase vehicles produced by a domestic automaker.

The federal government subsidizes research on alternatively fueled vehicles on an ad hoc basis. In 2004, the Department of Energy (DoE) provided $350 million in assistance to stimulate science and research projects into hydrogen fuel cells, which produce no pollutants or greenhouse gases but are expensive to produce. GM, Chrysler and Ford each participated. In 2009, the DoE gave out $2.4 billion in grants for the development of batteries, parts and programs for electric vehicles. The money has not been completely dispersed, but GM and Chrysler received $100 million and $70 million respectively.

Auto bailoutIn September 2008, the federal government approved a $25 billion loan to US automakers for investment in

alternatively fueled vehicle production including biofuels, electric drives and fuel cells. The majority of this investment will be spent on manufacturing equipment and test vehicles for electric drivetrains on small vehicles. Fully electric light trucks will require additional research and development.

US automakers began lobbying for $25 billion bailout package in November 2008. The initial request was turned down. In December 2008, GM and Chrysler returned with a more detailed proposal to request $34 billion, claiming impending bankruptcy if demands were not met. Congress approved their request while giving oversight of the package to the executive branch’s automotive task force. Despite the infusion of government funds, GM and Chrysler each entered chapter 11 bankruptcy in the first half of 2009, on June 1 and April 30, respectively. Additional details are discussed in the Major Companies section of this report.

Key�tariffsGoods Low�rate High�rate

Import Tariffs 2.5 10.0

SOURCE: USITC

Level�&�Trend��The level of Industry Assistance is Medium and the trend is Increasing

Level��The level of Tax Burden is Low


�Key�StatisticsRevenue�

�($m)

Industry�Value�Added�

($m)Establish-

ments Enterprises EmploymentExports��

($m)Imports��

($m)Wages��($m)

Domestic�Demand

Truck��Production�

(’000)2001 143,911.9 16,538.4 100 72 95,465 8,532.1 55,252.6 7,471.9 190,632.4 8,597.52002 166,669.4 19,736.5 97 69 109,485 9,963.4 58,725.2 9,236.3 215,431.2 8,583.32003 193,120.8 21,679.8 97 69 108,667 11,191.5 61,153.3 9,513.1 243,082.6 8,889.22004 179,143.6 20,920.9 95 68 112,608 10,741.5 65,166.7 9,634.9 233,568.8 9,265.42005 165,365.3 18,742.6 94 68 99,568 12,150.9 63,206.3 8,324.6 216,420.7 9,238.82006 157,267.0 17,634.7 92 67 91,247 14,898.3 63,905.0 7,726.8 206,273.7 8,766.62007 161,610.0 14,943.2 91 67 82,925 17,513.3 61,931.8 7,185.9 206,028.5 8,399.92008 112,817.7 8,376.6 90 65 74,798 17,872.8 50,898.8 6,345.8 145,843.7 6,346.02009 78,863.4 6,309.0 88 63 58,452 13,012.1 37,059.3 4,889.5 102,910.6 4,887.82010 93,582.6 11,036.5 88 62 57,283 13,178.0 36,128.0 5,140.8 116,532.6 5,772.42011 98,823.2 11,904.6 87 60 61,866 N/A N/A 5,678.7 N/A 6,107.22012 101,293.8 12,486.2 85 59 64,959 N/A N/A 6,104.7 N/A 6,394.32013 103,117.0 13,009.3 85 59 67,557 N/A N/A 6,512.9 N/A 6,605.32014 106,004.3 13,493.0 84 58 68,908 N/A N/A 6,814.8 N/A 6,790.22015 108,230.4 13,958.5 84 58 70,287 N/A N/A 7,140 N/A 6,864.9Sector�Rank 8/201 41/201 189/201 191/199 64/201 19/184 9/184 42/199 7/184 N/AEconomy�Rank 77/702 197/702 681/700 673/689 388/702 23/241 12/236 260/696 12/236 N/A

IVA/Revenue��(%)

Imports/Demand��(%)

Exports/Revenue��(%)

Revenue�per�Employee��

($’000)Wages/Revenue��

(%)Employees�

per�Est.Average�Wage��

($)

Share�of�the�Economy��

(%)2001 13.49 28.98 5.93 987.35 5.19 954.65 51,263.81 0.112002 13.84 27.26 5.98 1,029.61 5.54 1,128.71 57,059.87 0.142003 13.23 25.16 5.79 1,254.28 4.93 1,120.28 61,786.01 0.152004 13.68 27.90 6.00 1,187.40 5.38 1,185.35 63,863.14 0.152005 13.33 29.21 7.35 1,323.76 5.03 1,059.23 66,641.89 0.142006 13.21 30.98 9.47 1,464.68 4.91 991.81 71,964.40 0.142007 12.75 30.06 10.84 1,752.39 4.45 911.26 77,918.60 0.142008 13.93 34.90 15.84 1,414.79 5.63 831.09 79,583.25 0.112009 14.50 36.01 16.50 1,301.90 6.20 664.23 80,716.82 0.082010 12.80 31.03 14.10 1,631.60 4.50 650.95 73,422.67 0.092011 12.30 31.03 12.30 1,667.58 4.00 711.10 66,703.74 0.092012 12.10 30.07 12.50 1,610.12 3.80 764.23 61,184.37 0.092013 12.20 28.06 11.10 1,566.02 3.90 794.80 61,075.11 0.092014 12.50 27.54 10.70 1,558.35 4.20 820.34 65,450.18 0.092015 12.70 27.01 10.50 1,544.60 4.40 836.75 67,962.68 0.09Sector�Rank 199/201 64/184 91/184 5/201 191/199 1/201 12/199 41/201Economy�Rank 660/702 75/236 115/241 23/702 663/696 6/700 72/696 197/702

Figures are inflation-adjusted 2010 dollars. Rank refers to 2010 data.

Revenue��(%)

Industry�Value�Added��

(%)

Establish-ments��

(%)Enterprises�

(%)Employment��

(%)Exports��

(%)Imports��

(%)Wages��

(%)

Domestic�Demand��

(%)

Truck�produc-tion��(%)

2002 15.8 19.3 -3.0 -4.2 14.7 16.8 6.3 23.6 13.0 -0.22003 15.9 9.8 0.0 0.0 -0.7 12.3 4.1 3.0 12.8 3.62004 -7.2 -3.5 -2.1 -1.4 3.6 -4.0 6.6 1.3 -3.9 4.22005 -7.7 -10.4 -1.1 0.0 -11.6 13.1 -3.0 -13.6 -7.3 -0.32006 -4.9 -5.9 -2.1 -1.5 -8.4 22.6 1.1 -7.2 -4.7 -5.12007 2.8 -15.3 -1.1 0.0 -9.1 17.6 -3.1 -7.0 -0.1 -4.22008 -30.2 -43.9 -1.1 -3.0 -9.8 2.1 -17.8 -11.7 -29.2 -24.52009 -30.1 -24.7 -2.2 -3.1 -21.9 -27.2 -27.2 -22.9 -29.4 -23.02010 18.7 74.9 0.0 -1.6 -2.0 1.3 -2.5 5.1 13.2 18.12011 5.6 7.9 -1.1 -3.2 8.0 N/A N/A 10.5 N/A 5.82012 2.5 4.9 -2.3 -1.7 5.0 N/A N/A 7.5 N/A 4.72013 1.8 4.2 0.0 0.0 4.0 N/A N/A 6.7 N/A 3.32014 2.8 3.7 -1.2 -1.7 2.0 N/A N/A 4.6 N/A 2.8

2015 2.1 3.4 0.0 0.0 2.0 N/A N/A 4.8 N/A 1.1Sector�Rank 4/201 30/201 57/201 125/199 147/201 69/184 108/184 197/199 12/184 N/AEconomy�Rank 16/701 83/702 254/700 476/689 551/702 84/241 135/236 690/696 15/236 N/A

Annual�Change

Key�Ratios

Industry�Data



Key�Statistics

HistoricalPerformance

Sport-utility vehicles (SUVs) and pick-up trucks were originally descended from commercial and military vehicles such as the Jeep and Land Rover. SUVs have been popular for many years with rural buyers due to their off-road capabilities. In the last 25 years and even more in the last decade, SUVs have become popular with urban buyers. More modern SUVs often come with more luxury features and some crossover SUVs have adopted lower ride heights and use unibody construction to better accommodate their use for on-road driving.

Historically the Big Three and foreign-based manufacturers formed joint ventures and alliances as a way for foreign-based producers to gain access to the North American market and for the domestic producers to fill gaps in the vehicle lines. Truck and SUV sales rose in the 1990s due to changeover of buyer preferences from cars to light-duty trucks. The popularity of vans, pickups and especially sport utilities boosted light-duty truck sales in the mid- to late-1990s. The rise in demand was also fuelled by greater affordability and the attraction of products from the light-truck segment.

Higher production volumes and the introduction of a slew of new models led to an increasing number of recalls for safety defects. At the end of March 2001, automakers announced three major recalls. General Motors recalled 1.4 million light trucks and sport-utility vehicles for brake problems. Ford Motor Company recalled 300,000 Ford

Contours and Mercury Mystiques for overheating engines that could catch fire, and 961,000 Mitsubishi Galants and Eclipses, Chrysler Sebrings, Dodge Avengers and Eagle Talons built at Mitsubishi’s plant, were recalled for potentially defective ball joints.

The events of September 11, 2001, had a detrimental effect on the industry. On the supply side, parts shortages across the country forced some vehicle makers to slow down factories and scale back production. Suspended airfreight shipments and more stringent controls at the nation’s borders hampered the transport of parts and materials to manufacturers. An economy close to recession suffered another blow to consumer confidence following the terrorist attack. Motor vehicle sales declined severely in the month of September. This prompted the Big Three manufactures to offer zero-interest financing deals on new trucks in an attempt to protect market share. This reduced the profitability of the Big Three in the short run.

The early 2000s also saw growing interest in alternative fuel and hybrid trucks and SUVs. General Motors reported late in November 2001 that Monsanto Corporation placed the first 50 orders for its new Chevrolet Silverado full-size pickup trucks that run on a blend of ethanol and petrol. General Motors began offering the so-called “flex-fuel” option on the 1500 series Chevrolet Silverado and GMC Sierra full-size pickup trucks with the 5300 Vortec engine in the first quarter 2002.


Jargon�&�Glossary

BARRIERS�TO�ENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.

CAPITAL/LABOR�INTENSITY An indicator of how much capital is used in production as opposed to labor. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3 – $8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.

DOMESTIC�DEMAND The use of goods and services within the US; the sum of imports and domestic production minus exports.

EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.

ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.

ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.

EXPORTS The total sales and transfers of goods produced by an industry that are exported.

IMPORTS The value of goods and services imported with the amount payable to non-residents.

INDUSTRY�CONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.

INDUSTRY�REVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY�VALUE�ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).

INTERNATIONAL�TRADE The level is determined by: Exports/Revenue: Low is 0 –5%; Medium is 5 –20%; High is over 20%. Imports/Domestic Demand: Low is 0 –5%; Medium is 5 –35%; and High is over 35%.

LIFE�CYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.

NON-EMPLOYING�ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.

VOLATILITY The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees of the establishment.

Industry�Jargon

IBISWorld�Glossary

CORPORATE�AVERAGE�FUEL�ECONOMY�(CAFE)� A regulation intended to improve the average fuel economy of cars and light trucks.

CROSSOVER�UTILITY�VEHICLE�(CUV)� A midsize vehicle that combines features of a car and an SUV. They are generally smaller and more fuel efficient than SUVs.

DOMESTIC�INTERNATIONALS The Japan-based automakers Toyota, Nissan and Honda, but it also refers to Japanese-based automakers operating in the United States (e.g. Mitsubishi).

FLEX-FUEL�VEHICLE A vehicle that runs on E85 fuel, which is 85% ethanol and 15% gasoline.

FUEL�CELL An energy source that operates like a battery but does not require recharging; oxygen passes over one electrode and hydrogen over a second, generating electricity, water and heat.

HYBRID�VEHICLE A vehicle that uses more than one power source, commonly in reference to hybrid-electric vehicles that combine an internal combustion engine and one or more electric motors.

MILES�PER�GALLON�(MPG)� A measure used to indicate fuel efficiency.

SPORT�UTILITY�VEHICLE�(SUV)� A midsize vehicle similar to a station wagon, but that is built on a light-truck chassis.

THE�BIG�THREE An industry term for the three major domestic automakers, which are General Motors, Ford and Chrysler.

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