Trying to stimulate demand and return to profitability, Detroit automakers are rushing to get new models into dealerships.
New and redesigned models typically command higher prices, generating larger profit margins. They also tend to sell faster and give buyers a more positive image of a brand.
But developing new vehicles can take several years and cost hundreds of millions of dollars, a process that adds more costs at a time when all three Detroit carmakers have dwindling cash reserves. Yet with so many brands to choose from, and with technology rapidly changing, analysts say that automakers cannot afford to let vehicles go stale.
"The cycle times that were typical and were tolerated in the past are completely uncompetitive today," says Kevin Smith, editorial director of Edmunds.com, a Web site that gives car-buying advice to consumers. "They can quickly be rendered uncompetitive if they aren't constantly refreshing."
Ford said last month that it planned to replace or revamp the models that accounted for up to 90 percent of its sales in North America and other regions by 2012. By 2014, "we'll have gone through one complete cycle and be halfway through the next cycle," Lewis Booth, Ford's chief financial officer, said at an automotive conference.
That is "significantly faster" than Ford's previous rate of revamping its models, he says. Typically, automakers redesign models every four or five years, if not longer.
A Fusion bump
- Ford, which posted its first year-over-year sales increase in nearly two years in July, is already seeing the benefit of having several new models on the market. Sales of the Ford Fusion have risen 27 percent from 2008 levels since a redesigned version went on sale in the spring, compared with a 24 percent decline for the highly competitive midsize car segment overall.
"Cars are a lot like doughnuts," Booth told reporters. "The ones you want to buy are the fresh ones, and they don't get any fresher on the dealer lots. We're going to have fresh products."
General Motors and Chrysler, under the oversight of the Treasury Department as they work toward being able to pay back $65 billion in government loans, also are moving to reduce the time it takes to develop new vehicles.
GM's new board, which met last month for the first time, directed executives to bring some vehicles to market faster, but it did not say which models would be pushed forward.
Chrysler has not made any specific product announcements, but Ron Bloom, the head of President Obama's automotive task force, told reporters at the conference that Chrysler's development cycles would shrink.
"I think you will see Chrysler moving very, very quickly," Bloom said. "They will be fast; they will be nimble in the market."
Stocking dealerships with newly introduced cars and trucks will be particularly important as the auto industry starts to recover from its slump, says Rebecca Lindland, an analyst with the research firm IHS Global Insight.
"They've got to be able to respond in 2010 as the market starts to come back, and people will start to gravitate toward new models," Lindland says. "There is excitement created by having a fresh, new showroom."