'Car Wars:' A peek into the automotive future
http://tinyurl.com/ljq3xx

Car Wars, 1.4MB .pdf download:
http://www.autonews.com/assets/PDF/CA66116716.PDF

A new Merrill Lynch report sees big gains for Hyundai and Ford;
slowdowns at GM, Chrysler.
By Alex Taylor III, senior editor
Last Updated: July 27, 2009: 2:26 PM ET

NEW YORK (Fortune) -- Most forecasts of future performance in the auto
industry tend to be variations of tea-leaf reading. Analysts take a look
at what companies are planning in the way of future models, make a guess
about sales volumes, and lay that over a macroeconomic outlook. The
results are compromised by too many hard-to-quantify variables.

However, one study, Merrill Lynch's "Car Wars," which has been produced
annually for a decade, has proved remarkably accurate in forecasting
future trends.

Its premise is a simple one: The percentage of a manufacturer's sales
volume to be replaced with new models drives market share,
profitability, and stock price. In other words, new models equal
success. Manufacturers with the youngest showroom age relative to the
industry will perform the best.

The results have been consistent. For at least ten years, General
Motors, Ford (F, Fortune 500), and Chrysler have been slower to renew
their fleet, and they have lost the most share. Japanese and Korean
manufacturers have more rapidly turned over their fleets and gained the
most share.

The latest edition of Car Wars that looks at new models due in 2010
through 2013 tells a similar story -- with one glaring exception. Once
again, the Asians are at the head of the pack. Hyundai and Kia lead in
new model replacement, with Honda in third place, Toyota (TM) in fourth,
and Nissan ranked fifth.

The big surprise is the company in second place: Ford. It gained
three-tenths of a point of market share in the first half of 2009 to
16.1%, and Merrill Lynch expects it to build on those gains because of a
burst of new models.

Ford is adding the small Fiesta, along with the Focus, to its lineup in
2010 and a new crossover known as the C-Max in the 2012 model year. A
long-overdue replacement for the Ford Ranger small pickup is also coming
in 2012.

The news isn't so good at GM and Chrysler. GM's lagging rate of model
renewal means that market share losses "are likely to be greater than
expected and more severe" this year and next, according to Merrill
Lynch. It believes that GM's 18%-19% market share target is too
optimistic, and that a more realistic range is 15% to 16%.

Despite GM's burst of new models like the Cruze and the Volt, it is
replacing only 9% of its volume in the 2010 model year and 12% in 2011.
The Koreans, by comparison, are replacing 15% of their volume next year
and a stunning 44% in 2011.

If GM looks like it's lagging, then Chrysler's condition looks perilous.
It is replacing only 5% of its volume next year, 9% in 2011, and 3% in
2012. Merrill Lynch calls this "an ominous sign," adding: "This is a
result of a lack of investment by Chrysler's last two owners [Daimler
and Cerberus] and the dubious potential for Fiat products in the U.S.
market."

Merrill's bottom line: "We anticipate that Chrysler will be roughly half
its current size in a few years creating room for other automakers to
gain market share."