Frequent Styling Changes Increase Market Share, Study Says

(MoneyWatch)  Earlier today, I reported on a CNW Market Research study claiming that today's auto buyers are fickle, with only 20 percent choosing to stick with the brand they'd most recently bought. But now a Virginia Commonwealth University study says that the most important reason consumers switch brands is a failure to freshen up styling.

This phenomenon favors Japanese companies, says George Hoffer, a VCU economics professor and frequent auto industry consultant. Hoffer said that American models tend to go two years without a cosmetic update, compared to just one year for Japanese cars. VCU's analysis indicates that a "restyling bump" carries an uptick in sales into the second year without a change, but "there's no impact at all by the third year."

According to Oleg Korenok, also a VCU economics professor, other value-added changes--such as a price reduction--have less impact. "A 10 percent reduction in relative price would yield only one-tenth the market share impact of a restyling," he said. The study also corrected for other variables, such as changes in warranty, name changes and variations in standard equipment.

Consumer Reports surveys show, however, that styling is not as important a factor as it used to be, said Jeff S. Bartlett, deputy online auto editor at CU. "Years ago, styling was paramount, but now we're seeing more pragmatic factors such as fuel economy and safety," he said. "Of course, nobody wants an ugly car."

Consumer Reports takes some issue with the VCU study's conclusion that its quality ratings "have little impact on market share growth." According to Bartlett, "It's not our mission to impact sales through our reliability surveys. We hope they inform consumers and draw them to better-built vehicles, and that they inspire automakers to build higher quality into their cars and trucks."

According to Bartlett, Big Three automakers pay close attention to CU's quality ratings, even assigning staffers to closely monitor them. The VCU study says that when a CU rating increases a single percentage point, it is followed by a .07 percent increase in market share growth the following model year.

Domestic manufacturers have presided over a U.S. market share drop from 72.9 percent in 1996 to just 47.4 percent last year. Americans who recall the dramatic model changes from Detroit in the 1950s (a '57 Chevy looked nothing like a '58 or '59) will realize that the industry has neglected the positive impact of new styling in recent years.

"The introduction of new product in a timely manner is a crucial component of maintaining competitive advantage," the report says. "We hypothesize that a styling change has a positive impact on demand and that the size of the impact increases with the extent of the styling change."

The Japanese advantage in frequent styling changes "explains the decline in market share," Hoffer said. He added, "The Japanese are doing to the Big Three what the Big Three did to the independents all through the 1950s." In those years, small companies such as Packard and Studebaker couldn't keep up with Detroit's rapid-fire styling updates.

VCU's analysis also says that name changes are a factor in market share. According to Hoffer, American cars are renamed too often (the Ford Taurus-to-Five-Hundred debacle is a good example of that) and it is a net negative for them. "When Buick replaced the LeSabre with the Lucerne," he said, they not only had to explain the new model's attributes, but explain its identity. What was a Lucerne?"