Ford moved a little over 5,600 more vehicles than GM in March, stoking speculation that -- as the Japanese struggle to deal with supply chain disruptions after the 9.0 earthquake and subsequent tsunami and nuclear crisis -- the tarnished and tattered Detroit Big Three have come roaring back in 2010 as the Big Two.
Looks like a historic opportunity for both Ford and GM
GM and Ford are back, baby. And current business conditions couldn't be more tempting for a price war, which would be played out in terms of incentive deals offered to buyers of new cars and trucks. Let's break it down:
- The Japanese are running out of parts to supply U.S. plants and are bleeding market share like a surfer just gnawed by a Great White
- The U.S. auto market is poised for a massive recovery, rocketing from a 2009 low of 10 million vehicles sold to something like 13-14 million by 2012
- GM has shed a huge amount of debt and streamlined its brand portfolio
- Ford has place a large bet on fuel-efficient smaller cars and engines that will be perfect if gas prices spike this summer
- GM and Ford are respectively number one and number two in U.S. market share -- Ford just passed Toyota (TM) and is putting distance between itself and Honda
The Big Two are never going to get a better chance to gobble U.S. market share. As the true impact of the supply chain crisis on the Japanese carmakers becomes apparent, GM and Ford are going to start thinking about how they can grab 40-50 percent of the domestic market. For Ford, anxiety will derive from whether it can really find the cojones to match GM incentive-for-incentive. This could very well mean putting off retiring debt.
GM won't have any qualms about entering an incentives arms race with Ford. If Ford ups the ante at some point, GM will just go all-in. Nobody outdoes GM at the incentives game. The question is how long you intend to hang with the General. But it's not like GM doesn't have its own issues to deal with. For example, the large sums of money it will have to spend to get to a 25 percent U.S. market share will suck resources from regions of much greater potential growth in the developing world.
Will the Japanese give up?
The more share the Japanese lose in the U.S., the more they'll have to spend to get it back. The real problem for them is that, even once they resolve their supply challenges, they'll no longer be facing a forever restructuring GM, a Ford that used to be a pickup-truck and Mustang company and not much else, and a Chrysler that's returned from a near-death experience with a dynamic CEO -- Fiat's Sergio Marchionne -- at the helm.
The U.S. market will now be even more ferociously competitive than it was before. I don't expect a GM-Ford price war to last very long -- maybe just a few months, perhaps through the summer -- but the effect will potentially be everyone else scrapping for, at best, 60 percent of the market and, at worst, less than half. The Japanese will have no choice but to compete because they've invested so heavily in U.S. capacity (Toyota alone operates 13 plants).
A price war may not, under most circumstances, be a good idea. But if one breaks out this year, it could transform the U.S. market for a decade.