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Dead End: The Middle of the Road Has Nowhere To Go - The Big Picture

Motor Trend logo Motor Trend 12/22/2014 Angus MacKenzie
2015 Ford F 150 vs Ram 1500 vs Chevrolet Silverado© Provided by MotorTrend 2015 Ford F 150 vs Ram 1500 vs Chevrolet Silverado

They used to be called the Big Three because, well, they were the three biggest auto companies in the world. Sleek, gleaming, confident, General Motors, Ford, and Chrysler swaggered through a good portion of the 20th century enjoying sales dominance in major auto markets around the world. The Big Three: It had been the natural order of things since the 1920s.

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Fast-forward to 2013. GM finishes the global sales race in the second spot behind Toyota, and just squeaks ahead of Volkswagen AG, companies whose home countries were smoking ruins in 1945. Ford is in fifth place, its global sales tally behind that of Hyundai, a company it helped get into the auto business in 1968 by licensing it the rights to build the Cortina sedan. And Chrysler is now part of an Italian-American combine called Fiat Chrysler Automobiles, headquartered in London, that is only the world's seventh-largest automaker, sandwiched tightly between Nissan and Honda.

The world changed.

The meteoric rise of the Japanese and Korean automakers to global competitiveness is part of the story. So, too, is the explosive growth of markets such as China and India and Brazil and Russia, from which tens of millions of new car buyers have emerged in the past two decades. But there's something else: Market segments that Chevy, Ford, and Dodge used to own, that used to be the engine room of the Big Three's prosperity, are increasingly being run off the road.

Dead End: The Middle of the Road Has Nowhere To Go - The Big Picture

The Chevy, Ford, and Dodge (including Ram truck) brands are all selling between 14- and 26-percent fewer vehicles today in the United States than they did 10 years ago. It's worse in Europe, where Ford and GM brand vehicle sales are 27- and 43-percent down, respectively, on where they were a decade ago, while Fiat (effectively the Dodge brand's proxy over there) is down 32 percent. True, the European market is soft at the moment as the Eurozone once again threatens to stumble into recession, and car buyers stay away from showrooms, but the gasping canary in the coal mine over there is real. French automakers PSA and Renault, both of which also rely on middle-of-the-road brands, have also suffered significant drops in sales over the past decade. Only Volkswagen appears to have bucked the trend.

The winners? Companies offering products that are competitive with traditional mainstream brands at lower prices, for one. Hyundai sales have increased 73 percent in the U.S. and 40 percent in Europe over the past decade. Kia sales have more than doubled in both markets over the same period. Dacia, a Communist-era Romanian brand acquired by Renault and reinvented as a lower-price alternative to the company's regular lineup, sold fewer than 1,000 vehicles in Europe in 2004. In 2014 it sold more than 350,000.

While premium brands currently account for 10 to 12 percent of global sales, they deliver 50 percent of the global industry’s profits.

Infiniti Q60 Concept Teaser© Provided by MotorTrend Infiniti Q60 Concept Teaser

But the other significant market shift is the move toward premium brands. While Chevy and Ford sales have slumped over the past decade, Mercedes-Benz, BMW, and Audi have all experienced growth. All three have expanded their lineups into segments once dominated by mainstream brands, and they're stealing sales in the process—for example, more than 70 percent of U.S. buyers of the new Audi A3 sedan and the Mercedes-Benz CLA sedan have never owned a premium brand vehicle before.

While premium brands currently account for 10 to 12 percent of global sales, they deliver 50 percent of the global industry's profits. Those numbers are why GM is spending big on Cadillac, why Toyota scion Akio Toyoda is taking a personal interest in Lexus, why Carlos Ghosn is racing to reinvent Infiniti, why Chinese automaker Geely bought Volvo, and why Fiat Chrysler Automobiles boss Sergio Marchionne wants to expand the Maserati and Alfa Romeo lineups as fast as possible.

And it's why Alan Mulally's "One Ford" strategy is now beginning to look like a major strategic blunder. The middle of the road has nowhere to go.

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