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Fitch Report: The State of the U.S. Auto Industry, Part I

CHICAGO--Aug. 9, 2004--The ability to quickly turn over products to meet ever-changing consumer needs will no longer be a competitive advantage, but a necessity for the U.S. auto industry, according to Fitch Ratings. The once acceptable standard of six-eight years for product development cycles is no longer sufficient, with product cycles for new vehicles likely to be fewer than six years and perhaps as low as four.

Shorter, faster product lifecycles do allow automakers to regenerate interest in struggling products and take advantage of new automotive trends. However, there is also less time for automakers to recover capital investments and marketing costs. The report finds that the industry may reach a point where automakers begin working on a product refresh just as they launch the latest version.

Effective product turnover will not be the only driver for success. Rapid integration leading technologies has increasingly been a vehicle differentiator over the last five years and this trend will likely continue. Fitch believes that the successful auto companies will be those that can integrate the latest technologies in an appealing package -- in addition to providing efficient, high-quality vehicles for a wide variety of consumer tastes.

"In the long-term, it will come down to which auto companies can update their vehicle offerings quickly and get the update right from the consumer perspective," says Chris Struve, a Director in Fitch's Automotive Team. "Auto companies will have to be flexible in their approach to design, manufacturing and engineering capacity."

The findings are part of the first report in a series by Fitch analyzing the present state of the U.S. automotive industry, with a specific focus on the "Big Three" domestic auto companies. The report analyses of the relative strengths and weaknesses of Ford, General Motors and Chrysler's brand portfolios, with specific examples of each company's successes and failures.

Fitch also believes that brand differentiation, in the wake of mass customization of vehicles, will be another important component in maintaining competitive. This will be especially true for General Motors given its complex and potentially overlapping brand portfolio.

The full report, "The State of the U.S. Automotive Industry: Part 1 -- The Product," can be found on the Fitch Ratings web site at "www.fitchratings.com." The second part of the series will focus on manufacturing trends, and will be published in Q3'04.