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Automotive R&D Spending Down Last Year, Study Shows

The auto industry accounted for nearly one-third of the total $18 billion contraction in research and development spending among all industries in 2009.

Auto industry research-and-development budgets have been battered by the global recession, losing $12 billion last year, according to a new report.

The precipitous drop represents a 14.3% year-over-year decline, slightly outpacing the industry’s 12.7% loss in total revenue in the period, according to the “2010 Global Innovation 1000” study conducted by consulting-firm Booz & Co. Inc.

The report, which ranks the total R&D spending among all industries, includes five auto makers among the top-20 companies: General Motors Co., Ford Motor Co., Toyota Motor Corp., Volkswagen AG and Honda Motor Co. Ltd.

Automotive ranked third behind the computing and electronics and healthcare industries in 2009 R&D spending, the study finds.

Additionally, the auto industry accounted for nearly one-third of the total $18 billion contraction in R&D spending among all industries in 2009.

“Clearly, automotive was one of the hardest hit by the recession,” Barry Jaruzelski, a co-author of the study, tells Ward’s.

“If you look at the data, (auto makers) cut R&D to sustain their business models,” he says. “As a percentage of their total revenue, it’s not just the largest dollar amount cut but also the largest percentage reduction of any industry we followed.”

Toyota, which in 2008 ranked No.1 in global R&D expenditures, slipped to No.4 in 2009 after trimming 19.8% costs from its budget. The pharmaceutical-company Roche Holding AG now holds the top spot.

Among auto makers on the list, Toyota spent $7.8 billion on R&D last year, followed by GM with a $6 billion outlay. VW was next with $5.4 billion. Honda accounted for $5.0 billion and Ford spent $4.9 billion.

Ford, which ranked No.20 on the list, saw the most dramatic drop in spending from 2008 to 2009, cutting 32.9% from its budget. Honda at No.19 trimmed 17.7%, while GM skimmed off 25.0%. VW was the lone auto maker to spend more on R&D in 2009 than prior-year, posting a 3.6% increase.

As evidenced by Ford’s sales growth, Jaruzelski says expenditure totals don’t necessarily have a significant impact on profits, noting it’s more about how the money is spent rather than the amount of money.

Ward’s data shows Ford, which slashed its R&D budget to the greatest degree, saw sales tumble 14.7% in 2009, while VW, which increased its spending, suffered a 20.2% decline.

Jaruzelski says there also is no direct correlation between profitability and R&D spending, noting Apple Inc. ranked 81st in R&D expenditures among computing and electronic companies, but still is one of the segment leaders.

“As long as you’re not in the bottom 10% of your competitor set (in spending) it won’t hurt your business,” he says.

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