Markethaus Musings

(graph courtesy of Daily Game Plan News)

Something has been bothering me. Standard formula for fixing market share in the Domestic Car Business (ok, I over-generalize and I will try to keep this short...but stick with me, it's worth it). Also, I ask for your indulgence as I deliver some of this with tongue firmly planted in cheek:

1. Call multi-disciplinary meeting involving marketing, sales, product
2. Discuss why vehicle isn't meeting plan volumes
3. Whine about lack of "budget" - note to domestic car companies -- You're outspending the retail market share leaders.
   
4. Solution set involves mix of the following cake mix ingredients:
• Consumer Incentives...lower price
• Dealer/Sales person incentives...that's invested in more newspaper and local marketing dollars and balloons at the dealership to create a sales frenzy
  
• Change product mix (make more cheap ones in the colors and options that sell)
  
• Switch advertising...instead of showing car lovingly navigating down a wet road, surrounded by lush vegetation, advertise the deal (see Chevy, "An American Revolution")
• Convince Dealer Associations to run the same deal as national so that the mass media consciousness is wall-papered with the same message over and over and over and over and over and over and over...until the shopper is literally, verbally bludgeoned. The problem? So far...this tactic has lost the domestic car industry 20% marketshare since the 90's.
  
• Whine about lack of budget
  

So, you say...what's wrong with this picture? Instead of pursuing the same tired formula I'd recommend a different approach:

1. Talk to those who bought your car and find out why they bought it/liked it...and still like it
2. Find out what they didn't like...and fix that. And when it's fixed, tell your owners...as well as anyone else that is in market.
   
3. Find out why your owners bought your car instead of your competition
4. Talk about that directly to both your owners and competitive owners...and focus on 2 segments:
• In-market shoppers...waste not one single penny on mass media until every in-market shopper has been exhausted. Only 10-15% of all US households will actually buy a new car in the next 12 months. So...why are you talking to all households with 90% of your budget? Trust me...they hardly remember your message now...much less in 1 year, 2 year or 3 years...when they actually enter the shopping phase.
• Opinon leaders...those whom we trust to advise us in our purchase decision.
  
5. The best way to reach in-market consumers is with internet leads...talk to them! They are shopping now! You can call them personally and learn about their shopping process. You'll be really surprised by what they tell us. If you're not sure what to do...call me.
   
6. The best way to reach opinion leaders is via P.R. Involve opinion leaders early in the product development and launch of a car/truck. Listen to them. Follow their advice. Forget advertising. The best ads reflect trends...they rarely create them.
7. Finally...in the car business...if the product is 90% of the story...that still leaves 10% for the smart marketer...the marketer who knows how to market more effectively and help dealer and salespeople to be more successful. Because car companies don't sell cars. Dealers do.
   

GM/Camaro

I'm glad GM decided to show the Camaro, but let me quote two Union guys, both of whom had Camaros at some point in their misspent youth:

"What is that thing? It doesn't look as good as any of the four classics (we were standing in front of the roped off classics)"

"Why didn't they just take the 69 and put a new engine in it, better brakes and build that? The Challenger that Dodge did is much better. It looks like a modern version of the original. It looks awesome. And it's got that Hemi."

Ok...so, that's a bit harsh. Many liked the Camaro. Most Camaro club enthusiast were begging for the car to be built. Obviously...you can't just copy the old design...can you? While I heard some 'wows' I heard a fair amount of criticism from the journalistic throng as well. I didn't hear that about the Challenger, or for that matter, the new Mustang. My visceral reaction is the same. I preferred an "update" to one of the Camaro classics. The new Camaro seems surreal...but then, I'm not likely to ever buy one, so I defer to...the two union guys who were genuinely disappointed. Further, it is a concept vehicle. Concepts should stretch, even if they go too far; that's why we call them concepts. On the other hand, the Challenger looks like a ready-to-go production car.

What is meant by an update that's faithful to the original? My analogy is how faithful Porsche has been to the 911. Same goes for the basic Jeep. Yes, significant changes...but the silhouette and styling cues are unmistakeable. Why, oh why...do some insist in ruining a good thing for the sake of, "change?" Probably, the desire to leave an "imprint" as a designer or marketing guy. I'd suggest that the only change that is needed is continuous improvement of the mechanicals (engine, transmission, handling, safety, features). If the shape is right...the shape is right.

I hope Chevrolet builds the Camaro again (and Pontiac brings back the Firebird). The heritage requires it. GM needs them to revitalize their engineering and design community. Heck, they need it to revitalize sales! At one point, Chevrolet sold over 200,000 Camaros (peaking in the late 70s and early 80s). The 69 1st generation Camaro sold 243,085 units. The current rumor is a 2009 model year launch...Dodge and Ford will probably be ready for their next gen of their respective muscle updates when Chevrolet launches. As someone once said build it and they will come...as long as you're faithful to the originals that put those brands on the map. We'll know the General is alive and well when we see that happen.

Just for grins...a photo of the very rare 69 COPO Camaro (courtesy of Camaro Highway). COPO stood for Central Office Production Order and was a means to cleverly circumvent Chevrolet's attempt to limit performance, enabling a few cars to be built with the 427 engine that cranked out 435 or 425 hp.

Hard to argue with 200,000 sales that evoke fond memories.

Toyota

Unlike Chrysler, GM or Ford, Toyota's press conferences are short on tangential entertainment value. I'm going to throw deep here and suggest that this is perfectly in character. Chrysler likes to swing for fences with its product bets and its press conferences reflect the go for broke approach (Eva Longoria and Angie Harmon on stage with former engineers?!); GM and Ford are not afraid to compete with Chrysler's lights, glitz and comedy. But Toyota? Toyota quietly sneaks up with metronomic efficiency. Or to use one of my earlier analogies they are very "Belichik" - like (Patriots football coach - dry as sandpaper...but folks in New England like the results). Every day is spent finding ways to continuously improve with a selfless focus on the team effort. One could accuse them of winning through "boring" efficiency. But for those of us who have had "exciting" cars that lose parts as they drive down the highway...we know why "boring" efficiency, quality and predictability attract such high repurchase loyalty and resale values.

The core of Toyota's middle market sales and quality success is best defined by the Camry. Camry (and Accord) have been the stake in the heart of the domestic car business. Although many domestics benchmark Camry as a target, few bother to actually engineer to beat it. Most see it as a noble goal, but not one worth attaining due to the "negative" short term cost impact. Most appear to see passing Camry as overreaching and prefer instead to target the "wounded" gazelles in the car herd. So, it's not surprising that many domestics saw evidence of Toyota widening its lead with the 2007 Toyota Camry. Continuous improvement touches many different areas, but the most symbolic enhancement is the addition of hybrid drive in the mainstream, market leading sedan. Per Robert Farago, The Truth About Cars, I did check to make sure that there was a battery behind the rear seats. Note photographic evidence.

I waxed poetically to several others willing to listen about the good old days when Ford, GM and Chrysler built hybrids as part of a Government contract in the 90's before the research dollars moved into more profitable ventures -- building full size SUVs (while the Japanese quietly picked up the hybrid flag). Now, Camry sports not just class leading power, refinement and fuel efficiency with its line of engines but enters the avant-garde hybrid elite with Toyota's Hybrid Synergy Drive. One auto exec. was purported to comment that if the Nissan designers ever went to Toyota, game over. One man's view of the 2007 Camry -- It's still boring...but its customers wouldn't have it any other way.

Jeep

We could argue, as I have, that some brands have lost their way. Jeep is not one of those. Although Hummer may have stolen some of the "General Purpose Government Vehicle" halo from Jeep, Chrysler execs and its designers have done their best to be faithful to the Jeep brand essence.

Jeep has done a lot with very little product the last few years. No, I don't mean bad product. I mean few products. Where some brands crawl into every segment available, Jeep has focused - until now. With the recent launch of the Commander Jeep finally did what we'd been hoping for...offer a full sized utility.

Now, the line up grows further with the addition of the 2007 Jeep Compass. To be sure, the Compass is a bit of a departure for the Jeep brand. I'm certain that the Compass was cause for some consternation in Auburn Hills. Why? Not because of styling - The Compass is more of a - gasp - car (anyone hear CUV?). It is designed more for the urban customer. It is a risky move...I am not a big fan of "departure" vehicles because they tend to cause a loss of focus on the core essence that makes the Brand great. Brand histories are replete with brand tangents into "extensions" that initially succeed but later fail, often spectacularly. The good news is that the Jeep Compass appears to retain some core Jeep strengths including AWD capability and an updated CVT.

Almost as if to counter balance the new Compass, Jeep also introduced the new 2007 Jeep Wrangler...the real throwback, trail-rated Jeep - by driving it through a plate glass window at the Show.

Improvements for 2007 include more interior space, a new 4-wheel ABS system and more grunt with the new 205 horsepower 3.8 liter V6. Jeep also improved frame stiffness by 100% and re-worked the suspension to improve handling on and off-road.

P.S. Don't try this at home.

As I mentioned yesterday, don't expect exhaustive coverage...my focus is commentary on the overall show and on products where I think I can add some value or knowledge. For "exhaustive" coverage I direct you to MSN Auto, they are providing "bumper to bumper" coverage.

Lincoln

Lincoln once consistently gave Cadillac a run for its money in the luxury segment - some of us remember an apology from Cadillac to Lincoln for manipulating year-end sales figures to keep their sales crown in 1998. Those were the "good old days." DeVilles and Town Cars were the quintessential expression of American luxury and Lexus, Acura and Infinity were just finding their legs. Fast Forward past 15 years of European and Japanese product introductions and Lincoln has become almost irrelevant in the core luxury volume market. I can remember Ford finance execs explaining that the Town Car contributed a signficant percentage of the company's total profit in those days. Today, the biggest question facing the Lincoln brand is this: How do you recapture the brand's unique American character and express it with product excellence?

One answer suggested by Lincoln is to enter the rapidly growing CUV segment with the 2007 Lincoln MKX (Mark X). Strategically, Lincoln seems to be saying that they prefer to outflank the competition rather than attempting a frontal assault at the core entry and mid-luxury entries offered by the competition.

"People's attitudes are shifting," said Peter Horbury, exec. director North American Design. "This is an opportunity for Lincoln to reclaim its rightful place in the American luxury market."

Let's hope so. The 5 passenger Lincoln MKX seems to have the right accoutrements; 3.5 liter engine with 6 speed transmission, the Vista roof (also seen in the Ford Edge CUV entry), the largest cargo area in its class and the usual power and safety features expected in a proper luxury entry. The ultimate question will be answered soon. Vehicle Dynamics and quality must be competitive or the MKX will have the rapid rise and fall of the unfortunate LS. Large cargo areas don't win customer favor. In the ad business we learned the hard way that better rear seat legroom didn't help the Tempo and Taurus compete with the Accord (really...we had that on the comparison charts). And it won't be a deciding factor between a Lexus and a Lincoln.

If I had a vote, I'd vote for Lincoln to develop and produce mid-size and large entry luxury sedans that make Americans want to buy domestic again. To me, the CUV is simply a more sensible version of the SUV. 98% of Americans NEVER go off road anyway. The CUV simply moves the balance of execution in the direction of sedan refinement and away from SUV crudeness. If you squint, every CUV looks like an SUV without the OWL tires.

Hybrids are in. For those that have read previous blog entries, you know that I once worked on Hybrid and Electric vehicles and have watched the domestic lose its technology edge in “eco-friendly” technologies with dismay. Only ten years ago, the domestics led in battery technology (anyone remember the USABC – US Advanced Battery Consortium)? So, I was glad to see GM announce its own hybrids for production, the 2007 Saturn Vue Greenline Hybrid and 2008 Chevrolet Tahoe Two-Mode Hybrid.

The 2008 Chevrolet Tahoe Two-Mode Hybrid improves fuel economy by 25% and will be sold along with its brother, the GMC Yukon

The 2007 Saturn Vue Green Line offers an affordable hybrid system (full vehicle price of about $23,000) with an estimated 20% fuel economy improvement.

Mercedes announced Bluetec, an advancement in diesel technology along with the new GL class SUV. Per the press release:

“As a powerful, economical and clean drive system, BLUETEC can significantly help American drivers continue to enjoy large, powerful cars for many years to come – whether you are looking at large sedans, vans, light trucks or SUVs”, Dr. Zetsche explained. “BLUETEC diesel vehicles have the potential to meet the world’s most stringent exhaust emissions standards, including those of all 50 US States.”

As a result of rising fuel prices, more and more car buyers in America are considering the option of a modern diesel vehicle. Proof of this is the success of the current E 320 CDI since its market launch in April 2004. At the same time, Mercedes-Benz in the USA has seen growing demand for a wider range of the brand’s diesel offerings. Mercedes answers this demand by launching the M-Class and R-Class variants with a 320 CDI engine in the fourth quarter of 2006. Other models are set to follow. The DaimlerChrysler plant in Tuscaloosa, Alabama has just what it takes to respond quickly to the new market situation in the USA. The Mercedes plant produces the M-Class, R-Class and GL-Class for all markets around the world – including the economical and clean diesel versions.

I’ve always been a big fan of diesels (my mother drove both a 240D and 300D so, “it’s personal”). Older Diesels produced significant emissions and poor performance. Not anymore.

The new GL class finally enables Mercedes to compete effectively with BMW, Lexus, Infiniti and Cadillac in the large/luxury SUV wars.

Totally out of the reach for most duo-peds is the mouthwatering S65 AMG. I almost don’t want to quote horsepower and price…because, as they say, “if you have to ask…you can’t afford it.”

Steering wheel shifter paddles, 6 liter V12 biturbo, active body control, 612 hp (yes, that is six hundred and twelve) – I had to look twice as well – all good stuff. No, I didn’t ask, “how much.”

As always, Chrysler Group has the most interesting press conferences. At one point, Eva Longoria (Desperate Housewives) wandered across the stage, desperate for something. After things returned to normal, we got to see, once again, why Chrysler is the healthiest of the “domestic” manufacturers and why Eva was, “desperate.” As I said earlier, I am not a big fan of concept cars that never see production because they are, A.) over designed and B.) can’t be manufactured because the design goes too far and C.) have a powertrain that can’t, realistically, go into mass production (e.g. Hydrogen cars, pure electrics, flywheel cars, etc.)

I have no doubt that both the concepts shown by Chrysler Groupwill be in production soon because they have a past history and, more importantly, a current Chrysler Group platform accommodate their production (the 300).

The Dodge Challenger concept continues Chrysler Groups’s back to the future strategy. Shown in a lovely burnt orange, it brings back memories of cruising Woodward Avenue (the main drag strip for those who spent their wayward youth in Detroit). Of course, it has a 425 hp hemi with 0-60 times in about 4.5 seconds and a top speed of 174 mph. Well…so much for the energy crisis. If we’re gonna go, we might as well go in style, right?

Back in the day you knew you’d arrived when the hood of your car came up to your armpit. Well, we’re back in the day now. The Chrysler Imperial concept is all hood…and then some. Like its predecessors in the new Chrysler/Dodge sedan lineage, one is reminded of a Rolls Royce. Or as the press release says,

Like the great Imperials of Chrysler’s storied past, the 2006 Imperial concept vehicle is designed as Chrysler’s flagship, a luxury sedan that is elegant, provocative, aspirational, yet attainable.

For inspiration, the designers looked not only to the classic Imperials of the 1930s and 1950s but also to Chrysler’s long tradition of creative concept cars, from the earlier Chrysler d’Elegance and Falcon to the more recent Chrysler Chronos and Firepower. This rich heritage is expressed in the crisp line that parallels the sill, then arches up over the rear wheel and flows to the rear of the car, signaling that this is a powerful rear-drive automobile.

One also realizes…Chrysler has once again taken the lead in being distinct and continues to extend that philosophy with this latest powerful rear wheel drive saloon. One interesting feature, the doors hinge at the A (front) and C (last) pillar so the doors open similar to French Doors (once known in the auto industry as, “suicide doors”). Oh yes, it’s got a 340 hp hemi. Sensing a theme here?

Why Hyundai, you ask? Hyundai (and Kia, for that matter) remind me of where the Japanese were in the 80s. Every time we turn around, the Koreans launch a new vehicle. As I was chatting with John McElroy, of Autoline Detroit and American Driver fame, he reminded me that they recently invested in a Michigan design/engineering center (190,000 square feet) and plan to hire a thousand engineers. I wouldn’t be surprised if a fair number of Ford and GM engineers make their way across town to Hyundai. And now, they are launching the first vehicle conceived and built in a US plant, the new 2007 Hyundai Santa FE SUV. Good news for Southeast Michigan Real Estate values.

Ok…but who really wants a Hyundai you ask? 500,000 sales tell us lots of Americans like Hyundais. And 56% owner loyalty (according to US President Bob Cosmai) suggests they are pretty happy with the product and its dealers. Take a look at Marketpoint internet demand and you’ll notice that Hyundai is rapidly becoming a household name in car shopping.

New Audi S6

I was hanging around the Audi display, chatting with Audi PR folks about how the S4 would be my perfect next car, except for the rear seat legroom. They said, “Stick around…you might like what we’re announcing.” I did like. The new S6 (and S6 Avant wagon) fits the bill. More rear seat legroom in a taut AWD package. Performance? A ten cylinder engine in V configuration with 420 hp mated to the 6 speed tiptronic promises to deliver 0-60 in 5.2 seconds.

Perfect for the Michigan winter! The downside? Not available until spring time 2006…meaning it might miss my purchase window. My lease expires beginning of March.

Ford Plays Cobo Arena

No…it wasn’t Van Halen, reuniting for a show at Cobo arena. It was the Ford Motor Company press conference, starring Bill Ford, Jim Padilla, Mark Fields, Carroll Shelby and J. Mays. The theme, Driving American Innovation leaves me cold, frankly.

I won’t dwell on the concepts too much…I’ve never been a big fan of concepts that are futuristic. I’ve always preferred concepts that are grounded in reality…and could be produced in short order…and the Ford Super Chief (based on the Fseries) and Reflex just struck me as vehicles that are not likely to be built anytime soon.

The all new Edge and Shelby GT500 are a different story, however. Let’s start with the Shelby…it’s nice to see this car make it back…and from the specs…Ford has done the right thing. Here are the numbers that matter to fans…5.4 liter, supercharged V8, 475 horsepower, 18x9.5 inch wheels and the familiar racing stripe down the center of the car. Although I don’t believe much in the halo effect of performance cars on sales, I do believe that cars like this make people remember the Ford that used to lead instead of follow (e.g. Taurus, Explorer, Mustang). And THAT is a good thing for the future of Ford Motor Company.

Ford enters the new “CUV” segment, Crossover utility vehicle, with the 2007 Edge.

"Edge underscores the bold, American design direction for all Ford vehicles going forward," says Mark Fields, president, The Americas, Ford Motor Company. "Edge also is packed with Ford innovation – from its panoramic glass roof and laptop-friendly center console to fuel-saving engine and advanced safety features. We expect Edge to make waves in the hot crossover market this year just like the Fusion did for midsize cars last year."

One can see the new signature Ford grille as well as clean lines. In addition to a 250 hp engine, Edge offers a Panorama roof and will be available in AWD.

Ford’s Press materials wouldn’t be complete without charts that show how Ford will be the only “domestic” in the modern/aspirational CUV category. Based on what I see…a very nice execution in styling, powertrain and features for the volume market. If Ford can deliver on quality, a strong step in the right direction.

Day 1 Highlights

My strategy? Walk around the floor and take in the sights and report on developments of interest to me. If you want exhaustive, complete coverage, I highly recommend the official site, MSNAuto.

Honda Sweeps North American Car and Truck of the Year

The show gets off to a start with the announcement that the Civic and Ridgeline win the respective car and truck of the year, the first automaker to sweep in the 13 year history of the award. Last year’s winners were the Chrysler 300/300C and the Ford Escape Hybrid.

The Civic, Honda’s perennial small car champion, has been the entry point in Honda’s successful brand move-up strategy. Get consumers with a first rate, high quality small car and keep moving them up through the company into their other offerings (Accord mid-size, Odyssey Minivan, Honda Pilot SUV, Acura, etc.) The combination of one of the best powertrains in the business plus first class ergonomics and quality were probably they keys to winning the votes of 49 journalists that are in the voting panel. The Civic beat the second placed Ford Fusion by 40 points.

The Ridgeline is Honda’s foray into the pickup market. An unusual execution, it has not sold well, perhaps due to its high base price ($27,000) and unusual styling. The Ridgeline finished ahead of the Nissan Xterra and Ford Explorer.

We recently began publishing predictive statistics showing which new makes and models generate the most price quote requests. And although both Chevrolet and Ford actually outsell Toyota, consumers are most likely to search for a Toyota and submit a pricing inquiry. Ford's share of price quotes has dropped significantly since the summer. Those of you following sales closely, know that Ford Division was in danger of losing its sales lead to Chevrolet for the first time in over a decade...

Internet purchase inquiries are a predictor of future sales. Consumers typically submit a pricing request with a dealer 30-60 days prior to purchasing. Incentives, financing, trade-in allowance "salesmanship" and the "deal" all influence the final purchase, but the pricing request is a strong predictor of market share trends. Shown below are the data from Dec. 1-10...an incomplete month, but a harbinger of things to come...

Toyota / Share	12.00%
Chevrolet / Share	11.60%
Honda / Share	7.20%
Nissan / Share	7.10%
Dodge / Share	7.00%
Ford / Share	6.90%
Jeep / Share	3.40%
Chrysler / Share	3.30%
GMC / Share	3.30%
Kia / Share	3.00%
Lexus / Share	2.60%
Mitsubishi / Share	2.60%
Pontiac / Share	2.60%
Hyundai / Share	2.50%
BMW / Share	2.30%
Cadillac / Share	2.30%
Acura / Share	2.00%
Volkswagen / Share	1.90%
Mercedes / Share	1.70%
Mazda / Share	1.60%
Subaru / Share	1.30%
Audi / Share	1.20%
Infiniti / Share	1.20%
Saturn / Share	1.20%
Buick / Share	1.10%
Hummer / Share	1.10%
Scion / Share	1.10%
Lincoln / Share	1.00%
Mercury / Share	0.60%
MINI / Share	0.60%
Land Rover / Share	0.50%
Porsche / Share	0.50%
Suzuki / Share	0.50%
Jaguar / Share	0.40%
Volvo / Share	0.40%
Saab / Share	0.30%
Isuzu / Share	0.20%

What do the data tell us?

• Raw consumer demand on the internet is highest for Toyota products. Honda and Nissan are also heavy in price quote demand, relative to their actual sales
  
• Ford and Chevrolet sales (as well as their sister brands) appear to be inflated by fleet sales, fleet influenced sales (small business fleets that do not get counted as fleets) and agressive discounting. Ford especially, is suffering from very low demand.
  
• For Ford and Chevrolet to maintain their sales momentum, they must continue to discount retail sales, turn their consumers faster (accelerate purchasing through leasing and early turn-ins) and push fleet sales...or eventually lose their sales leadership to the Toyota brand
• Despite heavier advertising dollars by some domestics, the message isn't translating into lower funnel shopping (interest in purchasing). Without lower funnel shopping...you need incentives.
• Interesting demand fluctuations at the local level. Compare zipcodes in, let's say...Detroit (try 48084) vs. Seattle (98101) and you quickly realize...just like politics...it's all local. The demand differences are shocking. If the domestics want to fix their share problems...it must be done locally. Find your weaknesses...and fix them for a good opponent will surely leverage them against you. Find your strengths...and attack. If you're not sure, read David Halberstam's book on Bill Belichik. "Break down the film." What does Football have to do with car sales you say? Ahh...do not doubt, grasshopper...read. Ok, enough arcane analogies. A hint...domestic quality is close statistically, yet...seen any good ads lately?
  

Want to see more? Take a look at Marketpoint

Let us know what you think! (Note that Marketpoint only works with Internet Explorer...for now)