Automotive Opinion Piece

Lorne McMillan, Managing Partner, BRS Group

With domestic automakers attempting to rise from the ashes, the author argues that a renewed focus on branding could play an important role in restoring a sense of vision and viability to the industry.

The U.S. automotive industry has had more than its share of bad news these last several months. This article makes the case that two significant contributors to the decline of American automotive companies are an under-appreciation of the role of branding coupled with a squandering of brand equity through badge engineering. The media (and particularly the automotive media) is rightly focused on the business and the economics of the auto industry, while most automotive consumer marketing research focuses on products, features and (of course) marketing.

When it comes to the automotive brands themselves - what they stand for, what health they’re in - it seems like everyone is looking the other way. This is generally not the case with German, Japanese or Korean manufacturers, where there is more of an understanding and respect for the brands these manufacturers control and a much more judicious use of platform engineering.

We will explore here how the extravagant use of platform engineering at American auto manufacturers has weakened their brands and put domestic car makers at a deep-rooted competitive disadvantage. We make here a call for there to be a renaissance in the appreciation of branding in the American automotive industry and for a renewal of interest in automotive branding as a source of longterm prosperity for domestic car manufacturers.

Immense failure
No doubt books are being written now on the immense failure of the American auto industry. While the downward trajectory of the American share of the U.S. auto market has been evident for years it was not inevitable that this should lead to bankruptcy. It could have led to smaller but stronger brands. It may yet.

From a strategic perspective the American industry has failed on three essential points:

• Never truly coming to grips with quality small cars, but instead being reactive to consumer demand for smaller vehicles spurred by oil crises. This equating of small = cheap and cheap = poor-quality allowed manufacturers of smaller and cheaper cars to turn around and make high-quality small cars. Look at Honda as a great example of this; what American auto brand is known for quality small cars?
• Virtually abandoning the luxury sedan market to first the German brands and then to Japanese brands as well. This still has not been recovered, and has left the American industry with hardly any flagship product in which to invest pride and credibility.
• The huge overreliance on short term price-support marketing to shift product out of dealers (remember employee pricing, “You pay what we pay”?). This distorted the used-car market and severely stressed what was left of brand equity, particularly for General Motors (GM) and Chrysler brands. How can we invest integrity into brands whose products were effectively being given away on TV three years ago?

Excitedly speculating
Among all the media coverage of the decline of the domestic auto industry, plant closings, job losses and the human cost of this failure, the automotive media has been excitedly speculating if GM will “rescue” one of its soon-to-disappear Pontiac cars and re-badge it a Chevrolet, and if Fiat, which now has a strategic voice at Chrysler, will have Chrysler build the Fiat 500 in the U.S. and badge it as a Dodge.

Indulging in speculation about slotting products under badges like this in some giant kind of chess game is really no more than corporate fantasizing that it has some sort of control over consumer tastes. We know from years of work for many manufacturers that consumers are generally not impressed by this; people do understand platform engineering but when this is taken too far - when it becomes badge engineering - then a note of cynicism creeps into consumer opinion and many consumers start to question the benefits to them of such a move.

Dark art
What’s the difference between platform engineering and badge engineering? Most auto manufacturers around the world practice the dark art of platform engineering, where they go to great lengths to create an engineering base flexible enough to support different vehicle models. The theory is brilliant: design different body styles and interiors to sit on a common foundation. The advantages are obvious, and when it’s executed well it’s very successful, but when it’s evolved into badge engineering, we now know it can lead to near disaster.

While platform engineering uses a common foundation to create vehicles with different body styles and different usage intentions such as the common platform for the Ford Fusion (sedan) and Ford Edge (SUV), badge engineering uses a common platform to create a range of vehicles that are all the same body style, but are presented under different brands (a current example would be these four SUVs from GM: the Buick Enclave, the Chevy Traverse, the GMC Acadia and the Saturn Outlook).

GM has been the past master at this for many years, taking a common platform and spinning three or sometimes four versions of similar vehicles under different brands.

Automotive blogs are great places to study consumer reactions to this type of activity. Consumers often know part of this story but often don’t realize how widespread the practice has been or how long it’s been going on.

Now, the tactical benefits of badge engineering are seductive - gain more short-term share for little extra cost by having more apparent choice out in the market. Still, no one seems to have considered what long-term damage this might do to the brands that have carried this type of cloned product for years. But now we know: Do you remember Oldsmobile?

What we’ve seen in the U.S. auto market over the past few years has effectively been the erosion of confidence in the product lineup of domestic manufacturers, particularly of GM and Chrysler, because their product ranges have been broad but shallow, offering too many similar models. They have been outmaneuvered by the likes of Toyota and Honda that have product ranges that are both broad and deep.

This article was originally published in the October 2009 issue of Quirks Marketing Research Review. To read the rest of this article in pdf form, click here.

Lorne McMillan is managing partner of  BRS Group, a San Rafael, Calif., research firm. He can be reached at lmcmillan@brsgroup.com.

[Oct 23, 2009]