Grant's Auto Rants

Niche Markets: The Long of it

When Honda, Toyota, and Nissan first decided to supplement their brands with Acura, Lexus, and Infiniti respectively, they were questioned as to whether the industry really needed to further cramp the heavily European luxury segment. As history illustrates not only was the market primed for competition, but introducing a "sister" brand proved to be the equivalent of marketing genius.

The industry has evolved, however, and a number of niche categories have been introduced including sports utilities, people-moving minivans and hybrids. There's even a segment for the space-limited urban driver. The trend for growth today is certainly geared toward filling as many niche markets as possible; even the Europeans are launching a long-overdue response in a couple of different ways.

LONG WHEELBASE

Leaving the family sedan, people-mover/SUV and compact groups aside for the moment, one area where we are seeing growth (literally) is in what we can call the "chauffeur range." The luxury brands all seem to be introducing an ultra-version (manifested in about five inches of space), to their flagship vehicles to create yet more room for gadgetry and luxurious opulence. AUDI, VW, BMW and most recently Jaguar have all added a LWB version of their top cars, leaving the door wide open for customization.

Mercedes-Benz has gone so far as to design an entire brand -- Maybach -- in the hopes of capturing the über-wealthy and diplomatic crowds. Several brands require their dealerships not only to employ specially trained technicians, but also to outfit their facilities with proper "suites" where the outfitting of these types of automobiles can take place away from the hustle and bustle of everyday dealer operations. In addition to offering their 760il LWB, the BMW camp also purchased Rolls-Royce, splitting it from stable mate Bentley.
Webster's Dictionary defines the French word Limousine as "Any of various large passenger vehicles, especially a luxurious automobile usually driven by a chauffeur and sometimes having a partition separating the passenger compartment from the driver's seat." Today's "limousines" as interpreted by the European luxury brands may still fall into this category, but aren't exactly appropriate for weddings and proms.

Anyway, what I personally find interesting is the question as to whether these cars were designed around the driver or the passenger. All of them "sport" mega horsepower, superb driving dynamics and performance figures, which can sometimes best those of sports and exotics cars. Does this suggest that when the chauffeur is on vacation the owners are hopping upfront to tool around themselves? Maybe…maybe not. But one thing is for sure: you won't be seeing these things lined up by the dozen in front of baggage claim for anyone willing to spend the extra ten bucks over regular cab fare.

Porsche (AG) vs. Ferrari (S.p.A)…again

Now I know what you're thinking: this perennial rivalry has been beaten to death in so many columns, articles, and posts throughout automotive history that you probably thought twice before even reading this. But does anyone else find it interesting that these two companies (who arguably remain the top two marques of the sports car industry) have adopted such different corporate strategies, and yet continue to manufacture products that are separated often by mere fractions in performance figures?

Don't get me wrong, a fraction of a second in lap times can mean the difference between winning and losing to say the 0.000001% of the population who race these machines for a living, not to mention the worth of bragging rights for those limited to street comparison. But in a post-"watered-down" (for the 911 purists) era where the product line is dictated as much by earnings and, dare I say (gulp), shareholder value as it is by advances in engineering and product heritage, the outright performance limits of the company's flagship vehicles (read Enzo and Carrera GT) for argument's sake, must be compared within categories like production volume (exclusivity) or worse still, the existence of a radio.

In the interest of "remaining independent," Porsche AG has taken what many consider to be the proverbial high road by expanding the product line into new territories, (Maser SUV anyone?), and happily adding volume to boot. And one can't argue that they recently posted both record earnings and sales with a little help of a certain joint production venture with VW and can afford to spend more in capital expenditure than ever before in their history. Ferrari S.p.A., conversely, is enjoying what appears to be yet another F1 world championship, continuing with the no-marketing, low-volume, wait list, charge-whatever-you-want corporate model, albeit with Fiat at the reins. In any case, both are enjoying periods of success in an otherwise level automotive economy. Which is the better strategy? I guess it depends on whether you prefer sausage or pasta, but I would say both ends justify the means.

For what its worth, comparing the Challenge Stradale to the "S" at this point is like comparing Palmer to Nicklaus, or even better, Palmer to say, McEnroe…there simply isn't much point. With the exception of the quickest quarter mile, top speed or (come on) hundredth of a lateral "g," the performance gap has all but closed between the sport and regular brands. We have entered a new era where performance is a given and the difference is made not by price, dependability, or customer service, but by some visceral childhood experience where we first saw or rode in one of these cars. There is no longer any cross shopping between these brands. You may respect and admire both, but for some historical reason, you're likely to be in one camp or the other.

The simple fact of the matter is that both the Germans and the Italians enjoy a long history of attaching four small patches of rubber to the pavement. The problem is that today even the likes of Subaru and Mitsubishi can produce wet-your-pants-performance for the price of a loaded Taurus, forcing the performance brands to press customer loyalty to the limit.

Regardless of that, these stereotypically German and Italian companies continue to partake in what has to be one of the industrial age's longest standing pi**ing contests. Like many who follow the brands, I'm eternally looking forward to the next and newest bout.

I happen to prefer mine with sauerkraut and mustard, but there's always room for Mama's lasagna.

DaimlerChrysler in the News

A search for "DaimlerChrysler" as recently as mid-March 2004 on Ebscohost or other online industry news resources would reveal headlines such as "Schrempp strengthens grip on DC board," and "Bernhard moves up on DaimlerChrysler fast track," or even "DaimlerChrysler expected to increase stake in Mitsubishi." My, what a difference a few weeks can make.

The corporate fallout from the recent decision by the DaimlerChrysler board not to accept current CEO Juergen Schrempp's $3.8 billion dollar aid package for its struggling Asian partner Mitsubishi Motors (for which DC has a 37% interest) has indeed reached "snowball" status. I have been trying to post this article now for a full week, each day thinking I had everything together only to be faced with a new morning headline describing additional impending repercussions.

The most visible casualty of the board's decision has to be Wolfgang Bernhard (Chrysler Group COO) whose placement as successor to current Mercedes-Benz chief Juergen Hubbert was revoked. Touted by many as a godsend to the Chrysler brand and potential saviour to Mercedes-Benz (on the east side of the Atlantic, anyway), Bernhard's tough-love approach of cutting costs and bringing unfamiliar news that Mercedes-Benz needs to face (and make) some difficult decisions ruffled some feathers with the old-school brass in Germany who may harbour some ill-will to the merger and are known not to embrace drastic change. While this may appear to be a simple case of shooting the messenger to some, Bernhard is seeing considerable interest from GM, Ford, and VW already, validating his reputation as one of the industry's bright stars. (It should be noted that Wolfgang Bernhard was handpicked by Schrempp and was one of no less than eight board members opposed to Schrempp's proposed bailout.)

In addition to the unexpected availability of the Chrysler COO, there's the resignation of Mitsubishi's CEO and DC veteran Rolf Eckrodt under rather unfortunate circumstances effectively ending a 38-year career. After the 1998 "merger" with Chrysler, the 2000 Daimler strategy of globalization included minority stakes in both Mitsubishi and South Korea's Hyundai, neither of which performed. The decision not to throw good money after bad means Mitsubishi (which itself is floundering under $9 billion in debt) and Hyundai's shares will soon be up for sale, all but pulling the plug on Schrempp's plans and even leaving his foreseeable contract extension in question. DaimlerChrysler seems to be refocusing their Asian strategy on production in China now.

As if the management shake-up wasn't complicated enough, we are starting to see some of Bernhard's work at Chrysler bear fruit in the form of new models (notably Chrysler 300C, Dodge Magnum, and Convertible Crossfire), which are all receiving decent reviews. Score one for Wolfgang.

On the other hand, recent ISQ ratings from JD Power show a remarkable 20% increase in the quality of new Mercedes-Benz cars and the improved C-class, recently launched in Europe, has been very well received. Score two for the Brass.

In any case, there doesn't seem to be any question that the recent developments represent just another chapter in an unfinished story and that the legacy from the symbolic "Mitsubishi Decision" may reserve additional changes in management. I know if I were Manfred Gentz (CFO), Board member Bodo Uebber, or even Chrysler CEO Dieter Zetsche, I would be keeping my head down around the lunchroom. Stay tuned.

Certified Pre-Owned Programs

Whether you call it Starmark, Select Edition, or anything else, certified pre-owned programs are finally changing the face of auto sales, as almost all of the major manufacturers now offer a version. While many manufacturers were skeptical at first, fearing that such programs would cannibalize new cars sales, the benefits are now very apparent and have proven to outweigh any loss to new sales. CNW Marketing Research pegs the total number of certified used car sales in 2003 at 1.3 million.

These programs have been cropping up since the mid-nineties as something manufacturers were doing for dealers to get a "second shot" at a car and to grab some of the (big) used car business (Tom Kontos, VP industry relations and analytical services at the Adesa Corp. estimated that 48.7 million used vehicles will be for sale in 2007, from 43.6 million in 2003). Upon second glance, however, by adding value – through an inspection and extended factory warranty – companies can reach entirely new customer demographics and price points with their "discounted" cars. Additionally, many car producers are interested in controlling the residual value of their brands, which they can do by regulating some of the used sales. Even Ferrari, the Italian sports car maker known for its ultra-exclusive, ultra-expensive vehicles which command a premium even as a used car, now certifies their pre-owned cars.

Another reason for the turnaround in mindset concerning pre-owned sales is that the popularity of leasing has increased steadily over the last decade. Lease expiration floods the market with often only "slightly" used late model vehicles (according to CNW Market Research, 3 million leased vehicles were returned to dealers in 2003 with an additional 2.6 million off-lease vehicles due in 2004. As most lease terms are two to three years in duration with mileage allowances ranging from ten to fifteen thousand miles, many are in "like new" condition with the original factory warranty intact. In the past, the majority of these cars would be snapped up by wholesalers who would auction them off and many would find their way to a used car lot eventually anyway. With extended warranties costing the dealerships anywhere from five hundred to two thousand dollars, you can expect to pay a slight premium to have a certified car over market price.

One final benefit individual dealerships are finding with their programs is that they provide a place to put new vehicles that haven't sold during their model year on the new car lot. By designating the car a "loaner" or "used," the dealerships can flip the car into the CPO program and still make a decent profit by charging the certified premium, in lieu of trading the car away or selling at (or below) invoice.

Any way you slice it, there are certainly like-new vehicles available at like-used car prices, which is good for consumers and dealers alike. Though manufacturers may not receive anywhere near the premium they get from new car sales, the protection of residuals and payback they derive from CPO sales is certainly better than nothing.

To compare certified pre-owned programs, visit IntelliChoice.com.