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Old 12-04-2003, 06:36 PM
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Sun Ra
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Default food for thought

from auto extremist this week. i include the non-Porsche parts for perspective. i need a beautiful, exclusive, high performance 4 door, 4 seat car for my wife. i hope porsche builds it but peter's perspectives are right on on Porsche, BMW and MB...

Falling Brand Stars - How Low Will They Go?

Detroit. Over the past four-and-one-half years of publishing Autoextremist.com, we have witnessed the most stunning brand blowups in automotive history. Some of the greatest, so-called "unimpeachable" automotive brands have either willfully committed brand suicide because of delusional notions about their place in the automotive world, and the belief that their judgment is infallible, or because of flat-out, misguided stupidity. Others have just been caught out in a changing market that has demonstrated little sympathy for traditional automotive powerhouse brands. I thought we'd take a look at four notable examples today...

Following up on my column from last week, BMW went from being a company with an unwavering, single-minded focus on building the best "driving machines" they could possibly build, to becoming a car company more infatuated with sales records, finding new segments to mine gold with and continuing its long-standing obsession with surpassing Mercedes-Benz in the world order. Rather than building great cars that stayed true to BMW's raison d'etre - the company has begun a long, painful slide into brand oblivion. In typical fashion, however, BMW executives (led by Helmut Panke) not only don't believe they've lost a step, they refuse to listen to anybody who would deign to suggest such a thing. There is a distinct aura of invincibility hovering over the entire BMW enterprise, and it has the acrid odor of full-scale delusion. Blind arrogance in a car executive or a car company isn't an unusual thing. The car "biz" is littered with examples of it throughout its history. But BMW executives seem to have arrived at a point now where they actually believe they can do no wrong - and that their view of the automotive world is the only one that matters. Big mistake. BMW has lost more than a step - and they're by no means infallible (see this week's "On The Table" - ed.). Playing in segments they don't belong in, creating cars with gimmicky, overwrought exterior shapes burdened with vapid, frivolous design cues, plus the added (and dismal) dimension of rampant electronic overkill infesting each and every new vehicle they come out with - it's nothing short of a recipe for disaster. BMW has had a long, big-time successful run, but it is well on its way to blowing it - and in a big way.

We've talked about the free fall of Porsche for some time now, and while the troops in Zuffenhausen - led by Wendelin Wiedeking (he's a genius, just ask him) - are high-fiving and back-slapping each other over their current profitability numbers due to their self-proclaimed "brilliant" strategy of bringing out an SUV as their bread-and-butter vehicle - to carry them through the occasional downturns of the sports car market - their very essence is slowly but surely slipping away from them. Porsche 911 and Boxster sales are now officially in the dumper and have been for some time - which Porsche claims is due to the poor economic conditions here in the U.S. and around the world. But my contention is that Porsche is placing the blame on the wrong reason. Porsche's predicament is due, in large part, to their insatiable greed. Because of Porsche's nonsensical, ill-fated strategy of cranking out Boxsters as if they were popcorn to boost their short-term profitability, they have managed to dilute the brand's image, removing any of the specialness that was once such a part of the Porsche name. Which is laughable, when you really think about it, because Porsche did it once before during its infamous 924 chapter. Granted, the Boxster is a vastly superior car, but the net-net effect of cranking out too many units is still the same in the end.

Porsche management has proved that arrogance, talking to one's self and selective rationalization is a powerful potion that can blind an organization to the reality of its situation. While Porsche executives are busy insisting that because of cars like the Carrera GT and 911 GT-3, all is well with their newly formed dependence on the Cayenne, and that they're better than ever as a company, they will wake up one day to find that Cayenne sales have cooled. And then what? Will they mount a huge marketing/advertising effort designed to remind everyone in the world that they're once again a premier maker of sports cars? That's not going to work. Why? For one thing, the competition is getting too tough. GM is undercutting Porsche at the more affordable end with the superb new Corvette C6, which will offer better performance in its standard trim (400H.P.) than 911s costing $40,000 to $50,000 more. And Porsche won't have an answer for it - at least not an answer that will come in for less than $100,000, because Porsche has pissed away five years on developing the Cayenne, instead of working on a true, back-to-basics sports car that they so badly need. The Boxster was to be that car, remember? But because of Porsche's usurious pricing policies, the Boxster stopped being affordable literally five minutes after it was introduced.

Make no mistake about this: Porsche has alienated its hardcore enthusiast constituency with the Cayenne. These are the true-blue enthusiasts - people who have been spreading the gospel according to Porsche for years. But now these same Porsche loyalists don't even recognize the company anymore. It's no longer a manufacturer of lithe, light sports cars that can trace its roots back to its founder - a man who retains legendary status in the automotive world to this day. And it's no longer a sports car manufacturer that derives inspiration for its street cars from its exploits on the race track - and the lessons gleaned from competing in some of the most famous races in the world (because of the time and money it took to develop Cayenne, Porsche has not competed for the overall win at Le Mans for five years, and they've recently announced that they wouldn't be there in the near future, either).

No, Porsche has now dumbed itself down to the point that it has become just another car company, hell bent on becoming a dreaded "full-line manufacturer" - a company whose latest effort is an SUV powered by a VW V-6 engine, of all things. And whose next effort is rumored to be a four-door sedan based on VW Group's Phaeton/Bentley Continental GT/Audi A8 platform. I guess it would be more accurate to say that Porsche has become just another truck company - as they're now officially producing and selling more trucks than cars.

Another brand that was once one of the most revered brands in the wheeled world is Jeep, but it finds itself in the midst of a crisis brought on by a number of factors, including complacency, a painful lack of new product spending and the onslaught of GM's Hummer H2. Whether consciously or unconsciously, Jeep became mired in the very thing that it has stood for all these years - it's go anywhere, do anything capability. In the old days, that image was great for Jeep - and it gave it an unequaled platform to stand clearly head and shoulders above everybody else. But those days have long been gone. Now fierce, cutthroat competitors are chipping away at Jeep's long-standing advantages, or in some cases, like with GM's H2, they're taking huge chunks out of Jeeps formerly impenetrable hide.

Jeep isn't the only game in the off-road town anymore, and unfortunately for the Chrysler Group, the timing of their revamped Jeep lineup is long overdue (new Jeeps are rolling out over the next 18 months). And while waiting for its new product, Jeep basically had to sit back and watch as lesser, boulevardier-type, "cute utes" gobbled up huge amounts of the four-wheel-drive market in the low, medium and luxury segments - pushing Jeep to the "do not call" list.

To make matters even worse for Jeep, GM came out of nowhere to steal Jeep's thunder with the H2. Not only did GM encroach on Jeep's territory with the H2, they captured an attitude, a look and a feel - both on the road and in their advertising - that blew Jeep right off of the map.

Now, Jeep is scrambling to fight back, promoting its "Trail Rated" designation as if to reaffirm its badge of authenticity - but that isn't going to be nearly enough.

Jeep will have to use every bit of what's left of its accumulated brand equity to relaunch itself in the market, and it can't - and won't - be able to be picky in terms of sorting out "authentic" buyers from the rest. Jeep needs back in, and if that means going after the suburban "cute ute" market, then that's what DaimlerChrysler will have to do - and that's what it's planning to do. A lot of hardcore Jeep aficionados are up in arms over this, insisting that unless a Jeep is able to traverse the Rubicon, it can't be a Jeep. But as a savvy, long-time Florida Jeep dealer pointed out in this week's Automotive News, 90 percent of the Jeeps he sells are rear-wheel drive - and Jeep dealers desperately need a full line of Jeep vehicles to sell if the brand ever has a shot at thriving again.

And last, but certainly not least, one of the most, if not the most, egregious examples of a former brand star going down in flames is Mercedes-Benz. What has happened to this once majestic brand over the last ten years in the U.S. market is simply unconscionable. Abandoning one of the greatest ad themes of all time - "Engineered Like No Other Car in the World" - Mercedes-Benz traded its lofty, technical superiority positioning in favor of a more "approachable" persona in the U.S. market, in order to sell more volume in the face of intense competitive pressure from Lexus and BMW. And this strategy has flat-out backfired. Selling C-class Coupes against VWs on one end, and then refusing to call its $300,000 uber-luxury car a Mercedes at the other - Mercedes-Benz has squandered years of accrued brand equity in a market that absolutely demands it. Add horrendous quality problems caused by overly complicated electronic systems, and you have a huge mess.

Mercedes is not only playing in segments that it has no business being in - it finds itself grinding it out against lesser marques in a cutthroat arena that it's woefully ill-suited to compete in. In short, Mercedes-Benz has irrevocably cheapened its brand in its quest to become "all things to all people" in this market - and the brand may never recover from it. Yes, the new AMG cars qualify as worthy Mercedes of the "old school" variety, but virtually everything else they're doing - from their scattered model lineup, to their questionable marketing and puzzling advertising strategies - is off target. Talk about losing specialness - Mercedes-Benz is a textbook example of how not to do it if you're in the auto business.

There are other bad actors in this current auto market who are on the cusp of going down in flames, like the VW group, which may never overcome the strategic "vision" of the King of Delusion himself, ex-chairman Ferdinand Piech, and his plan for VW to rule the world, but the bottom line of this discussion is clear...

It doesn't matter how long an automobile company has enjoyed a run at the top - if they waver from their mission for even an instant, it can all be gone in a few quarters. For some people out there, it is hard to imagine that the same companies who are piling up big sales numbers now (like Porsche) are the same ones who will be struggling to retain their place in the market in a matter of months.

But that's how fragile this brand image stuff can be.

The smart car companies are the ones who can keep their heads up just enough to avoid being dragged down by the usual assortment of internally created tunnel vision gremlins. Yet they're also smart enough not to let their occasional giddy delusions get the better of them - in other words, they allow themselves a healthy dose of blue sky thinking, without losing their heads in the delusional stratosphere.

It's the toughest thing to do in this business. But suffice to say, by the time the consumer starts to get a whiff that a brand is "played out" or "over" - it's way too late, and it might take years for that company to recover. And frankly they may never get back to their previous heights.

In the case of BMW and Porsche, they actually believe that it can't - and won't - happen to them. They're too smart and too right - and they know better than everyone else. In the case of Mercedes-Benz, they've been on such a long, drawn-out free fall into mediocrity for so long that they don't even sense it. Combine that with the fact that the smartest people they know are themselves - and it's no wonder they see monsters in their engine compartments. As for Jeep, to their credit they didn't waver from their kick-***, "only in a Jeep" attitude - the only problem is that the market blew right by them, and now they're playing catch-up in a market that has little time for yesterday's success stories.

How low will these so-called brand stars fall? We'll be watching.

In the meantime, next week we'll talk about the brand stars on the rise.

Thanks for listening, see you next Wednesday.
Old 12-04-2003, 07:46 PM
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Cupcar
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As a guy who has been Porsche enthusiast for 45 years and also has met Mr. Wiedeking, I couldn't have said it any better.
Old 12-04-2003, 09:49 PM
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Steve N.
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Hmmm. I guess most people could find something they could agree with in the article - can't believe that he didn't mention MB's purchase of Chrysler, which was difficult to understand when announced, and which has been a disaster for shareholders. But my primary thought is that running a company successfully is a hell of a lot harder than writing about management's "blunders".
Old 12-05-2003, 11:20 AM
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Sun Ra
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steve,

i'm going to forbear for once in your case. i evaluate managements all day long and some are very good and never stop improving and listening to the customer. those mentioned are poor at best. all these stocks are reasonable shorts.

you must have missed the BMW CEO's recent comment [sic]: "Our customers will have to get used to iDrive because it's here to stay" F.ck him and his arrogance, which is already being repaid by his customer: the 7 series has depreciated by 1/2 in one year.

i have said before the parallel is arrestingly obvious between weidiking's actions and peter schmidt [i think that was his name], the CEO who got fired the last time Porsche cratered.
Old 12-05-2003, 01:24 PM
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Haven't Porscche stocks just gone up about 35 euros in a week? About to hit resistance before a fall??
Old 12-05-2003, 10:36 PM
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Watt: Don't misunderstand my comments - I can criticize each of these companies on multiple fronts. I drive a 540i for groceries - a great car, and when they got to the end of the model run they couldn't keep them in stock, because customers bought out the old model - they uniformly hate the styling of the new BMW's, have no use for the i-drive, etc. Me too. Mercedes reliability has gone to hell. But I thought some of the comments made in the article were pretty subjective. For example, the assertion (offered for more than one marque) that these companies were competing in segments where they did not belong. Time will tell if moves to diversify (extend) the lineup prove to be wise. Porsche sales went to nothing in the not so distant past - I can understand why management/the board would seek to diversify the sources of cash flow a bit. The author was critical of the fact that Porsche cranked out a lot of Boxsters. Hell, people were willing to buy them! If I'm a shareholder I say make the damn things and sell them! Curiously, as I recall he also panned Porsche for charging so much for the Boxster. Again, customers were willing to pay. Goodness, I think Porsche prices can be pretty ridiculous. $190k for a GT2??? But I payed it, and you won't hear me bitch about it, because it was a choice I made. Are the managements arrogant? Yes, they sure seem to be. So, while (as I said in my first response) I think we could all offer some points of criticism of these companies, I guess I thought author engaged in sort of a rambling diatribe. Ok, just my opinion.
Old 12-06-2003, 03:18 PM
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Watt

Porsche are not a company on the decline. 911 and Boxster sales are falling partly because of the weak dollar but mostly because they are reaching the end of their production run. The 997 will be hear next year and the new Boxster shortly afterwards.

I don't agree with the Cayenne. But Porsche run the company, not me. It is by all accounts sellling well in the States and making Porsche money. The 996 has been the most successful Porsche in terms of sales ever. Even so they have not diluted the brand, far from it.

Porsche are independent. The fact that they have managed to remain so is quite remarkable given that they nearly collapsed in the early 1990's.

Porsche have won Germany's "Company of the Year" and are the most profitable car company in the world.

So, in short, give them a break!
Old 12-06-2003, 05:00 PM
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cap mad,

a break? i buy their cars all the time!!! this year so far i have bought 3 and have an offer out on another. isn't that a small form of support?

Last edited by Sun Ra; 12-06-2003 at 05:52 PM.



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