Tag Archives: VW

Geneva motor show – designers, driftwood, elephants and pods

gims17_poster_eng_1200A few days on from press days at the Geneva motor show the consensus is that essentially it’s been more of the same: yet more SUVs, some hyper-expensive hypercars, but little to shift things much further along the road to a future mobility landscape. That the Range Rover Velar and Volvo XC90 premium SUVs have been probably the most talked-about cars at the show says much about the industry right now. SUVs and premium-isation are where the volumes and money are.

But that misses the point: cars aren’t necessarily the stars at motor shows – even at Geneva, which uniquely among the major shows celebrates the car as fantastic beast rather than mere corporate cash cow or monthly registration fodder. The real story is what’s behind the cars on show, and even what’s not there.

Designers take centre stage

Car designers are the new focal points for the automotive brands. Ever since Peter Schreyer, originator of the original Audi TT, was poached from the German company by Hyundai-Kia and effected a transformation of the Koreans’ products, the stock of design bosses has risen sharply. The best designers are now part brand alchemist, part corporate talisman; they double as marketing tools, and are the ones who articulate the product philosophy.

Nowhere is this clearer at than at JLR and Volvo, whose stands always sit side-by-side at Geneva. Jaguar and Land Rover have their own internal design-chief arm wrestling match, Jaguar’s Ian Callum locking hands with Land Rover’s Gerry McGovern. Each led their respective brand’s press conference, Callum in a Brit-slick film showing him at the wheel of an F-Type on an ice circuit before driving onto the stand to finish the piece in person; JLR CEO Ralf Speth was merely a support act.

If Callum’s piece was a little over-produced it was to compensate for the fact that he had less to say than his Land Rover counterpart, Jaguar’s big news being that its previously-seen I-Pace EV concept has been painted a different colour.

gAtzr7KreKocCKwSfPqm08R3G5Ny495k_IV_Gerry_Mcgovern_Chief_Design_Officer_JLR_Geneva_Motor_Show_2017_mp4McGovern by contrast had the Range Rover Velar to launch. It’s curiously named after the very first 1960s Range Rover prototypes, which were go-anywhere, hose-down workhorses. The new car stretches the Range Rover ethos to the opposite extreme – it’s the sleekest, most dynamic, driver-focused car the brand has yet produced. It fills a hole between the Evoque and Sport – whose name it surely should have had – but when that car was named there wasn’t a Porsche Macan to take on. And that, fundamentally, is the Velar’s job.

The latest Jaguar and Land Rover/Range Rover models have excellent, progressive design which successfully transports heritage brand values into 21st-century packages, but if anything they’re engineering marvels, not design triumphs. Making a two-tonne, high-riding lump of SUV like the Velar go around corners on rails and emit as little as 142g/km CO2 is a major achievement.

Yet the engineering bosses were confined to the shadows at Geneva. But at least Range Rover wasn’t giving Victoria Beckham a design credit.

Automation – the elephant (not necessarily) in the room

The technology behind automated vehicles is already with us; automated vehicles are not. And, as if to underline the fact that the public and legislators are not yet ready for self-driving cars, VW Group unveiled the Sedric, a fully-automated pod-type vehicle, not at the show but the day before press day, off-site. Perhaps they expected it to make its own way to the show.

sedric-large_trans_NvBQzQNjv4BqdODRziddS8JXpVz-XfUVR2LvJF5WfpqnBZShRL_tOZwSure, there was plenty of talk about autonomous vehicles on the stands. There should be – this technology will bring about seismic change for the carmakers and allow new players to enter the mix, grow quickly and reshape the industry. But VW didn’t want automation to gatecrash the party, and the nearest thing to a roll-out at Geneva was Nissan’s statement that its Leaf and Qashqai models will shortly be available with single-lane autonomous driving – commendable but something of a glorified adaptive cruise control with ancillary safety driver aids.

Industry executives spoke in reassuring terms to traditional car enthusiast media about using self-driving technology primarily to relieve the boredom of congested commutes in products which are otherwise still proper driving machines. Only Volvo seemed to have the courage to state upfront, via CEO Hakan Samuelsson’s press conference script, that automation’s number one benefit is safety. He outlined in convincing detail the efforts being put in at Volvo to make it happen, including an automation software JV with Autoliv, and even a program with Uber – a company representing as serious a perceived threat to the traditional carmakers as there is. Samuelsson also announced the world’s biggest autonomous vehicle testing program, DriveMe, using real roads and real car buyers in Sweden, the UK and China.

Even as it continues to develop a new generation of more dynamic cars to challenge the likes of driver-focused BMW, Volvo has the confidence to place automation front and centre as part of a core offering rather than in the form of a concept for an unspecified future. The company sees it not as a threat but a brand opportunity. And the fact that it talks so clearly and directly about automation only reinforces the brand by encouraging trust – a holy grail for any car brand in a post-dieselgate world on the cusp of change.

Clarity, driftwood and roots – how to identify the best brands

Taking a look around the Geneva show should leave you in no doubt about the value of brand. Some of the carmakers’ stands are downright confused. Some are trying rather too hard. Others seem effortlessly at ease with themselves. These are the ones which know what they stand for and their place in the world – today and tomorrow. They’re the ones with strong brands.

amggt4-geneva-096Mercedes has the most confident outlook of any Geneva exhibitor. Its model proliferation has taken it dangerously close to commoditisation, and it’s grown a little too fond of chrome. But the quality of the products, the way they’re displayed, the technology, the references to its F1 domination, and the interaction with the business both on-stand and digitally mean that it’s the most compelling of the behemoth brands at the show. The elegant and perfectly proportioned AMG GT concept is an admirably unostentatious statement of its assuredness.

But no-one better illustrates brand clarity than Volvo. It’s a brand which is evolving and growing in aspirational appeal but rooted in its historical values of safety, understated quality and its Swedish homeland, which it’s used to develop a Scandinavian design aesthetic. The product range is progressively and logically being renewed along these lines, with each core line articulating the brief slightly differently according to price point and target customer.

IMG_3931The contrast with JLR was marked. Both are effectively challenger brands to the German premium marques. Both are already producing vehicles of the same quality as Audi, BMW and Mercedes, but Volvo’s launch of the new XC60 was very different from that of the Range Rover Velar.

Those watching the Velar presentation had only to turn around to see the XC90 reveal, which immediately followed. Half a dozen XC90s sat concealed underneath cocoon-like pods. The video backdrop showed images of Scandinavian coastal scenes to a chillout soundtrack. And on came Volvo design boss Thomas Ingenlath, who unveiled…a piece of driftwood.

It’s fashioned by nature, timeless and sculptural. It made a point, and forms not totally unlike driftwood feature prominently in the new XC60’s interior. The Velar’s interior, in comparison, looked like a bachelor-pad fantasy. Ingenlath’s script had little hyperbole and self-congratulation and was the better for it. He really was speaking for the brand, as did the pods, which parted to reveal the new car as though giving birth to a hybrid of technology and nature.

Volvo is probably the truest car brand there is. Both Volvo and JLR, mutually orphaned by Ford, have thrived under new, enlightened owners. They’ve had fresh starts, helped by having limited and focused product ranges, which have enabled them to redefine themselves for a changing market while remaining connected to their provenance and values. And they’re able to re-shape their brands according to changing market needs in a way which the powerhouse OEMs like Mercedes can’t match, no matter how confident. It’s a real advantage at a time when upheaval is coming.

PSA-Opel – safety in numbers but how will it look in 2027?

You may have gone to Geneva secretly wanting only to gawp at the Ferrari 812, McLaren 720S or Aston Martin Valkyrie. But to get to any of those you had to wade through an undercurrent of PSA-Opel takeover talk.

Although GM’s rationale for leaving Europe is clear, if almost shockingly brave, the benefits for PSA are much less clear, with huge model range overlap and the addition of a languishing Opel brand to a portfolio of French brands which struggle outside their native France.

The announcement confirming the deal was made on the eve of the first press day but was light on detail. None of the brands involved – Peugeot, Citroen, DS and Opel – made more than passing mentions of it in their show press conferences so it was interesting to see how they articulated themselves in the new context.

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As though to reassure analysts that PSA has the wherewithal to nurture Opel better than GM, CEO Carlos Tavares headlined with Peugeot’s financial performance. Opel seemed at pains to make the point that the brand has real value, reminding people that the company has a very long history and that, being German, offers precision engineering. It also made the unlikely claim that the PSA deal is one of equals.

Ironically, what the discarded Opel did have was a pair of completely new models – the upper-medium Insignia replacement and a new SUV, the Crossland X. They’re important cars, the one because it’s in the increasingly critical compact SUV/crossover segment, and the other because it’s in the upper-medium segment where Opel and its UK offshoot Vauxhall still have to be credible for business sales. Both look competitive. And we were told that they’re part of a tsunami of 29 new models in a four-year period. But how will that fit with PSA’s model plans? The two companies have already been collaborating, including on the Crossland, but significant rationalisation will surely be essential. It’s a numbers game.

No doubt Carlos Tavares is a talented man, but you can’t help thinking that the additional scale Opel offers PSA is the opposite of the corporate nimbleness, lean product offering and crystal-clear brand thinking which gives Volvo and JLR such a great strategic opportunity in an industry facing inevitable and large-scale disruption over the next decade.

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Changing attitudes to mobility: the hidden factor in the PSA-Opel deal

RNPS IMAGES OF THE YEAR - GERMANYThe likely takeover of GM’s European unit Opel by PSA isn’t all to do with economics. It’s also about changing attitudes to mobility and transportation.

Although fully autonomous passenger cars are still some way off, the technology is well advanced. And connectivity is already becoming a must-have, so the way we access mobility can change very quickly once legislation and a wider offering from the OEMs and new entrants are in place. Together these things promise to turn the automotive industry upside down. That OEMs must adapt to changing market needs is clear.

Yet the OEMs aren’t impatiently waiting for legislation and market demand; they like the status quo. Their existing, set-in-stone business model is based on customers paying a premium for a brand and owning the asset or leasing it long-term. The OEMs build a car, send it from the factory gates to a dealer and see it again in three years’ time. That’s how they like it. They react to change; they don’t drive it.

What they do like is the fact that barriers to entry for new carmakers are significant. Designing and building cars is extremely complex and difficult, and it’s even harder to make money out of them. Tesla is an exception to an extent, but it is not fundamentally different or disruptive, and it still doesn’t make money. It makes conventional looking cars with battery packs and motors and sells them to mainstream customers. It hasn’t reinvented the form of the product or the business model, and automation is a feature on its cars, not a purpose.

56b8575825067Effectively Tesla wants to join the establishment but doing it with a bit of chutzpah; it’s not establishing a new paradigm. But that’s what new entrants should be doing and existing players need to move towards. The likes of Google and Apple have wisely stepped out of the shadows to think very carefully about what their place in the mobility landscape should be. In a decade or less the power may well be at the other end of the value chain from the traditional business model, with Uber-type autonomous taxi brands and ultra-short-term leasing.

The barriers to entry here are far lower, and this is what the established OEMs have to be ready to be a part of.

So in the next few years they ought to be redefining themselves – moving away from the selling and ownership model, not trying to please everyone everywhere and instead focusing on the specific areas where they can offer real value and relevance. This was implicit in GM president Dan Ammann recently saying, “…we need to decide what we’re not going to do.”

It’s through this lens that we should view GM’s offloading of Opel. Leaving Europe is a big move for a company which has previously tried to be a leader in all markets, and no carmaker has ever walked away from a big share in Europe. But these are times which require clear sight and strong action. Yes, there are the financial imperatives – it hasn’t made money in Europe this century and, the last time it did, Clinton was in power: the world is has changed massively since then.

Being prepared to abandon declining markets and profits means that it can focus more on new technologies and new revenue streams. That’s the consequence of what Amman was saying.

2016102001a_link_co_geelySome of the other major OEMs are showing evidence that they’re beginning to think about how they can fit into a world of disruptive change – Volvo for example has established a new shared mobility unit and its parent Geely has recently launched the Lynk and Co brand, founded on the trend towards ad hoc usership.

But among the biggest players any new mindset is a consequence of necessity. VW is reinventing itself as an EV and mobility provider – forced into faster, more fundamental change by the diesel scandal – yet as part of that process is having to ask fundamental questions of itself: what is it, what is its purpose, what must it and can it become for the future? These are questions which, when answered, define a brand.

And ultimately this is a question brand – of purpose, relevance, engagement, vand culture. All the OEMs must start focusing on the shift from being a manufacturer of products – autonomous pods will inevitably commoditise a brand – to being a deliverer of a service and an experience creator. The existing OEM brands and new entrants all have to forge a positioning and offering which will allow them to prosper in the 2020s and 2030s, when the marketplace will look very different from today.

GM, for all the unsentimental expedience of its farewell to Europe, may have taken the first steps towards that.

Cars drive Brand UK around in a vicious circle

Clydebank-Used-Car-Sales-Finance-GlasgowIt’s often said that car sales are a barometer of the economic climate. But, in the UK at least, they’re not – the booming market of the last five years has been way sunnier than our overcast economic conditions.

However, with a turnover of more than £70bn the retail motor industry is unarguably an indicator of national sentiment – even of our character and values. It’s one of the core elements of UK plc. And in a post-referendum landscape where the nation is redefining itself that makes it important.

The car sales figures for the first half of year show the market at an all-time high. Registrations were a record for any six-month period, up 3.2% on the same period last year, the previous best. March was the biggest ever month since the introduction of the bi-annual plate change. Last year was the best ever. And even post-referendum the indications are that 2016 could still beat it.

If we’re doing these numbers we must be in a pretty good place as we prepare to head up the slip road and off the EU highway – right? Well, no.

The extraordinary, counter-economic motor retail success story is really about the way car companies make their money – and in particular the British attitude to credit.

In the first quarter of this year the growth rate of UK consumer credit stood at almost 10%, Borrow-Money-to-Investthe highest since the banking crisis. Car dealer finance is a big part of this, accounting for £28bn in 2015 – twice what it was just four years earlier. Four out of five new cars are bought using borrowing, and today the car companies are effectively banks which sell cars. Finance is a core profit centre, and the PCP loans which the majority of customers take out to gain usership – not ownership – a brilliant retention tool.

The ultra-low interest rates enjoyed by consumers since 2008 also mean that almost anybody has been able get behind the wheel of a nice new car. Forget the £30,000+ sticker price – £195+vat a month for a Mercedes C Class, anyone? How about a Nissan Micra for £85+vat a month? That’s what you’d spend in a five-minute shop at Waitrose on the way home from work.

With PCPs, customers are becoming used to the notion of cars as mobile phones – something you get on a pay-monthly contract and replace every couple of years or so. When you do that, the man in the dealership will strongly resist any efforts on the customer’s part to pay cash. Even if you take out finance for a 48-month term he’ll be on the phone after 24 months offering something better, with no cost of change.

Some analysts are forecasting that sales could fall by over 5% next year as the UK adjusts to its new economic realities. However, with the near-certainty of even lower interest rates in the coming months, the appetite for new cars in the UK is likely grow – probably most among those who can least afford it.

And if the referendum fallout creates a drop in demand in the second half of 2016 then expect incentives to kick in swiftly to clear stock which was ordered for a market in economic status quo, not shock. The car industry will distress-sell. And the vicious circle keeps turning.

So while we like to view the Eurozone as a basket case, it’s the UK which has raced headlong back to the very conditions which characterised the economy at the time of the 2008 crash, and will probably continue to do so.

Let’s compare ourselves with Germany. While UK car sales rose by 37% between 2011 and 2015, the German market grew by just 1%. The German economy is humming along nicely, but when it does, the Germans don’t reach for their credit cards.

companybannerThe difference between the UK and most European countries is that we’re a finance-driven economy and they’re not. What does that say about Brand UK, our character and values? That we’re a nation of borrowers. That we’re no longer creators but consumers (preferably of German cars – VW, Audi, Mercedes and BMW alone account for almost 30% of the market). That we support our financial services industry more than we do our domestic car industry. That we see our cars, like our homes, as a measure of our success, yet we usually own neither. We just own the debt.

If the UK is redefining itself, this should not be part of our DNA. The EU may not have a clearly defined brand, but the UK’s is in danger of being devalued. British business culture should contain an element of daring, even risk. But not a lack of self-awareness or foresight.

 

The most interesting thing at the Geneva motor show isn’t a car

IMG_2517In a year when the Geneva motor show has seen world premieres of new production cars from Bugatti, Lamborghini, McLaren, Aston Martin, Porsche, Jaguar and Mercedes, the most interesting thing there is something rather different.

No, it’s not an accessible sports car like the Fiat 124 Spyder. Or a family car which is simultaneously stylish, like the Renault Scenic. It’s not even a vehicle system or component.

The most interesting thing at Geneva International Motor Show 2016 is the VW stand.

Why? This is the first time VW has presented itself to world since it was engulfed by the diesel scandal last September. Since then it has replaced the top tier of management, made big commitments to low-carbon product and gone on a direct marketing charm offensive in the markets.

IMG_2562The company’s presence in Geneva is noticeably more human and warm than the usual giant white car park stuffed full of mundane mainstream models. There are semi-separate sections with constantly morphing mood lighting, Beats Audio listening pods and a giant screen snaking across the stand. Everyday models are displayed in bold colours, not just white, and there are two new concepts which tell us how VW wants us to see the brand: forward-thinking/eco-friendly, and fun/adventurous.

IMG_2519The Budd-e mini people-carrier isn’t as lovable as the Campervan-referencing Microbus of a few years back but it’s electric, clean and modern – what the brand needs to be. It also sits in front of an illuminated backdrop saying ‘Think New’: this is a company which very obviously knows it needs to renew itself for the public gaze. The T-Cross Breeze signals the smallest of three new SUVs, and here it’s in a not-for-production convertible form – this company, they would have you believe, is full of fresh air.

VW has put in some fast work in the last six months. None of it sweeps the diesel mess under the carpet, and customers with “defeat device” cars – me included – have been treated with disdain. But life at VW goes on.

I won’t be buying another VW, yet millions will without wincing. And that is its banana skin. Will VW’s need to change perception make it truly redefine itself and become a real brand again – the one which was founded on the Beetle people’s car? Unlikely. But as a brand professional I’m fascinated to see which wins out – the need to be trusted and valued or the need to stave off the financial cost of the scandal with volumes-driven profit.

VW – volumes over values

VW Group’s announcement yesterday of its first financial losses in 15 years is not as significant as the loss of brand equity.

volkswagen-scandalThe emissions scandal isn’t ultimately about emissions, diesel or money. It’s about brand. The revelations could be a catalyst to redeveloping the VW brand by focusing the business on a new purpose. And a brand is nothing without a purpose.

The management of VW Group has been giving an object lesson in bad brand stewardship for a long time. As I said here last year (http://wp.me/p3xo5H-6d), in assembling a vast passenger car brand portfolio of SEAT, Skoda, VW, Audi, Porsche, Lamborghini, Bentley and Bugatti, it created a self-cannibalising mess. Skoda and SEAT have progressively been entering the VW brand’s space. VW has been intruding on Audi, while Audi’s aggressive entry into every market segment meant that it was stealing sales from the other three. And with the R8 supercar Audi was even competing with Porsche and Lamborghini.

The obsession with volumes meant that each of the brands was being devalued. At one end of the scale, Skoda – which has experienced serious growth as a value brand – recently stated an intention to start selling on quality, while at the other end the Lamborghini supercar and Bentley super-luxury brands were being commoditised with announcements of SUVs. And the flagship Audi premium brand has become utterly ubiquitous.

3500In the centre of all this there was the core VW brand, squeezed from above and below – just as the likes of Ford, Opel and Renault have been by the premium and value brands – but in VW’s case by its own siblings. It was pushed into the no-man’s land of the car industry, the sub-premium territory which crippled Volvo, SAAB, Lexus and Infiniti for two decades. And at the same time VW was introducing the Phaeton luxury car which offered more quality than the Audi A8, was a credible alternative to a Bentley Mulsanne, and was a car no-one wanted. How on earth did that represent VW brand values?

The reasons for VW doing these things? Greed and arrogance. It was about chasing the global number one status and doing things because it could. It was a case of volumes over values, a perilous trajectory for a brand. And it resulted in the emissions scandal.

Nobody should be surprised that the cheating happened. Car manufacturers are inherently conservative and inward-looking, VW more than any other: these are businesses driven not by customer requirements – and even less by vision and values – but by legislation and sales figures. They routinely cheat the monthly sales figures by self-registering cars, and the EU’s over-ambitious and poorly conceived CO2 emissions reduction targets have inevitably been met with equally expedient and poorly conceived ‘solutions’.

Add to this that VW Group has a toxic cocktail of a structure which lends itself to corruption. Management is too close to the unions, and the company is 20% owned by the state of Lower Saxony, with two of its management board coming from the regional government. 5396a-ferdinand_piech_a_70_ansIt has also been dominated by the Porsche and Piech families, and the comically evil-looking Mr Burns-alike Ferdinand Piech personally sponsored the Phaeton and the 1200bhp, $2.25m Bugatti Veyron vanity product. The latter is only slightly more garish than the vast sums spent by VW managers on their union colleagues on partying with prostitutes like Spring-break teenagers, activities which were revealed in 2005.

pg-48-VW-epaBut legislation and structure aren’t excuses: they’re reasons for better cultural and strategic governance. Even if VW’s now departed CEO Martin Winterkorn were completely unaware of the cheat devices, he is as culpable as Piech for the corporate hubris. It was he who declared an intention to be the global number one by 2018. It was under him that Audi has been boasting of growing from an already overblown 50-plus model lines to 60. And don’t forget that after his accession in 2007 four further brands were added to the group’s massive portfolio.

The good which can come from this is that it raises the fundamental question of what the carmakers’ purpose is, and may prompt them to redefine their brands through that spectrum. Is that purpose simply to grow, or is to make people’s lives better, even transform them? Think of Ford with the Model T, mobilising the masses.

6a00d83452989a69e200e5503ce7028833-800wiBut think even more of VW with the Beetle: how ironic that the company named after the reason for its very existence, the ‘people’s car’, should lose focus so catastrophically. And even more ironic that it then has to redefine itself and so perhaps become a real brand again, even a potential totem for the automotive industry.

Back in July 2014 when I wrote the piece with the link above, Volkswagen was admitting an urgent need for better profits. That VW’s profits are suffering is not surprising,’ I said.’ That’s what happens when a goal defined by volumes is set. If the goal were instead to define and differentiate the brands more clearly, with each given the objective of becoming the most desired among consumers, then the volumes would follow. They would do so more slowly but they would do it sustainably.’

Fifteen months on, I’m standing by that.

Volkswagen group not profiting from its brands’ equity

_origin_Fakti-kas-tevi-parsteigs-9Martin Winterkorn, boss of Volkswagen Group, admitted this month that the business “urgently” needs better profits, and today’s half-year results announcement confirmed falls in both profits and sales. This is the company, remember, which has targeted global number one status by 2018, and since Winterkorn became CEO in 2007 CEO has increased production by 4m units and doubled its revenues.

One of the reasons for VW’s poor profitability is that it isn’t global in terms of geographical spread. It’s in the key growth market, China, but is actually over-dependent on it, whereas it has little traction in south and south-east Asia. And market share is relatively low in the USA, with the VW brand on the slide. Another factor is that VW is light on compact SUVs, the biggest growth segment globally. A further reason and perhaps the most significant is its sheer size – a company this big simply can’t avoid inefficiencies.

But here’s the elephant in the boardroom: VW’s problem is also down to brands. VW group isn’t merely huge; it has a huge brand portfolio, with 12 brands in total – stretching to trucks and motorbikes – and over 310 models. Paradoxically, rather than providing economies of scale, in the accumulation of brands the collective mass has outweighed the ability to exploit the efficiencies.

By 2007 it already had the considerable challenge of consolidating and managing a passenger car portfolio of SEAT, Skoda, VW, Audi, Lamborghini, Bentley and Bugatti. Each was struggling for both individual relevance and group synergy. Skoda had already begun to produce cars in the VW brand’s space. VW in turn was encroaching on Audi, which was moving onto mainstream segments previously the preserve of these brands while simultaneously launching de-facto Lamborghinis. Bentley was doing a fine job. Bugatti was, well, Bugatti, and SEAT was struggling not to be a Spain-only brand and was being jumped by Skoda. The group was competing with itself, and the mainstream brands were sharing the same market space but without sharing the economic benefits. And meanwhile the world was plunging into an economic downturn.

So what did VW do? Since Martin Winterkorn’s 2007 accession it’s added four more brands: Porsche, Ducati, MAN and Scania. It has also become the largest stakeholder in Suzuki and even consumed the design house Italdesign Giugiaro. And Skoda has stated that it wants to sell on quality and style, while Lamborghini and Bentley have announced SUVs.

VW’s strategy goes directly against the new automotive industry paradigm. Toyota has continued to excel in financial performance. It has not acquired other makes but concentrated on its core brand, which has maintains clear values, and its own premium-luxury brand, Lexus. Hyundai, which led even Toyota on profitability in 2013, was forced into a merger of unequals with Kia when the South Korean business bubble burst in the late 1990s. They produce cars for the same market segments, yet with only two brands they’ve not only managed the situation by differentiating the brands but have grown stratospherically since 2007. Meanwhile Ford has divested itself of Aston Martin, Volvo, Jaguar and Land Rover, and is emerging strongly under the ‘One Ford’ mantra. GM is now doing the same in Europe, discarding Chevrolet to concentrate on Opel/Vauxhall. And VW’s German rival BMW has limited its acquisition trail to the very distinct Rolls-Royce and Mini brands and retained the BMW group values across its portfolio.

They’ve all benefitted from a focus on a single brand or a primary and secondary brands. It’s very hard for Volkswagen group to do the same. The VW range’s own brand is still strong in spite of becoming part of the uncomfortable brand portfolio dynamic. But the group’s brand is infinitely less than the sum of its parts. It’s impossible to say what it stands for in the way that you can about its volume peers Toyota and Ford.

That VW’s profits are suffering is not surprising. That’s what happens when a goal defined by volumes is set. If the goal were instead to define and differentiate the brands more clearly, with each given the objective of becoming the most desired among consumers, then the volumes would follow. They would do so more slowly but they would do it sustainably.

Is Audi sacrificing brand equity for volumes?

audi-nanuk3_1024-940x628The shape of the car market has changed completely in the last decade. It used to have a bulging middle, stuffed with the mainstream makes, and with premium and value brands occupying the poles.

Now it resembles an egg timer. The middle has been squeezed to within an inch of its life, by aspirational value brands from one direction and acquisitive premium brands from the other. Ford, Vauxhall/Opel, Peugeot, Renault, Honda and Toyota have had their market share ripped apart by Skoda, Kia and Hyundai, and BMW, Mercedes and Audi.

No brand comes close to Audi in shaping this new landscape. The company has embarked on an explosive product diversification programme, offering everything from a supermini to a supercar, with around 50 key model variants including crossover versions of all its volume products. It plans to increase to 60 variants by 2015, partly by entering some of the few segments it’s not already in, with Q6 and Q8 crossovers, a version of VW’s Up! mini and even a people-carrier. Audi’s value to VW was evident at the recent Frankfurt motor show, where it was given its own hall, separate from the one accommodating the group’s seven other brands, where its segment-busting mentality and naked ambition were shown by an off-road supercar concept.

It’s not only the largest of the premium makes by volumes; it outsells Fiat and Citroen, and is within 0.5% of Peugeot and Renault. And now it’s become the UK’s fourth-largest seller, behind just Ford, Vauxhall and VW. The fact that it’s achieved this without a single model in the top 10 emphasises its incredible spread. CEO Rupert Stadler’s recent comment that Western Europe’s market won’t recover before the end of the decade must have felt like a stab in the eye to the beleaguered mainstream brands.

An extraordinary success then. But the future may not be quite as simple: it will be a challenge to maintain brand equity as a result of shifting into so new market segments and growing so fast. Yes, Audi benefits from the scale of VW Group, meaning that it can develop high-quality products economically and price them competitively, so it will continue to churn out very good cars at affordable prices.

But the company has built its business on being premium and aspirational. Its ubiquity means it’s no longer truly aspirational and, by definition, it’s not exclusive: while the exceptionally low interest rates of the last few years have helped grow sales they’ve also helped commoditise the the productsA few years ago owning an Audi meant independent thinking and cool Bauhaus understatement; now it means nothing in particular.  If a brand is present in every part of the market including all the mainstream segments, conquesting business from the mainstream brands, can it continue to perceived as premium?

It will be interesting to find out, and only the customer will decide.

Toyota to lose no 1 spot but become sexy

gt86-exterior-8-1It’s been easy to overlook Toyota over the past few years.

Volkswagen is relentlessly pursuing the world number one spot. Hyundai and Kia are doing a convincing job in Europe of owning the Asian quality/value space Toyota occupied by default not long ago. The market is moving away from the traditional product segments at Toyota’s core: Nissan took the lead with the Qashqai crossover, and premium brands have come conquesting in these segments. And of course Toyota was hit hardest of all by the Japanese Tsunami, while high-profile recalls made customers question its quality and reliability – for many the reasons for buying a Toyota.

In Europe, sales fell by over 3% last year and by more than 8% in the first half of this year. But the company regained the top spot for global sales in 2012, has held on in the first half of this year, ahead of General Motors and Volkswagen Group, and its overseas sales have hit a record high. And remember that GM and VW have far more brands in their portfolios – in the latter case SEAT, Skoda, Audi, Porsche, Bentley, Lamborghini , Bugatti and MAN and Scania trucks in addition to the core VW brand. In comparison Toyota Motor Corporation has only the Toyota brand plus small contributions from Lexus, Daihatsu and Hino trucks. Toyota’s is a far more organic approach.

Toyota may well not hold off GM even to the end of this year, given the state of the Japanese market and a boycott of Japanese products in China following the territorial dispute in the East China Sea. But the company has woken up to the need for more appealing product. In Europe it has launched seven new variants or major variants in little more than 12 months, including the FT-86, an affordable halo car with real personality.

But most importantly, over the longer term, as Volkswagen’s acquisitive strategy and ambition inevitably pay off in volume terms and number one status, Toyota will be cashing in on its market leadership in low-carbon vehicles. Thanks to the Prius, it simply owns this space. And the hybrid drivetrain, previously regarded as a slightly clumsy compromise, is now seen as the bridge to the fully electric motoring the world isn’t yet ready for en masse. The arrival of the plug-in hybrid makes it more virtuous, while the adoption of hybrid technology by Ferrari and McLaren for their latest hypercars makes it sexy.

Scroll forward five years. Toyota number one? Unlikely. Toyota sexy? More likely than you’d imagine.