How Many Brands Are Too Many? - Autoline on Autoblog with John McElroy

With gas prices soaring and SUV sales sinking, General Motors just put its HUMMER brand under "strategic review." That's generally the term used when a company is getting ready to dump a brand. And that begs the question, how many brands does a car company really need?
There are a number of companies that have multiple brands, like GM (Chevrolet, Pontiac, Buick, Cadillac, GMC, Saab, Saturn, Opel, Holden, Vauxhaul), Ford (Ford, Lincoln, Mercury, Volvo), Fiat (Fiat, Alfa Romeo, Lancia, Ferrari, Maserati) and Volkswagen (VW, Audi, Seat, Skoda, Lamborghini, Bentley, Bugatti). Some of these brands are strong and successful. Some are not.

The big, successful automakers these days seem to have only two brands, a mass market brand and a luxury one. That's the model Toyota, Honda, and Nissan are following. And that sure seems to be the business model that will work best for the foreseeable future.

John McElroy is host of the TV program "Autoline Detroit". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to continue reading this week's editorial.

Of course, it wasn't always that way. There was a time in the not too distant past when multiple brands allowed an automaker to increase its market share and its economies of scale. But today that business model doesn't look nearly as attractive. Here's why.

Back when car companies pretty much operated in their country of origin and there wasn't much international competition, having one brand could be very limiting for a company. It could only go after one segment of the market. This is why Alfred Sloan built up GM's portfolio of brands under the motto, "A car for every purse and purpose." The idea was to start customers with an entry level Chevrolet, then move them up the price scale to the next brand on the ladder, to Pontiac, then Oldsmobile or Buick, and ultimately to Cadillac.

It was a strategy that worked brilliantly for nearly half a century. But the strategy fell apart, at least for GM, when automotive trade became really big on a global basis.

Until then, GM's portfolio of brands gave it the greatest economies of scale of any automaker. But when companies like Toyota and Honda were able to expand their sales to many markets in the world, they were able to offset GM's advantage. They could make Corollas and Civics in huge numbers and sell them everywhere.

Of course, GM could have done the same. But it ran, and pretty much continues to run, its operations on a regional basis. Europe's Opel never wanted an American Chevrolet, and visa versa. In South America, GM's Brazilian and Argentine operations had almost no product overlap. Holden in Australia was literally in a world of its own. And so it went. The company never achieved global economies of scale, though it's now working feverishly to try to get there by sharing platforms and powertrains.

Toyota can pour all of its development and marketing money into two brands (I'm ignoring Scion for the moment since it only exists in the U.S. market). Every year the company comes out with about four new or significantly refreshed Toyotas and about three new Lexus models. How can a Chevrolet or a Cadillac compete when they each come out with maybe one new model a year?

Japanese automakers do have a myriad of brands in their home market. But the brand differences are all in the badges. And Japan is a closed market for all practical purposes, which allows its automakers to get away with practices they couldn't replicate elsewhere.

Unless the cost of developing and marketing separate models for multiple brands is offset by higher profit margins, automakers with multiple brands are at a disadvantage.

That's why GM will likely kill off HUMMER, and why Pontiac and Buick could end up on the endangered species list. It's why Ford will kill Mercury and sell Volvo. And it makes me wonder how long VW will be able to maintain such a large portfolio.


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