Saturday, August 20, 2005

The High Price of Gasoline

The gas crisis predicted by many has arrived, as well as a great transformation in American society. News stories about the high cost of gasoline are abundant in newspapers, with the Detroit Free Press having one every day. Here's a quote from one such Free Press article found here:

"I love my truck," Coates, a tow-truck driver, says of his 2004 Ford F-150, "but I've got it on a lease and I want to get rid of it now. It costs $100 a week to get to work and back. You want to have fun and you can't because of the cost of gasoline."

These are the words of armageddon for dealerships and American automakers. Bound by countract, owners who lease gas guzzling cars can at any moment trade in their vehicles for something less expensive, and more fuel efficient. The result will be gas guzzling trucks and SUVs stuck on lots gathering dust. I expect future lease clauses to either eliminate the ability to trade in your SUV or pickup, or dealerships to not offer trade in deals for SUVs and pickups.

Here in Britain, this just isn't news. People complain about long commutes, and wish for the government to have more comprehensive public transportation, but the fact remains that a family that has already budgeted a certain percentage of their income towards fuel purchases, if those expenses are already high and the percentage rise in price is low, it just doesn't matter as much when compared to the American dilemma. Americans are seeing their fuel prices increase by 50 percent over the course of a calendar year. The reason fuel is so cheap in America is not because America is a rich country and blessed with an abundance of fuel, it is because the American government does not apply high taxes to gasoline. In Europe, expensive gas is the norm because of taxes. In a sense, European governments have been weaning their populations off of oil for decades. Like America they have experienced a war in the Middle East to maintain fuel pumping, a war which they lost. This would be the Suez Canal crisis of the 1950s. If America loses in Iraq and is forced to deal with an Iraqi government that sets the price of oil as they see fit, we will undoubtedly see an American society forced to make due with smaller vehicles.

What does this mean for domestic manufacturers? It means evolve or die. Ford and GM are quite capable of making fuel sipping cars. Ford is the most popular marque in Britain. Many of the Europeans I have met were surprised to learn Ford was even an American company. The problem for Ford and GM will be taking their European vehicles and modifying them for American tastes. We're seeing attempts already: Ford has a decontented version of the European Focus built on an older platform for America, and GM is attempting to bring over Opels as Saturns. GM is really in trouble, because it will have to somehow take one European line of cars and make them fit over several different American marques.

As Americans are shoehorned into smaller cars, they will want higher quality smaller cars. If we look to the north of the American border at Canada, we find that the best selling passenger vehicle there is the Mazda 3. Why is that? Canada is a country very similar to America culturally, with similar roads and highways, and yet it has higher prices for gasoline. The cars sold in Canada are basically the same cars sold in America with a few exceptions and additions. The Mazda 3 is basically the highest quality sub-compact on the market. It's bigger than the high quality Mini Cooper, and it doesn't face competition from the European style Focus, Renaults, Peugeots, or Opels. By being the highest quality car in its class in a market segment that usually features decontented inexpensive cars, it dominates. And it will continue to dominate until other marques that specialize in high quality small cars enter the market to compete.

In other words, expect big changes in the American market VERY soon.

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Thursday, August 18, 2005

Interview with Marc Baxter: Part II

First of all, my apologies in not writing this up sooner. I can make a plethora of excuses all more lame than the last, but I will refrain from doing so. Onward with the interview.

As I stated in part I one of this interview, Mr. Baxter works for BMW/MINI UK and is head of "Competitive Intelligence". How did he arrive at this position? Literally from the ground floor on up. He has worked for the company for 21 years, and started out as warehouse man. He does not have a university degree. In a way he is literally the embodiment of the company man. Such is a rarity in modern business now, but it's also a tribute to the steady growth and success of BMW in this market. Rough times have really never occurred for them in the last few decades with the possible exception of the MG-Rover debacle.

I asked Mr. Baxter how he felt consumers saw BMW. It is and has been in his words a "premium brand" from the getgo. While it may not have been as strong a luxury brand as it is now, even in the days of the first 3-series, there was a premium aura. How was this attained? "Quality is paramount," according to Mr. Baxter, and the company continues to make that clear to anyone it can. It is a program that has worked quite successfully.

In terms of the relationship with the German headquarters, it is a good relationship that entails frequent visits to that country. As Japan and Germany solidify their control over the international auto industry, directives come from abroad and are tweaked ever so slightly by the respective country sales department. And that is what BMW UK really is. It is a sales and marketing department. Unlike some Japanese companies that allow their larger markets to have a say on design and engineering, BMW is much more centralized. Production numbers and delivery numbers can be controlled, but there is little say-so by BMW UK in terms of engineering and design. And that makes sense. BMW has an important classy image, and to tweak that would be silly. Unlike say a Honda Accord which changes its design and focus depending on the market, a luxury brand such as BMW has the "luxury" of being constant. The world expects it.

What kind of investment has BMW made in the UK? A considerable one according to Mr. Baxter. Over 100 million pounds have been invested in the MINI plant at Oxford. Rumors that MINI might be manufactured in Germany are unfounded, regardless of the Pound's strength. It's evidence of a strong commitment BMW has towards the UK, and perhaps more specifically, towards the people it employs.

Competitive intelligence entails having a familiarity with rivals' cars, but more importantly with rivals' advertisements and sales. The strengthening and increasing of the presence of the brand in the UK in relation to rivals is important. The new 3-series has been well received by consumers and the press alike. The new 1-series is an attempt by BMW to enter into a more inexpensive area of consumers, but all the while keeping with the high quality reputation of the brand. Has the 1-series diluted BMW in any way I ask. Not at all according to Mr. Baxter. The 1-series is RWD, front engined and still keeps the driving dynamics of the rest of the line. Sales statistics seem to bear this out. And the reputation of the brand has not suffered in the slightest.

What about the relationship with the press, specifically the motoring press? According to Mr. Baxter BMW's relationship is an excellent one, but more importantly it is a relationship that is not subtly influencing. When car magazines give rave reviews to BMW, these reviews are genuine. BMW goes a long way to accomplish this. The fact that BMW is a smaller company that doesn't have the ad revenue to influence through bribes backs this up as well.

Part III in the next few days.

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Monday, August 15, 2005

Julie Roehm: Master of the Market

I'm not usually a fan of the belief that a good marketing job can sell any product. I think if a product is good, the buyers will come. Usually. I think that if a good product has a bad ad campaign, the buyers will still come. Come to think of it, have you ever heard of a best-selling product not having a good ad campaign? It sort of seems like the two go hand in hand, or perhaps one follows the other.

Of course sometimes I'm wrong, though my massive ego makes it hard to admit this. Enter Julie Roehm courtesy of an article from the Detroit Free Press. Ms. Roehm is in charge of marketing for Dodge.

Now I believe that in the mid-size pickup segment, Silverado, F-150, and Ram, you have basically three very competent products. At that point I think a clever marketing campaign can make a difference. And Ms. Roehm's has certainly. The word Hemi is now back in the English lexicon, even though the engines that these trucks use are not hemispherically opposed. But whatever.

I can't remember the last time I laughed at a car commercial. Most car commercials show the car driving down winding roads, with a nondescript driver usually wearing shades, Enya music in the background. But these actually told a story, complete with a mullet wearing redneck duo asking about the Hemi, and dreaming about owning one. Funny stuff.

Here in the UK where there is less self-imposed censorship by TV channels, I have actually seen a somewhat vulgar car ad on television. It is for the Mazda 5. A man loads up his Mazda 5 with mannequins, all female. As he drives one of the mannequins comes to life and is "turned on" by the car. She pulls at her skirt, and touches her bosom. You can even hear her sigh. At the end, the man parks, gets out of the car and notices that the female mannequin's nipples are hard through her dress. In America, if this ad were shown I would expect some bombings of Mazda dealerships. The French Mazda ad probably has the mannequins completely nude.

It's an interesting comparison to our American sensibilities. If you read the article on Ms. Roehm, we find out that she was responsible for the lingerie bowl ad for the Super Bowl. There was an uproar over something that was comparitively tame by international standards.

I don't know where I'm heading with this, but it seems to me that ads play an important role in our lives to an extent not really known. They are also a reflection of the country's culture. A more sexually free place like Northern Europe will have more sexually explicit ads. An American one will emphasize power and force.

Just a couple more notes that really have nothing to do with the above blog entry. Virtually every car I have seen in England has right hand drive. Even though with the strength of the pound you can import a car rather easily from Europe, most British refuse because the steering wheel is on the other side. I have seen only one truly American car over here; it was an older Lincoln Navigator. And the police sirens aren't that different from American ones either.

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