How to succeed by adding brands

VW, Chrysler strategies counter those of rivals

Helfman Dodge-Chrysler-Jeep-Ram in Houston will have seven brands by year end. Prior to Chrysler's 2009 bankruptcy it sold only Dodge.

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Volkswagen Group, bent on becoming the world's largest automaker, has amassed an expansive collection of brands to help put that goal within reach.

Chrysler Group keeps adding logos to its dealers' showrooms -- Ram, Fiat, SRT and soon Alfa Romeo.

Their moves contrast with those of other automakers, which have killed many struggling brands in recent years. In other cases, companies such as Hyundai and Toyota have chosen not to create brands for distinctive vehicles. But the VW and Chrysler strategies helped produce some of last year's biggest U.S. sales gains: 30 percent for VW and 21 percent for Chrysler, compared with 13 percent for the overall industry.

VW now finds itself on the verge of passing General Motors to rank second in global sales. Chrysler's approach has contributed to 34 consecutive months of year-over-year sales gains in the United States.

The tighter the focus of individual brands, "the better the results," said Steven Wolf, dealer principal at Helfman Dodge-Chrysler-Jeep-Ram in Houston.

Wolf, whose dealership sold only Dodge vehicles before Chrysler's 2009 bankruptcy and will have seven brands by the end of this year, pointed to the popular Super Bowl spot for Ram trucks as evidence that the strategy is working well.

"I don't think that would have ever happened if you didn't have a team that was dedicated to Ram," Wolf said. "Decisions are made by a guy whose only priority is Ram."

On the flip side, GM went from nine brands in the United States a decade ago to four now. Ford Motor Co. dropped from seven to two, though four of its five castoffs survive under new ownership.

"We're going against the grain," Chrysler-Fiat CEO Sergio Marchionne said last month. "Ford has decided to go with an oval strategy across the whole range, and we're the only ones that keep on carving up or have carved up our brand-name portfolio into more distinct pieces."

Brands by the dozen

Marchionne said at the Detroit auto show that Alfa Romeo, gone since 1995, would return by year end. That would give Chrysler and Fiat nine U.S. brands, plus the Mopar customization and parts division.

"I don't need any more, [and] we have no intention of reducing the number of brands," he said Jan. 14. More recently, though, Marchionne said Fiat might create a budget brand overseas to compete with Renault's Dacia.

VW also could be close to adding a low-cost brand, likely in emerging markets such as China. Chairman Ferdinand Piech said this month that he wants a 13th brand.

VW took full control of its 12th brand, Porsche, last year, as global sales for the company increased 11 percent to a record 9.07 million. GM sold 9.28 million vehicles.

Paul Gavel, general sales manager of Paul Miller Porsche in Parsippany, N.J., said he sees many positives in VW's ownership. He hopes VW provides more leasing support to better match offers from rivals such as BMW.

"The merger of the financial side will ultimately benefit all of us, and they've really held to what they said they were going to do in keeping the bloodlines separate," Gavel said.

Piech also has repeatedly expressed interest in buying Alfa Romeo from Fiat, but Marchionne insists it is not for sale; if anything, he joked, Fiat intends to buy VW.

Adding brands can produce rapid growth, as VW shows, but the prerecession experiences of GM and Ford show the dangers of trying to reach too broadly.

"The risk of Chrysler slicing itself up into smaller targeted niches is it has to support those," said Jeff Bartlett, Consumer Reports' deputy online automotive editor. "They have to put more money in, and it's more of a challenge for the dealer network."

Fewer brands, less share

GM and Ford said they needed fewer brands to focus better on their core businesses. But streamlining has cost them market share.

Ford sold Volvo, Jaguar, Land Rover and Aston Martin, then shut Mercury, leaving only the namesake blue-oval brand and Lincoln, which has struggled to regain attention from luxury-car buyers. The Ford brand was the top-selling U.S. brand last year, accounting for 97 percent of the company's total volume and more than quadrupling deliveries by Chrysler's largest make, Dodge.

Ford's U.S. share with two brands in 2012 was 15.5 percent, compared with 15.8 percent in 2007, when it had seven brands. Volvo, Land Rover, Jaguar and Aston Martin, the former members of Ford's Premier Automotive Group, combined for nearly 1 percent of the market last year.

Meanwhile, GM's share dropped to 17.9 percent in 2012, from 23.7 percent in 2007, when it had twice as many brands. None of GM's four remaining U.S. brands -- Chevrolet, Cadillac, Buick and GMC -- has increased share since 2007, though their remaining dealers are selling more vehicles on average today.

GM killed Hummer, Pontiac and Saturn in 2010, and Saab, which it sold to a Dutch carmaker, Spyker, has since shut down. It also closed Oldsmobile in 2004.

On the upside, "GM today has a much more clear direction of where they want to go," said Jessica Caldwell, senior analyst with Edmunds.com.

Chrysler has lost share as well, dropping from 12.9 percent in 2007 to 11.4 percent last year, but its sales have been growing more rapidly since the recession. Meanwhile, VW's U.S. share more than doubled, from 2 percent to 4.2 percent.

Hyundai and Kia have increased their share significantly in recent years without creating new brands. Hyundai considered spinning off its top-end nameplates, the Genesis and Equus, into a separate luxury brand but instead decided to keep its full lineup together.

A Hyundai spokesman said adding Genesis and Equus within the same brand has helped the image of lower-end models.

"Our premium products have had an impressive halo effect on our overall brand metrics since launch," the spokesman said.

Tough to build brands

Forming a new brand that can thrive in a crowded marketplace is no easy task, as recent evidence shows. Hummer and Maybach, Daimler AG's ultraluxury marque, each lasted about a decade, Smart has struggled to get traction and Fisker's prospects are uncertain. But Mini, Ram and Fiat are growing quickly.

Meanwhile, other brands have disappeared, including Suzuki and Isuzu, which conceded defeat and pulled out of the U.S. auto market. Analysts speculate that several more could follow suit if sales don't pick up.

In the coming years, Caldwell said she doesn't expect to see as many brands created. "I don't think there's a need for another brand out there," she said.

Yet many automakers are being tempted to exploit the growing North American market by adding models and competing in more segments.

"Every time an automaker says, 'This is who we want to target with a brand,' it never seems to quite work out that way," Caldwell said.

Toyota made a big play for young consumers when it launched Scion in 2003. Scion posted impressive numbers early, but last year's U.S. sales total of 73,505 units was only about two-fifths of its 2006 peak.

Curiously, Scion placed last in Consumer Reports' 2013 Brand Perception Survey, released this month, despite being sold in the same showrooms as Toyota, which ranked first. The survey asks consumers to name the brand they think is best in categories such as quality and value. Previous last-place finishers in the survey, which began in 2009 -- Saab, Suzuki, Hummer and Isuzu -- have all gone away.

Doug Murtha, vice president of Scion, said the brand is "not about volume" but rather to give Toyota an opportunity to "mess around a little bit, do some new things, without jeopardizing Camry, Corolla and RAV4 sales."

Scion, which first became known for quirky, boxy vehicles and has drawn raves for its FR-S, a rear-wheel-drive sports car introduced last year, only needs "enough volume to get them to continue to entertain new ideas and to experiment with us," Murtha told Automotive News.

Brand or family?

More recently, Toyota has created what it calls the Prius "family," offering four versions of its popular hybrid car. But it kept them under the Toyota brand rather than spinning them off as a full-fledged brand, as Chrysler did by carving Ram trucks out of the Dodge lineup in 2009.

Chrysler officials explained their move by saying it would give Dodge and Ram more distinct marketing identities. But analysts said separating Prius from Toyota would be a mistake.

"The Prius has been such a good brand ambassador for Toyota," Caldwell said.

Marchionne, when laying out future product plans Jan. 30, said Chrysler is ensuring its brands will not "invade each other's turf" and that it does not return to the era when brands overlapped with each other in dealer showrooms. Future plans to that end include eliminating one of its two minivans and discontinuing the Dodge Avenger, a sibling of the Chrysler 200 sedan.

Just because an automaker creates a brand does not guarantee consumers will get the message. The Ram Super Bowl spot this month got a lot of people talking -- but in many cases about the wrong brand. Dozens of news stories, hundreds of Twitter posts, and many of the conversations on talk shows the next day complimented not Ram, but Dodge.

Of course, confusion among some consumers can work in Chrysler's favor. "I've had people tell me they wouldn't buy a Chrysler because they took the bailout," said Wolf, the Houston dealer. "But they'll buy a Jeep or a Dodge."

You can reach Nick Bunkley at nbunkley@crain.com. -- Follow Nick on

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