Licensing links brands, people with goods

They can't afford a car payment, and they may drool on the seats, but marketers for the Chrysler group and Ford Motor Co.'s Premier Automotive Group are building brand identity among babies. This year, thousands of children will be riding in Jeep and Land Rover strollers.

At BMW, dealers are having trouble keeping the company's new skateboard in stock. The $495 street carver uses the same kind of suspension as the BMW 5 series and, according to BMW, allows riders to experience the feeling of snowboarding and surfing on the road.

Licensing, or agreements that allow one company to use another company's brand name or image on products, is a hot growth area for automotive marketers. Automakers are talking to everyone from video game companies to toy makers to eyeglass designers hoping to capitalize on the high demand for branded merchandise.

License! magazine reported that sales of licensed goods in the automotive industry amounted to $6.6 billion or 3.7 percent of the licensing industry's $177.4 billion in revenues in 2001. The auto industry collected $5.9 billion and $4.4 billion from the sales of licensed goods in 2000 and 1999, respectively. The revenue totals include almost all licensed branded goods except for the sale of co-branded vehicles such as Ford Division's Eddie Bauer Expedition.

"The whole purpose of licensing is to take what is currently understood as an automotive brand and try to make it a bigger marque for the customer," said Jan Valentic, vice president of global marketing at Ford. "We've always done die-cast (toy) vehicles, but now we're getting into perfumes, strollers and things that take you in new directions but still reflect what the brand is about."

General Motors and the Chrysler group are going a step further. Both companies are opening retail stores to sell their branded merchandise. GM helped Paradies Shops Inc. of Atlanta, an owner/operator of retail stores in 60 U.S. and Canadian airports, open a store called the GM Collection in the new McNamara Terminal at Detroit Metropolitan Airport. Jeep shops already are in department stores of some overseas markets and more are planned for 2004. (See related stories below and on Page 4M.)

Valentic said Ford Motor has no interest in opening retail stores.

License! magazine reported that GM sold $2 billion in licensed goods last year. Gene Reamer, GM's licensing and merchandising manager, would not divulge sales numbers but said GM's licensed goods represented a 20 percent increase from 2000. He wants to continue the double-digit growth that the company has had since 1990.

Valentic said Ford Motor's licensed sales were about $500 million in 2001, and 10 percent to 15 percent annual growth is a goal. She said the company has not been satisfied with its level of licensed business and entered a joint venture with the Beanstalk Group in New York in June 2001 to seek more opportunities.

At Chrysler, the company's Jeep nameplate racked up $375 million in licensed sales last year, but the company anticipates the Dodge name will surpass Jeep in licensing sales in the near future.

"Dodge could exceed the Jeep numbers with our entrance into NASCAR and participation in the Craftsman Truck Series," said Marvin Klein, Chrysler's manager of licensing.

Automakers make money on licensing by charging a half percent to 15 percent fee on the wholesale price of the product with its trademark on it. Before 1990, GM charged a flat fee to toy makers, Reamer said, but in 1990, GM began to charge the toy makers 3 percent to 5 percent of the price of each car sold to retailers.

Reamer said clothing gets 8 percent to 10 percent, and items such as the Corvette boat receive a 3 percent to 5 percent royalty. He said low-priced items, such as food, receive a half percent royalty; while high-volume, low-priced small accessories such as key chains receive a 10 percent royalty.

But some co-branding agreements - in which automakers pay another company to put its name on their vehicles - deviate from that model. For instance, Subaru's agreement with L.L. Bean to co-brand its Outback calls for the automaker to pay the outdoor goods company a per-vehicle fee. The fee includes the right to put L.L. Bean's name on the Outback and promotional tie-ins, such as placing Subaru vehicles in L.L. Bean catalogs.

"We look at it as a total overall value for Subaru; it may convert to a lump-sum fee in the future," said John Righini, marketing services manager at Subaru of America Inc. Subaru sold 12,500 L.L. Bean edition Outbacks in 2001, 2,500 more than the company had projected; and it is considering expanding the Bean label to other models, Righini said.

On the other hand, Lexus Division's co-branding agreement with leather goods maker Coach is based on a lump sum fee. The fee includes the right to brand vehicles with the Coach name for two to four months plus promotional opportunities in Coach stores. Lexus introduced the RX 300 Coach Edition in April.

"The Coach vehicles typically perform better both in terms of the turn rate and gross profitability than non-Coach vehicles," said Mike Wells, vice president of marketing for Lexus Division. He said the luxury maker will consider more co-branded agreements.

While some carmakers go headlong into licensing their name brands on a variety of goods, others are wary.

"Our core competence is selling cars, trucks, parts and service," said Steve Sturm, vice president of marketing for Toyota Division. "If you're going to put your name somewhere else, there's got to be a demand for that name.

"The Chevrolet Corvette has a huge history and cachet in the United States. The Toyota products in essence are not those kind of products. Camry, Corolla or Celica don't have the cachet that a Corvette has. So we've never been approached on that behalf on the U.S. side."