LONDON – Automakers are paying more attention to their brand image to cope with an increasingly competitive European market.
Strong brands can successfully defend their profit margins and increase sales, said participants in the third annual Automotive News Europe Analysts Roundtable here. But weak brands are forced into costly incentive wars to protect their sales volumes, so their profit margins slip.
The four analysts see BMW as the most-respected European brand.
Everyone tells you about the driving performance of a BMW, which has a very clear brand image, said Nigel Griffiths, director of international automotive industry research at Global Insight in London.
But as it broadens its model range and introduces low-end cars, BMW is becoming so big and successful that it runs the risk of losing its exclusivity and thus its premium image.
BMW is on the way to becoming a mass brand in term of volumes, said Philippe Houchois, head of European auto research at J.P. Morgan in London.
Volkswagen is moving the opposite direction.
VW is the biggest example in Europe of a brand moving from volume to premium, said Adam Jonas, European auto analyst at Morgan Stanley in London. But in the process, they lost the low end of the market.
VW was once the benchmark for mass-market quality and style, but Jonas feels VW will need a prolonged revolution to restore that image to the brand. He believes VW brand group boss Wolfgang Bernhard, the former Chrysler chief operating officer who joined VW last year, may bring back the emotion once associated with the VW brand.
Adam Jonas of Morgan Stanley (right) makes a point as Philippe Houchois of J.P. Morgan (left) and Automotive News Europe Managing Editor Jesse Snyder listen.
Audis brand image is on the rise, but Jonas thinks it is penalized by being part of the VW group.
But the analysts believe sister VW group division Seat is successfully boosting its brand image by moving up-market.
You can make money if you position up market of the volume segments, Global Insights Griffiths said. Seat made the right moves to become the Alfa Romeo of Spain.
Steven Blackman, who heads the automotive practice at consultant Ernst & Young in London, considers poor-perceived quality the main problem for Alfa Romeo. He called the Fiat group unit a brand that lost its DNA.
But Global Insights Griffiths said even a brand that has suffered a major image decline can correct this through good products.
Carmakers operating in the mass segments have the dual challenge of keeping volumes high and safeguarding quality.
Analysts cited French carmaker Renault for having a broad lineup, as well as strong design, quality and safety features.
The combination of a weak brand with small volumes could be lethal, as brand legitimacy also comes from the volume, J.P. Morgans Houchois said. He thinks that if Fiat, Seat and Skoda were to simply disappear, the market wouldnt notice it, because their volume is too small and their brand proposition too weak.
Said Ernst & Youngs Blackman: Mini is No. 1 in terms of reconstructing a brand and they have an excellent sales proposition.
He noted that the strength of the brand compels buyers to pay extra for an extensive range of options. These boost the eventual transaction price of each Mini up to 50 percent above the base sticker price.
Brand consistency is a major success factor and Toyota is the most consistent brand in everything it does, Jonas said.
As it adds diesels, even Toyota luxury brand Lexus will grow in Europe, he said.
Ford has made mistakes with its Jaguar luxury brand, Blackman said, but they have not killed the brand image yet and consumers are still open for good Jaguars.
Morgan Stanleys Jonas said with solid management, weak brands can rebound.
Ten years ago, nobody considered PSA/Peugeot-Citroen as a possible survivor, he said. But it is.
Jonas sees a potential broader alliance between PSA and Toyota in the future. He acknowledges that alliances are not Toyotas historic approach to growth, but lately, Toyota has done many things which are not typical of Toyota.