10 Apr 2013

What price image? Will the actions of today harm the profits of tomorrow for car manufacturers?

My wife has no real interest in cars beyond pretending to listen to me talk about them.  We watched the 2002 British Grand Prix from the Autosport Tower at Silverstone - the last grand prix before it was demolished.  I told her it was a special occasion.  She couldn't have cared less.

But this past week my wife has made two observations that have made me think about cars, the type of cars being made by manufacturers and who they are trying to appease with those cars.

Observation 1 - We sat and watched Fifth Gear together.  In the programme Tiff Needell and Sabine Schmitz compared a Porsche 911 Carrera S and a BMW M6 on track.  The M6 was slaughtered by the Porsche, despite carrying a huge power advantage.  The Porsches better poise and lighter weight made it much more elegant.  My wife said the Porsche looked "lovely, like a real Porsche should look", but that the BMW was, "dull and boring and looks just like any old car".

Observation 2 - We're looking to replace her old Land Rover Discovery with a something newer.  She is dead set on a newer Discovery TD5.  I suggested a VW Touareg, Porsche Cayenne or (gasp) BMW X5 as five year old Land Rovers do tend to come with reliability issues.  The car would be used for twice daily trips to the stables where her horse is kept and for towing a horse trailer.  Her response was that she would look stupid turning up at the stables in a Porsche, VW or BMW off-roader.  "Only a Land Rover will do."

After the initial shock that she actually cared about what the other girls at the stables would think of her car I came to realise that image is important for car buyers who aren't car enthusiasts.  If you are reading this you are probably a petrolhead, therefore you care about cars and what people think of your car.

The revelation is that normal people do too.

BMW, Porsche, Land Rover and the other luxury manufacturers have core markets and they have new, or developing, markets.  The core markets tend to be Europe, US and the Middle East.  The newer markets are China, Russia and India and these markets provide for a heck of a lot of sales.  A huge amount.

BMW's model range is like some flailing, many tentacled monster - trying to reach into each and every niche in every market possible.  The existing range gets heavier and more bloated each year as the passengers are cosseted and mollycoddled with millions of electronic devices.  The newer cars are lifestyle vehicles rather than practical propositions.  They are already being derided for some of their uglier cars - but these cars sell well in the newer markets.    BMW know this so are prepared to stick their necks out and damn the image.  They are here to make money, not look pretty.

Porsche sell vast amounts of cars to the newer markets, but most are Cayenne SUVs and Panamera saloons - hugely different vehicles to what consumers think Porsche represent.

The problems come if the newer markets hit the buffers.  If China and Russia have their own financial crises and stop buying luxury cars and the manufacturers run home crying, will we still feel the same way about Porsche and BMW, and Bentley if they make an SUV.  Or will they be tarnished somehow for having sold out and produced awful cars for the new kids on the block?

US, UK, European buyers tend to be very conservative.

The one manufacturer who have retained a sense of dignity and have kept their model range trim and tight is Land Rover.  Their products are so good they are sold worldwide in largely the same form.  Everyone wants a Range Rover or an Evoque.

But will the UK want BMW 3 GTs when the bottom falls out of the new economies?