Saving North American cars

Domestic vehicle market share has never been lower - can new models, new consumer targets and a new focus on quality turn things around?

In 2002 passenger cars manufactured by ‘The Big Three’ accounted for only 37.8% of Canadian sales, marking the lowest market share ever for the North American car. Part of the reason for the drop is simply more competition, but automakers and analysts agree that to recover, domestic automakers need to stop discounting, better understand and market to consumer needs, broaden the consumer target for key models and focus more on quality.

The Canadian automotive consumer has become like a kid in an ice cream shop; faced with a dizzying array of tantalizing options, there isn’t much probability that vanilla is going to have many takers when Rocky Road is in the mix.

The Big Three automakers – Ford, General Motors and DaimlerChrysler – have become much like vanilla in the automotive landscape, as more Canadians are opting for foreign brands.

In fact, according to Richmond Hill, Ont.-based DesRosiers Automotive Consultants, 62.2% of passenger cars (not including light trucks) sold in 2002 were import nameplates, while only 37.8% were a model marketed by The Big Three. Analysts and automakers alike agree the solution lies in a move away from discounts, a better understanding of consumer needs, a broadening of the target for key products and a stronger focus on quality.

Whatever they do, they have their work cut out for them: The Big Three’s market share in Canada has never been so low. In the next four years, their collective market share (including light trucks) will drop from about 60% to 58%, according to Toronto-based automotive analyst J.D. Power & Associates, while the Asian manufacturers’ total share will climb from 34% to 36%, and the European automakers will see a slight rise from 6% to 7%. As recently as 1998, The Big Three’s share was at 70%.

Analysts cite a number of reasons for this drop, and one mitigating factor is the sheer increase in competition. According to Richard Cooper, executive director of J.D. Power, there were 27 brand new car models introduced in Canada alone in 2003, a number expected to jump to 30 this year (several, such as GM’s new Cobalt, were recently unveiled at the North American International Auto Show in Detroit). That’s more than double the new entries in 2001. Redesigns have also become more prevalent: There were 21 in 2003 and 31 are planned for 2004, compared to only 14 three years ago.

Another hindrance is oversupply, which has led to heavy incentives. Dean Mullett is the leader of the automotive industry services group at Toronto-based PricewaterhouseCoopers. He says Canadian auto manufacturers produced between 2.3 and 2.4 million vehicles in 2003 (as of early December) but have only sold 1.3 to 1.4 million during the same time period.

‘There’s a big gap there – sales are flat overall, but a lot of it has been driven by incentives. The incentives are there to buy some time to address some of the competitive issues a lot of these automakers are facing.’

In the meantime, though, the incentives have created a monster: an expensive consumer who isn’t the least bit loyal. But Mullett says it’s possible for the domestics to wean themselves off 0% financing – by introducing new and innovative product with unique styling as well as improving quality. ‘The large majority of people are looking for something that has some lustre and an enjoyable driving experience.’

That’s what DaimlerChrysler aspires to provide as it gets set to debut nine new products, according to VP marketing Ron Smith. The Windsor, Ont.-based company has had a lacklustre 2003, experiencing a 13.7% drop in sales overall.

‘Our business model was to manage the profitability portfolio and not to follow exactly what GM and Ford were doing – our incentives levels were not quite as high as theirs. That can have an effect on retail sales.’

Smith hopes to get ‘away from the incentives war’ altogether in 2004, with outstanding product that consumers ‘want to buy because of what it is and what it represents. If you have the right product with the right image, they won’t care about the incentive dollars on the windshield.’

The Chrysler 300 series is an example of this shift, according to Smith, as the four-door, rear-wheel-drive sedan has ‘a completely new design’ with a V8 engine for 2004. ‘We want to have the best designs, plus tremendous value.’ As a result, marketing initiatives will focus on those product attributes versus the ‘deal of the day.’

In general, what The Big Three need to do, according to J.D. Power’s Cooper, is understand the target much more intimately – and speak to their desires accordingly. ‘Consumers are much more savvy and you can no longer take a broad shotgun approach. At the same time their needs can cross a broad spectrum of demographics.’

Richmond Hill, Ont.-based Nissan Canada, for one, has had success with this approach, in regard to both its Nissan and luxury Infiniti brands. According to director of marketing Ian Forsyth, in an auto market that witnessed a 5% drop in sales in 2003 versus the previous year, the Nissan brand was up 10% and the Infiniti up 20%.

Nissan’s strength, says Forsyth, is that it has developed models that ‘have very understandable presentations to the consumer,’ which are then emphasized in advertising by its AOR TBWAToronto.

For instance, the Infiniti G35, which offers functions such as navigation, voice response and advance tracking technology, is for consumers who want to be ahead of the curve – younger professional males, with a higher than average household income.

‘We bring this sense of what might be coming in the future to you today, and then we wrap that in this performance/luxury package,’ says Forsyth, who adds that the tagline for the G35′s ad campaign is in fact ‘accelerating the future.’

Similarly, the company was astute in recognizing the emergence of a new segment in 2002, when it introduced the Murano, a crossover SUV for those who prefer paved road adventures over rugged escapades.

But Nissan has also been careful not to alienate secondary target groups, to its benefit, points out Cooper. This can be seen in the marketing strategy for the Nissan Quest minivan. Instead of wholeheartedly pursuing soccer moms with its messaging, the automaker introduced a character who is indeed a soccer mom, but is denying the fact.

The design of the Quest also shies away from the traditional minivan look. ‘The Quest went on a more sophisticated platform and said, ‘yes, it gives you all the convenience and practicality of a minivan, but you don’t have to drive a box,” says Cooper. ‘They’ve addressed their traditional target, but in a different way, and I bet that would appeal to others who have initially rejected it as a minivan.’

This idea of broadening the target is one that other auto manufacturers appear to be adopting. Honda Canada, for example – which also saw its sales decrease in 2003 – introduced two new Civic Nation spots recently. One of the ads features two characters – a young Asian male with a bright orange Civic, and an older Caucasian guy in a darker model – who salute each other on the road. Produced on contract by Toronto shop Grip, the original goal was to ‘get the age of demographics down,’ says Jim Miller, the Toronto-based company’s VP of corporate affairs.

But Honda had to tread carefully so as not to turn away older folk. ‘The Civic spans many generations, and while it has youth appeal, we were also trying to get away from the harder music and the edgier tone.’

Ford Canada, which will have seven new models by the end of the year, is also defining its audience more liberally. The refurbished F-150, Ford’s diamond in the rough for 2003 (the automaker saw sales of cars and light trucks drop 6.4% in 2003) is an example. While continuing with a dependability message for the core consumer was imperative, the automaker also aimed to widen its fan base by portraying the F-150 pickup as a luxury ride. Hence the entire marketing campaign carried the tagline ‘Rethink Truck.’

Says VP of general marketing Mike Herniak: ‘It’s for people who are looking for utility, but also comfort. When they get inside they can see the spaciousness and luxuriousness.’ To that end, Ford invited customers to test-drive the vehicle, as well as other pickup trucks on the market so they could compare the rides.

The final – and perhaps toughest – issue North American carmakers will have to deal with before they can get back in the saddle is quality. Rightly or wrongly, many of the imports are perceived as better made and more dependable, and Toyota for one, has parlayed this perception into the biggest automotive sales increases in Canada, with sales up 8% in 2003.

‘Toyota is getting a lot of leading category high marks,’ points out PWC’s Mullett, who adds that BMW and Mercedes-Benz are also strong on quality. ‘That’s how they’re penetrating markets – they have new product coming out that seems pretty exciting and then the quality stands behind it.’

For The Big Three, however, quality has been a difficult proposition, partly due to their sheer size. ‘They’re big machines and when you are in business that long, it’s harder to change than someone who is new to the marketplace.’

But that’s not to say they aren’t trying. Mullett believes that test-drive programs instituted by General Motors and Ford go a long way to proving that they stand behind their product. Such initiatives can also help build trust, he says, which is ‘important to maintaining customer loyalty.’

And the future bodes well for DaimlerChrysler too, because the firm is introducing a flexible plant in Brampton, Ont., which will enable it to produce two or three models on the same assembly line – a strategy that has been key to Toyota’s ability to market low-maintenance vehicles.

Explains Mullett: ‘When they get a hot seller, they can put that out into the marketplace, whereas before they had to sell what came off the production line.’

So perhaps in the future there will be less vanilla.

Ford: Rethink advertising

With the launch of its F-150 truck, currently the most popular vehicle in Canada, Ford has proven that going beyond traditional means of communication can pay off in a big way.

While its F-150 campaign, dubbed ‘Rethink Truck,’ included four TV and radio spots apiece, with voiceovers by Canadian actor Kiefer Sutherland, the automaker felt it couldn’t deliver its full message – mainly that the F-150 is as luxurious as it is dependable – in just 30 seconds. So the company launched an ‘entertaining’ 30-minute infomercial, loosely based on the reality series Fear Factor.

Ford was pleased with the results. The DRTV effort, created by Toronto-based agency Wunderman, spawned 7,000 phone calls, beating expectations by five times, and 40% of callers said they were now interested in purchasing the F-150. In November, the second full month after the truck’s re-launch, the vehicle had amassed 45% share of the segment.

As a result, Ford will use a similar strategy to launch its new Freestar. This time, the infomercial, which first aired in December and is called ‘My Big Ford Freestar Wedding,’ follows a brother and sister-in-law who use the minivan to help plan for their sister’s nuptials.

Success from the F-150 campaign suggested not only that a creative marketing strategy pays off, but that supporting a brand on an ongoing basis does too. ‘In automotive we tend to launch a product and then move on to other marketing initiatives, but that’s not the best way to build a brand,’ says Mike Herniak, Ford Canada’s VP of general marketing, who says the automaker has a ‘launch and sustain plan’ for the F-150. ‘We need to keep the momentum.’

And momentum will become increasingly vital as a battle brews in the pickup truck market, points out Chris Travell, VP for the automotive group at Maritz Research, Toronto. Nissan is entering with the Titan, Toyota has the Tacoma, and Honda is also planning to unveil its response. As in other vehicle segments, the Big Three will come under heavy fire from foreign competition, which in the past has largely stayed out of the pickup category.