Friday, March 6, 2009

Lemmings: Following U.S. Auto Manufacturers

American auto manufactures are facing serious obstacles: over-saturated dealer networks, perceived quality deficiencies, the shaky economy, unsustainable union contracts and increasing government oversight. But it’s the portfolio redundancies that have been a mystery for some time.

Having two or three brands in the same portfolio that offer ostensibly identical products (e.g. Chevrolet Suburban, GMC Yukon, Cadillac Escalade) is a losing proposition. Operational efficiencies push vehicles in the same portfolio closer together, while dealer interests keep individual brands alive. However, these are conflicting forces. The efficiencies gained in manufacturing are offset by redundancies created in badging and marketing. And the effect on consumers is ambivalence. Virtually identical offerings trying to differentiate themselves exclusively via marketing does not fool or inspire consumers. Sadly, all this effort and expense could be spent competing against external competitors rather than within the same portfolio.

With so many good examples of bad business models available in the American auto industry, it seems illogical that foreign auto manufacturers would follow suit. But it appears that the Europeans are doing just that. While not yet completely identical, the Audi Q7, Volkswagen Touareg and Porsche Cayenne are remarkably similar in construction, appearance, performance and price—and becoming more so. One wonders if Volkswagen will model its pension plan after the Americans’ as well.

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