The Mortal Sins Of The Auto Business: New Car Brands

Automortal Sins is an infrequent series about the true sins in the auto business. It won’t be the sins which some bloggers regard huge. Building the wrong car once in a while is a minor iniquity compared to the huge, most egregious, and definitely mortal sins committed by automakers, without the smallest amount of remorse.

Creating a new car brand is not a sin often committed anymore in the industry. People learn. Outsiders, from Fisker to Coda and Tesla however are still found munching from the forbidden tree. Some already roast in hell for their sins, others will. Creating a new car brand is one of the most mortal sins in the business. You probably won’t believe me, but I will bring a prominent witness.

There are few things in the world of cars that take as long and as much money as successfully establishing a car brand. It does not take a lot to be unsuccessful. I am not talking about “branding,” that little understood but nonetheless much debated black art. I am talking about the suicide mission of creating a new car brand.

The annals of automotive history are littered with dead or invalid brands. The dead ones are mostly forgotten. Invalid brands hobble along, carrying the smell of impending death. Unless you are blessed with being a storied carmaker, don’t try to become one.

“What most other brands have and Lexus lacks, is a story, a narrative, history.”

This did not come from a lone scribe. It was said yesterday by Toyota’s CEO Akio Toyoda, who also made himself chief of the Lexus Division. Asked why, Toyoda said:

“I happened to be born with the company name. I may be able to make a contribution to our effort to build a brand. The lack of history may be the weakest point of Lexus. Building a brand is a time consuming endeavor. For Lexus to be perceived as a true brand will take a lot of time, starting here.”

These are frank words from the chief of a brand that already can look back at a quarter century of a successful past. What Toyoda tries is to transfer his grandfather’s and father’s DNA into a brand that lacks an important ingredient for a brand’s success: History. If Toyoda is troubled by a lack of history on the part of Lexus, imagine the trouble you are in if you have no history at all.

Two years ago, at the annual Chinese auto industry confab in Chengdu, executives of Chinese car companies lamented that they “compete against brands that sometimes are over 100 years old.” However, this did not keep them from stamping out brands as if they are steel pots. Then came the rude awakening. A year later, at the same conference, the CEO of Dongfeng, one of China’s largest automakers, said that the brand binge was misguided, “irrational, incompetent, and immature.” He was right.

A storied history alone does not guarantee success, but lack of lineage more or less assures a car brand’s premature passing, or worse, it can lead to the brand getting bogged down and nowhere after initial successes.

A textbook example of DNA deficiency are the luxury brands created by Japanese automakers as an answer to the allegedly voluntary import restraints. They initially thrived, ironically nurtured by regulations that were supposed to protect the U.S. auto industry. Lexus succeeded faster than the rest, because the brand did not simply say that the customer is king, Lexus actually did treat its customers as royalty, and sold its cars at a discount to other premium brands that exuded arrogance.

Outside of the artificial climate, the Japanese premium brands failed to blossom. I worked for a large European OEM when the arrival of Lexus on European shores was awaited with greater trepidation than the Americans at the beaches of Normandy. However, the onslaught fizzled. Some twenty years later, Lexus is yet to break out of its tiny European beachhead that resembles Dunkirk more than Omaha Beach. Lexus managed to sell 24,600 cars in all of 2012 in all of Europe, for a market share of 0.2 percent.

It is quite telling that all three Japanese premium brands are of little, or no consequence in Japan, in the land of their shallow roots. Lexus sold 43,657 units at home in Japan last year, similar to what Mercedes (41,911) and BMW (41,102) sold in an allegedly closed car market. Honda and Nissan did not even try to bring Acura and Infiniti home. It is quite telling that Dacia, a brand that harkens back to the bad old days of a Romanian dictator called Nicolae Ceaușescu, but at least it harkens, can be more successful than a Tata Nano. Nissan wisely dusts off its Datsun brand for its upcoming entry into the low cost market. Sure, there are many other factors that lead to victory or defeat, but if your history books are empty, your ledgers will most likely stay the same.

I was there during Audi resuscitation in the 70s, and I was peripherally involved in the CPR. Executives of Japanese OEMs asked me a few times what “the secret of Audi” was. Each time, I answered, truthfully, that there is no secret. They looked at me as if they did not believe me, but now that their boss said it, maybe they will.

It took half a century from Audi’s takeover by Volkswagen in the mid 60s to where Audi is today, and most of its resurgence is recent. Often forgotten: Audi has a rich dose of that ingredient called history. Audi is Latin for Horch, another storied brand that went bust. Gottlieb Daimler’s four wheeler was a slider, built by NSU, a company that later merged into Audi. Daimler provided his engine. Most of this may not be readily present in the minds of most customers, but if you ask, it’s there.

As Messrs. Studebaker, Packard, Nash, LaSalle & Co will concede, history is no guarantor of longevity. Victor Muller will probably deny that owning Saab doesn’t help much if you run out of money, time, and luck. Should one insist on creating a car brand out of nothing, it will take untold amounts of money, time, and luck to be successful.

What Toyoda said yesterday should be nailed to the wall or, if necessary, to the foreheads of all who think of creating a new car brand, or of buying stocks in one. If you want my advice, I can quickly come up with more entertaining ways to spend all that time and money.