A casual observer could be excused for thinking that volume is the only thing that matters to the auto industry:
“The annual global industry sales leader for 76 years.”
Headline on GM’s website
“Toyota ends GM’s reign as leader in global sales”
New York Times, April 24, 2007
“VW Group has declared its intention to become the global leader, overtaking Toyota by 2018”
GM may have been the leader for 76 years, but we all know how that worked out. The quest to be the global leader in sales drove Toyota to the breaking point where it lost its legendary focus on quality and reliability. The result? The biggest series of product recalls in history, allegations of unintended acceleration, thousands of lawsuits, and a decline in brand perception that will take years to recover. Now Volkswagen has set its sights on the global sales crown and some are questioning the wisdom of the company’s leadership.
You can’t spend much time working in or around the automobile industry without feeling the relentless pressure of needing to sell more.
The problem that auto manufacturers face is that their business has extremely high fixed costs. Unlike “variable” costs that go up and down based on the amount of vehicles produced, fixed costs remain the same regardless of volume. Fixed costs include all the developmental investments, labor expenses and the costs of the factories themselves. With such high fixed costs, the more vehicles the manufacturer can produce, the lower the cost per unit and the better the margin. In short, higher volumes equal higher profits.
So bigger is better? Maybe.
The performance of the automotive brands in Interbrand’s “Best Global Brands 2010” study might lead to another conclusion. Interbrand’s study uses 10 principles to assess “brand strength” and ultimately places a “value” on the brand. Ten automotive brands made the list of the top 100:
What’s interesting is that the brands that made the list fall into two distinct camps; (more…)