The D-segment of the luxury market is tough.  The best luxury manufacturers in the world bring their best technology, design and engineering to the table and the result is the world’s best 4-door sedans: BMW 7-Series, Mercedes-Benz S-Class, Lexus LS, are perennial best sellers.  It’s tough to break-in, Audi has struggled for years to build volume in the segment with its A8 despite having what many would say is the best product.

So what makes Hyundai think they can introduce the Equus into this rarefied air and succeed?

Let’s get one thing out of the way.  From a product perspective, the Hyundai Equus will be a very able competitor to the best luxury sedans in the business.  Hyundai has demonstrated that they build exceptional quality cars at multiple price points, the most recent being the Genesis, a near to mid luxury entry.  The Equus is already getting good reviews and at $55,000 will offer D-class luxury at a very reasonable price.

The issue for Hyundai is not the product or the price.

Already critics are saying Hyundai cannot compete with the Tier 1 luxury marques; Mercedes-Benz, Lexus, BMW and arguably Audi. Hyundai announced that they would not open a separate luxury franchise; instead they will sell the Equus in their existing showrooms. This announcement was met with cynicism.  Traditional thinking says that a Tier 1 luxury brand needs its own stand-alone franchise/stores, and that luxury customers, particularly in the D-segment, want to be coddled in Taj Mahals built as shrines to their brand of choice. Luxury customers certainly don’t want to be shopping for or servicing their cars in the same place as mass-market customers…e.g. a Hyundai dealership.

This conventional thinking assumes that the only way Hyundai can succeed in the luxury segment is to follow the Lexus model and become a Tier 1 luxury brand.  I think Equus will be a success and will re-write the rules of D-Class luxury.  Hyundai won’t be a Tier 1 luxury brand; they will be a new form of luxury.

Americans’ perception of luxury and prestige is changing.  Some argue that the near collapse of the financial markets and the recession have changed our sensibilities forever.  Last year, the Wall Street Journal reporter Matthew Dolan was interviewed and commented that Americans have moved from “conspicuous to careful consumption.” He went on to say that “the luxury of the past is not the luxury of the future.”

Hyundai will certainly take advantage of these changing sensibilities but that’s not the only reason they will succeed.   There has always been a segment of the car buying population that wanted the engineering and quality of the luxury segment but wasn’t interested in the “prestige” image.  These folks didn’t want to overtly make a statement; they were looking for something subtler, something that made sense to them. The traditional trappings of Tier 1 do not drive them, they are looking for a quality product and a reasonable value. For years they bought Audis and thought that they had a made a “smarter” choice than their peers who bought Mercedes-Benz, BMW or Lexus.

Changing perceptions of luxury and an ample number of people interested in a quality luxury automobile but not in the “badge” marques will offer more than enough opportunity for the Equus.  This combined with Hyundai’s increasing reputation for quality, some decent marketing and reasonable pricing should be more than enough to gin up floor traffic for the Equus.

But that’s where the battle will begin for Hyundai and the Equus, it will either succeed or fail based on what the customer experiences as they walk into the showroom.

These consumers are not the traditional Tier 1 D-segment customers and they won’t worry that they are going to a Hyundai store to look at a $55,000 luxury car.  I think they’ll get beyond that fact that their luxury car is in the same showroom with a model that starts at less than $10,000.   I don’t think they’ll mind sitting in a less sumptuous lounge while they’re waiting for service and probably won’t care if espresso isn’t available.

What will make or break the deal is how they are treated when they walk in the door.  If they are greeted by a knowledgeable professional who is well trained and can accurately sell the virtues of the Equus versus its competitors in an interesting and informative way, that will be a good start.  If the showroom is bright, uncluttered and the product conveniently on display that will help.  If they see a customer lounge that is comfortable and clean with free Wi-Fi and a decent high definition television that will create the right impression.  In short, if they see a customer focused environment, staffed with quality people who are focused on the customer’s needs, I think they’ll fore-go the usual Tier 1 frills in favor of a top-notch vehicle at a reasonable price delivered and serviced by competent pros.

The only question for Hyundai is can their dealer body deliver that customer experience.  Recently I was at my local Hyundai store with my son who was in the market for a car.  The salesman that helped us knew little about his own products let alone the competition.  All he talked about was the 10 year, 100,000 mile warranty, the Assurance program and the price.  We had to go outside to see the car we were considering and there was no offer of a test drive. That won’t fly with a D-segment car.  The dealers are going to need to significantly up their game.

If they do, I think Hyundai has a good chance of succeeding with the Equus and possibly becoming Mathew Dolan’s “luxury of the future.” But it’s not about “becoming” Tier 1, nor is it about providing the traditional trappings of “prestige” automotive brands. It’s about recognizing that there’s a new sensibility, a new perspective on luxury and meeting the expectations of these customers. It’s a great opportunity to re-invent a piece of the luxury segment.

After an incredibly tough 2009, consumers seem to be coming back.  For the first time in recent memory, Americans’ perception of domestic automobiles seems to be on the mend (Business Week 4/23).  Ford’s bet that Americans will buy smaller, fully featured automobiles looks like it may pay off.  GM’s product plan created by soon-to-retire Bob Lutz is leading a resurgence for the General.  Hyundai and Kia, supported my excellent product quality, have taken advantage of recessionary sensibilities and grown share of market.  Audi , Subaru and Mini have come out of the recession on a tear.

On the other side of the ledger, Toyota continues to struggle with recalls and concerns about quality.  This has led to unprecedented incentives by Toyota and the predictable response by competitors to match them.  So a good number of consumers who had been sitting on sidelines during the recession have come back to dealerships looking to for a good deal.  After 2009, it’s a relief to see traffic in the stores but at the same time if the incentives continue that will not be good for the industry long term.  In 2009, some progress had been made at reducing the use of incentives, but the moment Toyota jumped in to defend its franchise, that opened the floodgates again.

So the good news is that customers are returning to the stores, but are they coming back for the right reasons?

Coming out of a deep recession, it makes sense that price point will be critical.  But eventually, consumer confidence will return and what, other than price, do we want consumers to consider?  What will create preference and support higher margins?  This seems a good time to step back and evaluate the current state of our automotive brands and evaluate them against a new generation of potential prospects.   Our industry’s brands are not what they once were.

Many once great automotive brands have been allowed to slip into an amorphous state.  In the 90’s as manufacturers chased volume and sought a bigger share of the then expanding pie, it was no longer enough to stand for one thing, they needed to be more things to more people.  This led to communications that were less clear, less defined and the process of weakening great brands began.

If you doubt the veracity of this statement, look at the luxury segment of the category, Volvo, Mercedes Benz, BMW, Jaguar, SAAB were once clearly positioned brands that stood for something.  Many among us can still rattle off these brands’ core values.

• Volvo—safety
• Mercedes Benz—engineering
• BMW—performance
• Jaguar—design and performance
• SAAB—individuality
• Porsche—performance sports cars

For a long time the majority of consumers gave these brands credit for these values despite product and communications that seemed to go in other directions.  But now the problem has come to roost, there’s a whole generation of prospective customers that don’t know what these brands stand for, they weren’t alive when the seminal advertising that positioned these brands was running.

What to do?  Here’s a suggestion, form a small team of senior level marketing folks (independent consultants, agency partners) who are talented, understand brand building and the automobile business.  Make sure they are willing to commit themselves to genuinely understanding your brand in all its glorious detail and let them loose.  Tell them you want ideas that will clearly position your brand to a new generation of car purchasers who are a blank canvas.  Ask them to execute the idea across all media channels.  Ask for ways to use social media to create communities around your brand that take advantage of the enthusiasts who understand your brand so that their knowledge can educate the new generation.

Consumers are coming back into the stores, but most are coming back to get a good deal.  Manufacturers and their agencies need to re-build their brands.  With younger customers, they need to build them for the first time.  Incentives train people to buy based on the deal and consider the products commodity-like.

In a category where it is now difficult to buy a “bad” vehicle, the threat of commoditization is very real.  A strong desirable brand is the only thing standing between a manufacturer of differentiated products and a supplier of generic transportation.

Please let me know what you think.

That said, it’s a good time to pause and take a deep breath, because as so often is true, it’s not what you do but how you do it that matters.

Today’s New York Times has an article headlined: “With Toyota in trouble, rivals gain.” Manufacturers are offering incentives to encourage Toyota owners to come in their stores, trade-in their Toyota for a new whatever. Supposedly these incentives are not being widely advertised and dealers are being encouraged not to “try to take a predatory stance in this type of environment.”  According to GM and others, their dealers have requested incentive support.  Of course they wanted incentive support, there’s blood in the water.

There are a couple of good reasons to push back against this knee jerk reaction to offer incentives.

First, while it may be Toyota’s turn in the barrel today, next month it could be any of the competitors.  Today’s vehicles are incredibly complicated, with more computing power, millions of lines of code, electronic almost everything.  Every manufacturer will have recalls, most minor, but there’s always the possibility of something major. They’re all living in glass houses.

The second and more important reason not to immediately use incentives is that you don’t have to.  I have read article after article that has reported that Toyota values are dropping.  Dealers who have historically sold Toyota’s for $1-2,000 over invoice are selling cars at a loss.  So the customers who are now looking for an alternative to their Toyota, are people that paid full whack when they purchased it. These folks aren’t looking for the best deal, they are looking for the best car, one they can count on.  Now is the time to sell your product based on it’s merits, not the deal.

Detroit has long lamented that the need to offer incentives has crippled them financially.  Most have gone on record in 2009 saying that they were not going to use incentives as much.  So what happens when circumstances create an opportunity, they’re offering incentives!

The irony is that Ford and General Motors have really got their product act together, they are building excellent cars.  Cars that are capable of competing with Toyota. For the only time in recent memory Toyota owners might actually be “open” to another brand and the first thing we’re going to do is sell them a deal rather than selling them on the virtues of the product.

Toyota’s troubles are an opportunity for its competitors to build credibility and their stature as first tier manufacturers.  Unfortunately it seems that old habits die hard. The all consuming desire to drive volume today will prevent the companies and their dealers from behaving in a way that will build their reputations for the longer term.

That’s a missed opportunity.

He posits that one of the issues with “branding” as a marketing discipline is that we lack an agreed-to definition, which subjects it to interpretation based on circumstances or agendas.  He closes by saying that agencies and marketing services firms need to more tightly define branding:

“If we don’t address this, we could be perceived as an industry made up of people who don’t know how to define what it is they’re not supposed to do.  As Grouch Marx would have told us, ‘These are my principles; if you don’t like them, I have others.”

Leaving aside the issue of agency credibility, the automotive industry needs to dedicate itself to building or re-building its brands. Manufacturers who do will succeed in the hyper-competitive “new normal” automotive marketplace, while those who don’t will languish.

The automobile business has traditionally had a shaky relationship with the idea of “branding.”  Programs designed to define or position the “brand” are often perceived as the “soft” part of automotive marketing.  This perception is in contrast to the marketing specifically designed to drive traffic to the stores or in industry parlance “make the doors swing.”  Often manufacturers feel that they have to choose between “branding” and “retail” and more than often than not they choose retail.

I think that part of the problem with the discussion of “branding” in the automobile business is that it most often devolves into a discussion of advertising, as in “this is a brand ad, that is a retail ad.” Brand ads are the ones that attempt to speak to a company’s “values” whereas retail ads feature “product, place and price.”  This either/or conversation is specious and has led the industry to it’s current situation, products that are perceived more like commodities and customers who focus on pricing.

Let’s be clear, in the “new normal” automotive market the traditional brand vs. retail discussion is a path to commodity status, decreased sales, decreased profitability and the loss of already weak brand equities.  The truth is, every successful automotive competitor will do both jobs, build brand leverage and make the doors swing.

The marketing conversation needs to start in a different place and I agree that it needs to start with a definition of what we mean by “brand.” While I’m sure there are more complicated answers to the brand definition question, I would like to suggest that the automobile industry would be well served by a simple approach.  A great automotive brand is a promise made and kept.

Nothing new here, right?  The idea that a brand is a promise made and kept is as old as the hills.  Defining what we mean by brand is pretty straightforward, the hard part is figuring out what a particular brand’s promise(s) is/could be and then making sure that it is “kept” at every consumer touch point consitently over many years.

Certainly the execution of a brand promise is more complex than ever, there are literally thousands of consumer touch points (ranging from the internet all the way through to the dealer salesperson). That’s why it is so critical to make a commitment to a promise(s) and not waver from it.  Our industry has several notable brands that lost sight of their promise and have been forever weakened (Volvo is a great example, even mighty Mercedes-Benz is not as well defined as it once was).

Toyota is currently battling a product quality issue that has resulted in recalls and the extraordinary step of stopping production and sales of eight models.   This is an assault on Toyota’s promise of quality and reliability.  How Toyota handles these recalls will define their brand going forward, will they handle their customers in a high quality, trustworthy (reliable) fashion?  If they do, they will build their brand, if they don’t they will break their promise to their customers and the brand will be weakened.

The brand promise should drive everyones’ behavior, from the dealer’s Service Tech all the way to the CEO (including agencies and other vendors).  Everyone is responsible for representing the promise and keeping it.  Of course, marketing must be charged with making the promise clear and demonstrating that it is kept.  All of this is easy to say and very difficult to implement given the overwhelmingly complex marketing environment we all operate in.

But it is impossible to implement if the brand’s promise changes or is subject to revision based on short term needs.  The automotive industry is guilty of thinking that its brand promises are adjustable. This is like saying to your angry significant other whom you told that you would be home at 7pm and you’re 45 minutes late: “I didn’t really mean 7pm, I meant around 7pm so I’m really not late.”

Promises consistently made and kept build trust, promises broken destroy cedibility.  Automobile manufacturers need to get clear about the promises their brands are making and then create alignment with all constituents responsible for keeping the promise.

The companies that dedicate themselves to making a brand promise and keeping it will be the long-term winners in the “new normal” automotive marketplace.  Those that don’t will be destined to commodity status with pricing as the only differentiator.

The dealership had one car. It looked terrific. The salesman said that it was “more European in its styling” and I agree with him. No land yacht here. My one gripe was the “portholes” on the hood, if that is a Buick styling cue, it’s one they should let go (one man’s opinion).

Regardless of the “portholes,” it was hard not to be impressed by the car. If the 2010 Lacrosse is indicative of where they are taking the Buick product line then I’m already thinking about the brand a little differently.

As impressive as the product was, that was not the most interesting part of the dealer visit. I asked if I could drive the car and was politely told, I’d have to “wait my turn.” People were lined up to drive the new Lacrosse! The best news…they weren’t all 65 and older, quite a few were 10-15 years younger.

Based on one dealer visit and the crowd around the 2010 Lacrosse, perhaps the Buick brand is going to surprise us.

Here’s what Robert Gibbs had to say about Cash for Clunkers:

“It’s good for dealers and auto manufacturers, it’s good for our energy security and our environment.”

Like most “spin” there is an element of truth in all these claims but not as much as the claimants want us to believe.

Let’s begin with the environmental claim and the inference that the Cash for Clunkers program is making headway in the fight against global warming.  Yes it is true that a few relatively “dirty” vehicles are being taken off the roads and replaced with new “cleaner” models.  This is surely a good thing to do, but it has virtually no impact on the environment and it certainly has no impact on global warming.  The number of vehicles being traded in is a drop in the bucket.

I’m willing to give the spin-meisters the fuel efficiency claim.  It is certainly true that relatively inefficient vehicles are being traded in for more efficient models.  Of course that was the requirement to get your fellow taxpayers’ $4500, so let’s hope that it was accomplished.  That said, the “energy security” claim is pure political BS.  Again, too few cars, with too little efficiency gain to reduce our consumption of foreign oil in any meaningful way.

Finally, there is the implication that the program is helping pull the car companies and dealers out of the recession.  It is certainly true that traffic is up and the sales rate has improved.  That seems like a good thing, but is it really helping the manufacturers and the dealers over the longer term?

The fact is the government put into place a big incentive program; just like car companies have been doing for years.  Incentive programs don’t add incremental industry sales; more often then not they pull sales forward.  There will certainly be those instances where a person who probably would have bought a used car, will buy a new car, but those will be few and far between.  Cash for Clunkers has gotten some folks off the couch who were holding off buying a vehicle but there is a body of opinion that says they would have come into the market anyway.

I’m afraid that we will eventually learn that Cash for Clunkers has mortgaged the industry’s 2010 sales in favor of a couple of good months in 2009.

On balance, the Cash for Clunkers program seems to me to be another easy to sell program that provides the spin-meisters with “proof” that the Administration and Congress are getting something done.

If they would really like to have a positive impact on the environment, help consumers make better vehicular choices and enable the auto industry to create a profitable future for itself, their time would be better spent developing a coherent energy policy for our country that actually makes sense.  An energy policy that’s takes on the politically tough stuff like gasoline prices and the real culprit behind our country’s contribution to global warming, our use of coal fired electrical plants.  That would really make a difference for all of us.

Here are a couple of links to some good articles that will help you make sense of the spin:

In the New York Times:  “Cash for Clunkers by the numbers”

From the Wall Street Journal:  “More Cash for Clunkers”

This week it was announced that Roger Penske had cut a deal to buy the Saturn brand from General Motors.  What a terrific development for Saturn and the Saturn brand.

A few weeks ago I was with a GM marketing guy and he made the observation that “you can tell that finance guys made all the decisions about the future of GM, because marketing folks would have kept Saturn and Hummer.”

The point he was making is that a marketing person would have recognized the inherent value in the Saturn and Hummer brands.  It looks like Hummer is going to get a second chance with a new Chinese owner and it remains to be seen if Hummer can successfully navigate changing consumer sensibilities to build a solid and profitable business in the US.

Saturn on the other hand grabbed the brass ring.

Much has been written about how Hal Riney created a great automotive brand image for Saturn and how years of product neglect by GM made it impotent in the marketplace.  Most recently Saturn has gotten some new product which is highly regarded and that has helped immensely.  The Saturn distribution network has always been one of the industry’s best and now they have the Penske organization behind them.

Penske understands what it takes to be successful.  The fact that they bought the Saturn brand and distribution network while dodging the factories speaks volumes.  Saturn will now get product from any number of international manufacturers and not have to deal with the GM cost structure.  Sounds like suddenly Saturn may be able to do something it never could under GM…make a profit.

That’s great in and of itself, but here’s the thing I’m excited about.  This is a chance to resuscitate and reinvent the Saturn brand.  It’s a chance to make it the powerful force that it could have been years ago had it not been neglected.  What a great opportunity for all the people involved with Saturn and Saturn marketing.

As a marketing guy, I think you’d be hard pressed to find a more exciting automotive job than as part of the Penske team that will rebuild the Saturn brand.

Sign me up, rebuilding the Saturn brand would be a great gig.