Sales have been improving.  November was strong with most companies showing significant gains and one, Hyundai, blowing past everyone else with a +46% increase over same period year ago.  Some marques like Audi are predicting that they will achieve new sales records in 2010 and break the 100,000 unit mark for the first time.  It looks like we’ll finish the year at about 11.5MM units, up about a million over 2009.  Next year sales are expected to improve to 12.8MM.

The LA Auto Show was up beat; there were a number of new and exciting products shown (my personal favorite was the Audi quattro concept).  The sense of the industry moving forward was palpable; it was good to be there.  Then of course there’s GM’s successful IPO, where investor interest was so strong that the share price exceeded everyone’s expectations.

Even more important, the industry has made important progress during the worst recession within memory.  Given the widely held view in 2008 that we were entering a “new normal” with significantly lower industry sales, manufacturers took steps (some with taxpayer help) to reduce production capacity, which has led to dramatically lower inventories at the dealer level.  In turn, lower inventories combined with better product quality have led to lower incentives and higher margins.  Some manufacturers (BMW, Fiat) are even attempting to encourage consumers to order cars and wait for delivery as Americans become accustom to lower inventory levels and the idea that the car they want won’t be on the lot.

Sales on the rise, higher margins, lower inventories, Americans ordering cars, what’s not to like?  Nothing, all good news, until…

Last Thursday when Michael Robinet of IHS Automotive predicted that:  ”U.S. automotive industry sales could top 17 million by 2015.”

I couldn’t help but think of the current Bud Lite campaign, the one where guys are behaving in a relatively reasonable fashion until they are confronted with a quantity of Bud Lite:

17 million sales!?… Here we go.  Here we go as an industry, losing our minds and acting irrationally.  Using the MDIBTYD method of sales forecasting.  VW has made no bones about its goal of being the largest global manufacturer and I’m certain others would like to prevent that from happening.

We all know what happens.  Sales forecasts increase, production is increased, inventories increase, use of incentives increase and margins decrease.  The real shame is that all the progress that the industry has made in the last couple of years could easily be erased if we chase volume.

I understand the importance of volume given high fixed costs.  I also recognize that predicting sales and production is a high wire act and I don’t mean to diminish the difficulty of those deliberations.

But it does seem to me, that the industry’s default position has been to chase volume.  I hope that this time we restrain ourselves and consider the possibility that slower more deliberate growth, will result in stronger higher margin businesses that are better prepared for the next downturn.  Another happy outcome would be stronger brands and a customer base that is not built on the backs of the bottom feeders looking for commodity pricing.

Let’s hope that when the MDIBTYD forecasting method is being used, that cooler heads prevail.  Here we go….

Here’s the issue.  Tier 1 is funded by the manufacturer and is often referred to as the “brand” communications.  Tier 3 is the communications funded and executed at the local level by individual dealers.  Tier 2 is caught betwixt and between.

Funded in part by the manufacturer and in part by the local market dealer groups.  Tier 2 must serve two masters.  The manufacturer wants to be sure that the work reflects the brand and makes the doors swing whereas the dealers are understandably concerned with just making the doors swing.  Just to make it more difficult, the manufacturer’s marketing team and the dealers often have a different points-of-view about what will make the doors swing.

Tier 2 is where the brand versus retail discussion often gets very heated.   It is very tough to find a balance between the brand and retail messages.  More often than not, you end up erring toward the retail.  We all know what this formula looks like.  The TV commercials are visuals of the vehicle on the road, held together by a litany of product features in the copy and you tie it up with a bow…the deal.  The newsprint is a visual of the car, a couple of sentences covering key features, the deal and some legal disclaimers.

This leads to a sea of sameness when it comes to Tier 2 communications.

But it doesn’t have to be that way.  Tier 2 communications can represent the brand and the retail message successfully and powerfully.

That’s exactly what Ford and its agency Retail First (part of Team Detroit) have done with their campaign using Mike Rowe of “Dirtiest Jobs” fame.  Here’s one of their early commercials:

This is a solid piece of work and I think Mike Rowe does a good job, but what’s really interesting is how Ford and their agency, over-time, improved the advertising.  According to Matt Van Dyke and Dave Rivers of Ford who are responsible for this work, the early work with Mike Rowe was tightly scripted and used actors.  No surprise here, that’s what most companies and agencies, would do.

But look what happens when Retail First and Ford decide to loose the reigns on Rowe by giving him “talking points” and real consumers to interact with:

Here’s another:

Obviously, what makes this work really strong is the use of Mike Rowe, but what a difference when they let him go and just talk to people.  He’s even more genuine, likable, friendly, warm, trustworthy and credible.  Every time he makes someone smile or laugh, you like him even more.  Mike Rowe makes this work stand out and work that much harder (if you doubt Mike’s effectiveness, compare these ads to Chevy’s with Howie Long).

I think this work leaves the consumer feeling positively toward the Ford brand but it also does not shrink from the retail message.  That’s one of the terrific things about Mike Rowe; he can deliver a pretty hard-edged message about product and price without sounding like a shill.

I’m not privy to Ford’s corporate strategy but it is a big brand that covers lots of segments and customers so it needs to be a lot of things to a lot of people.  I would suspect that Ford would be very pleased if “genuine, likable, friendly, warm, trustworthy and credible” washed over their brand from Mike Rowe.  But importantly, based on recent sales, this Tier 2 advertising is also “making the doors swing.”

Finally, here’s my favorite Ford/Mike Rowe ad:

“There’s Max sittin’ in a Mustang, there’s Max sittin’ in an Accord.  What’s cooler?”

Got it.

Please let me know what you think.

and one with a grade:

According to the EPA’s website the “EPA and the National Highway Traffic Safety Administration (NHTSA) are updating this label to provide consumers with simple, straightforward energy and environmental comparisons across all vehicles types.”

Fair enough, after almost thirty years with very little updating, it’s probably time to make some improvements to the industry’s new car stickers.  I’m all for providing consumers more and better information to enable them to make the vehicle purchase decision that is best suited to their needs and desires.  I doubt that anyone in the industry would disagree.

Here’s the rub, the option with the letter grade is a not too thinly veiled attempt on the Government’s part to pass a value judgment on your decision to purchase a vehicle. Should you make the decision to purchase an EV like the Nissan Leaf you’ll get an A+.  Should you choose to buy an “average” car like a Toyota Camry (the most popular car in the United States) you’ll get a B-.  Should you have the temerity and the cash to buy a Mercedes-Benz Maybach 57 or a Ferrari 599 GTB Fiorana you’re going to get a D+ from the Feds.

This is an attempt to coerce consumers to buy vehicles that the government deems more responsible (e.g. EVs). Buy a vehicle that the government considers responsible and you’ll get a better grade and not be subject to ridicule from your peers.  If you make the wrong choice, you’ll get a bad grade and people will be talking behind your back.

The auto industry has reacted:

“Dave McCurdy, chief executive of the Alliance of Automobile Manufacturers, an industry group, said the rating system “falls short because it is imbued with schoolyard memories of passing and failing.” (NYTs 8/30)

“Automakers questioned the proposed letter grades, saying it might affect sales.”  (Freep.com 8/31)

Ironically, that’s the point.  The government wants to “affect sales” and they’ve decided that telling us if we’re “passing or failing” is a good way to get us to make the right “choice.”

By all means provide more information and data for consumers to consider while making a vehicle decision.  Make it easy to understand, enable comparisons between vehicles based on MPG, emissions and potential fuel savings.  This is all good, well-intended information, that should be available to consumers for consideration. But the Feds should not be passing judgment on consumers’ choices.

Well-informed consumers will make good choices for themselves and their families.

Rather than spending time grading our vehicle choices, our politicians could spend our tax dollars more wisely by developing a coherent energy policy.  That would be a real step forward and address the real problems rather than the symptoms.

If you would like to weigh-in on the new window stickers, the EPA is asking for consumer input at:

http://www.epa.gov/otaq/cert/mpg/index.htm   Click on “Submit comments.”

In the meantime, I’m starting a new business, I’m going to manufacture and distribute large red letter grade decals, “C” and below, that the automotive Hester Prynnes among us can proudly display on our vehicles.

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.

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”