Luxury and value put mid-marques in a jam

Traditional mass-market car makers are being squeezed from above – by the likes of BMW – and below, by budget Far Eastern brands. By John Stones

There is more than a whiff of panic in the air at mid-market car manufacturers Ford and Volkswagen. The launch of the latest incarnation of the Golf has met with lower than anticipated demand, sending a shudder of fear through Europe’s largest car maker that its golden goose may no longer be laying. And at Ford’s UK head office, new marketing and sales directors have been installed, coinciding with the announcement of a raft of incentives to help shift its cars (MW this week). Ford has also lost its top spot in UK fleet sales to Vauxhall for the first time since the Sixties.

Meanwhile, cheaper Korean sister marques Hyundai and Kia are posting impressive gains, and Japan’s Toyota has overtaken Ford to become the second-largest global manufacturer, after General Motors.

The car market is undergoing a fundamental reshaping. Fierce competition, fuelled by massive over-capacity, means that the once safe market shares of the mainstream brands are now under siege.

The middle market is disappearing as car buyers gravitate increasingly to premium badges or value makes. Premium marques have been making considerable inroads into the mass market. Last year, BMW sold more of its premium 3-series in the UK than Ford sold of its bread-and-butter Mondeo. And this year, the Bavarian marque will launch the 1-series, its foray into the Golf’s sector.

Interbrand UK chief executive Jez Frampton says: “The car market is like the television market. Once upon a time, you could have had any colour as long as it was black, but now there is so much choice that it is difficult to maintain large volumes.”

Volkswagen has just launched the latest Golf – the Mk V – in the UK, supported by a £15m advertising campaign created by DDB London, which plays heavily on the Golf’s 30-year heritage. The company is hoping that it will be business as usual, and its website proclaims: “After all this time, its reassuring to see one thing has barely changed at all.”

But the once iconic car has got off to a slow start in Europe. Factory output has been curtailed at the same time as incentives have been offered in European markets.

Both the car and the marketing of it have drawn criticism. Professor Garel Rhys, of the Institute of Automotive Industry Research at Cardiff Business School, says: “This could be one Golf too many. The advertising is counter-productive. It reinforces the “same old” impression, when there are fresh and innovative designs from rivals. Consumers may feel they have seen it before and would rather try something new.”

Rhys says that the high pricing of the new Golf has also contributed to disappointing sales.

Volkswagen does not expect to sell as many Golfs this year as it has over the past two, despite having a new model on offer. It anticipates 65,000 sales in the UK (7,000 of which are of the previous, Mk IV model). This compares with 67,226 sales in 2003 and 72,362 in 2002. Volkswagen says sales will be lower because the new GTI will not go on sale until the end of the year. But Rhys says Volkswagen should look at revitalising the appeal of the Golf by developing a multi-purpose vehicle, to rival Renault’s Scenic.

But Volkswagen is not the only mid-market player to be facing difficulties. Rhys says Ford’s loss of the top spot in the fleet market to Vauxhall was a “tremendous blow”, and that it was inevitable that marketing director Peter Fleet and sales director Paul van der Burgh would carry the can. Rhys adds that the extent of the incentives announced across the range (£1,500 off the price of a Fiesta, for instance) show exactly what serious straits Ford is in. “Its marketing effort has been flawed, and this is a reaction,” he says.

Clive Baker, head of Ford at advertising agency Oglivy & Mather, says: “We have huge brand awareness, but questionable brand relevance. Historically Ford, as a mass manufacturer, has had to tread a line between looking at weekly sales figures and keeping an eye on future sales. Ford’s problem is balancing the two.”

While the mainstream, bread-and-butter brands are responding to increased competition with escalating incentives, the value brands that have pushed them into this course of action have a different problem, that of building their profile.

Hyundai managing director David Walker says that after ten years in the UK, awareness of the Hyundai brand remains low, with unprompted consideration below ten per cent. It has just appointed Vallance Carruthers Coleman Priest as its advertising agency (MW last week) as it tries to build its brand. Walker says: “The value advantage has begun to be eroded, and we now need to think about different ways of differentiating.” The marque already offers a market-leading five-year warranty on its cars and at the moment it is offering three years’ free servicing.

In the US, Hyundai overtook Volkswagen in 2002. It now has 2.41 per cent of the US market. US sales have risen impressively, from 90,000 in 1998 to 421,000 last year. In the UK, sales have increased by ten per cent over the past year, but this rise pales into insignificance compared to the 71 per cent surge experienced by Kia.

Frampton believes that, in five years time, the UK car market could look quite different, as some of the big players decide to become niche operators. He also suggests that car branding will be more about the overall ownership experience, taking into account factors such as the pricing of parts, dealer relations, servicing costs and finance options, rather than focusing on the increasingly homogeneous cars themselves. “In the future, the metal is going to be the least important bit of the brand,” he says.

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