Last week, our colleagues at Autocar published a very interesting post regarding the possible re-birth of an unidentified premium brand. Originally, the subject of this article didn’t have anything to do with acquisitions rumors, but rather focused on the business dynamics impacting luxury and mass-market brands.
According to Autocar journalist Hilton Holloway, profits in the automotive space are found at the extremes. That is, only luxury car-makers (e.g. BMW) and discount car-makers (e.g. Dacia) are able to command healthy margins. In the meantime, mass-market manufacturers (e.g. Peugeot) have seen they profits steadily decrease over the years (i.e. manufacturing capabilities under-utilized, higher wages) despite dominating the space.
Today, two-third of cars sold in Europe are sold at loss. And since it’s almost impossible for mass-market brands to change the image consumers have of them, there seem to be only a handful of alternatives to return to profits:
- Spin-off one sub-brand into a premium brand (e.g. Citroen DS)
- Create highly tailored lines specs for specific models
However, consolidation might be a third option for mass-market car-makers to save themselves. Autocar indicates that a “wealthy” Asian manufacturer may indeed be on the hunt for a “forgotten” premium car brand. In return this would allow this company to enter niche and profitable markets it doesn’t currently have access to.
At a high level, all this is straightforward economics. If you can’t command higher or lower prices, you develop or acquire the ability to do so. Renault did it with Dacia and the brand is now a formidable cash-cow for the French manufacturer. The BMW Group also did it with Rolls-Royce and they are ripping huge benefits from this move as well. Based on these two cases, and what Ford failed to do with Jaguar and Aston Martin, we wonder if moving up the pricing scale is only achievable by companies that have a deep understanding of the premium/luxury market. It may also be true the other way around. Apple tried to enter the market of cheaper smartphones to compete with Samsung but it failed to do so with the iPhone 5C.
In any case, Holloway’s perspective on the matter is interesting, and it has gotten us scratching our heads regarding the name of the company that could be the prey of this mysterious Asian car manufacturer.