Jery Flint Commentary- The Auto Name Game and other Rants
Plymouth is gone, Oldsmobile is going and Ford is trying to salvage what's left of Mercury.
Meanwhile Toyota started Lexus and will soon start Scion (sigh-on), Nissan started Infiniti, Honda started Acura and BMW is launching the Mini.
General Motors started Saturn a decade ago, and is now turning Hummer into a new GM franchise. But the trend is clear: The old Big Three are getting weaker and the foreign brands are getting stronger.
Many decades ago an auto company needed thousands of dealers to cover America. Now thanks to roads, telephones, e-mail and the Web, a brand can be supported with a few hundred showrooms spread around the country.
Nameplates such as Ford, Chevrolet and Chrysler do business the "traditional way," with a large number of dealers (4,000 Chevy and Ford dealers and 3,000 Chrysler). Buyers are able to get dealers to bid against each other, which forces dealers into playing price games and using other tricks to squeeze out profits.
Things are different with brands such as Saturn (400 dealers) and Lexus (200). Dealers are spread out so it's tougher for customers to play one dealer against another. Lexus and Saturn customers may pay more but dealers can concentrate on making customers happy instead of trying to trick them out of a few extra dollars.
The newest Toyota franchise is an experiment, too.
Scion will be aimed at young buyers, a demographic that Toyota fears it's missing. And there will be no stand-alone dealers. Instead Scions will be sold in Toyotas dealerships, probably in a separate area of the showroom. My guess is that Scion will lean heavily on the Web to help sell cars. Young customers like to use the Internet.
Does it make sense?
Not to me.
Let me explain: Honda is the company that gets credit for winning young buyers. So is Toyota losing to Honda?
Let's look at U.S. sales:
| Company | 1994 Sales | 2001 Sales | %change |
| Toyota | 1,088,000 | 1,741,000 | +60 |
| Honda | 788,000 | 1,208,000 | +53 |
Honda has done a fine job, and it has a stronger customer base with kids who buy cars and then modify them with aftermarket accessories. In the 1990s, Toyota made a strong push into the truck market and now Honda is playing catch-up in trucks.
I also question the strategy of putting Scion into Toyota dealerships instead of adding special showrooms.
GM is going another way with Hummer: It wants 150 Hummer showrooms by the launch of the H2 in July. The H2 is built on a GM truck platform, so underneath the skin it is a much more driver-friendly vehicle than the original Hummer, the H1. GM will be able to build 40,000 per year and there is a smaller Hummer coming, the H3, which could push annual Hummer sales well past 100,000. This looks like a winner to me.
BMW is aiming lower with the Mini--20,000 sales per year to start. Like Scion, cars will be sold in set-asides to BMW showrooms. With such a low goal for the Mini, this sounds like the right approach. I think the Mini will reach BMW's modest targets--and perhaps go even higher.
The move to new franchises is good. The challenge for Detroit is to make their old franchises like Buick, Mercury--even Ford and Chevy to some degree--have some purpose in the 21st century.
Speaking of a new century, last week I drove a Cadillac Deville that had an XM satellite radio. XM Satellite Radio (NasdaqNM:XMSR - news) carries 100 channels, including jazz, country music, rock and classical as well as news, sports and talk.
The XM receiver costs a few hundred dollars and a monthly subscription costs $10. I was impressed with the audio quality and the absence of static. And since the service is satellite-based you can hear the same channel across the country.
Problems: Right now you do lose the signal at times. I lost it, momentarily, six times during one hour while driving in upstate New York. Reception should improve as XM puts in more ground-based repeaters to pass along the satellite signal.
There's no advertising now, but XM says it wants up to six minutes per hour of advertising. Who wants to pay extra for that?
XM is part of manufacturers' dream of getting a steady stream of revenue after a customer buys a car.
Imagine 1 million XM subscribers, each paying $10 a month. That's $10 million per month or $120 million per year. If you push that up to 10 million cars it works out to $1.2 billion a year, and it doesn't cost that much more to service 10 million subscribers than it does to support 1 million.
As is the case with GM's OnStar onboard navigation and emergency response system, there's lots of potential profit here. No wonder that GM has a stake in XM.
Will XM and/or rival Sirius Satellite Radio succeed? Or will another emerging technology, digital AM and FM radio, win the day?
I don't know. People often hesitate to pay for what they used to get for free--unless it is decidedly better. But I like what I heard during my short test.
Jerry Flint, a former Forbes senior editor, has covered the automobile industry since 1958. Find past columns at www.forbes.com/flint.
