Lifestyle

As Old Auto Brands Fade, New Ones Appear


Even as Detroit reels, Chinese and Indian brands like Geely, Chery, and Tata are looking to launch in the U.S.

Walking around the displays at this year's New York International Auto Show, it is striking to see not only the number of new cars and trucks on sale, but the number of companies and brands for sale as well.

Hummer, Saab, Saturn, Chrysler, Jeep, and Dodge are not only looking for buyers of new vehicles, but for their whole businesses.

General Motors (GM) has until the end of May to strike a deal with its debt holders and the United Auto Workers union that satisfies the White House's demands that the struggling automaker reduce its costs and restructure to a size where it can be profitable when the economy improves. The White House holds GM's future in its hands as the automaker is relying on government loans to survive. Part of GM's plan is to sell or close Hummer, Saab, Saturn, and possibly Pontiac, too.

On the Block

Chrysler has until the end of April to strike its deal with debt holders and the union to qualify for $6 billion in new federal loans and complete an alliance it is forming with Italy's Fiat (FIA.MI). In any scenario, Chrysler, Dodge, and Jeep will be in new hands by the time the show convenes next year. And Ford Motor (F) is trying to sell its Volvo brand.

The scarcity of credit is not only making it tough for consumers to buy new vehicles, though; it is also making it difficult for automakers and private equity groups to come up with the money to buy these brands. "It is very tough to assign a real value to some of these brands because it's tough to put together buyers for any of it," says Thomas Stalkamp, partner in private equity firm Ripplewood Holdings, which owns stakes in auto supplier companies.

GM has had a terrible time finding a buyer for Hummer, though among the interested parties have been Eastern European private equity firms and AM General, the company that still makes military-grade Hummers. The Swedish government is trying to work with GM to find buyers for Swedish nameplate Saab. An advisory group headed by former Wall Street auto analyst Steve Girsky is working with GM on the sale of Saturn, potentially the easiest brand asset to unload because it has a fairly fresh product line and a high-quality, exclusive dealer network.

Pontiac seems destined to be downsized to one or two models to be sold through the GMC/Buick dealer network GM plans to preserve even in the event it must file for bankruptcy. Pontiac, analysts say, is not a saleable asset because the brand can't really survive outside the GM system.

Asian Onslaught

What is perhaps surprising in all this is that there are more brands, most of them unfamiliar to consumers, knocking on the door to get into the U.S. auto market even as old tried-and-true names head for the graveyard or auction block.

Fiat, as it negotiates to take over Chrysler, is planning on reintroducing both its Fiat and Alfa Romeo brands to the U.S. in the next two years. Indian automaker Mahindra & Mahindra (MAHM), is planning on launching its diesel-powered pickup trucks and SUVs in the U.S. early next year. Chinese automakers BYD, Chery, Geely (GELYF), and Brilliance (CBAMF) all have designs on entering the U.S. market, but have been shy about pinning down a launch year.

"Even in the toughest economic times, carmakers from around the world know they need to be in the U.S. if they want to be true global players," says Charlie Hughes, an auto industry consultant and author of Branding Iron: Branding Lessons from the Meltdown of the U.S. Auto Industry (Racom Communications, 2006). Hughes was part of Fiat's U.S. unit when it last operated in the U.S. in the 1980s, and launched Land Rover in the U.S. Indian carmaker Tata Motors (TTM) bought Land Rover and Jaguar from Ford in 2007, but does not have plans to launch its Indian corporate brand in the U.S.

Many Are Sputtering

Fiat seems to be the only one of the foreigners looking to crack the U.S. market that is interested in taking the shortcut of buying U.S. assets and dealer distribution to give its brands a head start. The Chinese makers have not been serious bidders for brands like Saturn and Saab. And Mahindra & Mahindra's U.S. distributor, Global Vehicles, rebuffed an overture from GM to acquire the Saturn business and dealer network. Plus, Mahindra's Indian management, say executives familiar with the bidding process, looked at and ultimately rejected a purchase of Volvo. "The advantage is that those businesses and brands will start with a clean sheet of paper and no baggage, but the disadvantage is that it can take a long time to do that," says marketing consultant Dennis Keene, who advises companies on product launch strategy.

Indeed, brands that have been in the U.S. for decades are still struggling for acceptance and profitable growth. Subaru, in the U.S. since the late 1960s, sold just 187,000 vehicles last year. Mitsubishi (MMTOF.PK), in the U.S. since the early 1980s, sold just 97,000, and is headed south. Suzuki, a profitable and well-known maker of motorcycles and scooters, as well as cars and SUVs, has tried to no avail since the 1980s to break through, selling just 84,000 vehicles last year. Japanese automaker Isuzu finally left the U.S. market last year, though it continues to provide parts for vehicle owners and service outlets.

For automakers, the U.S. market is a lot like New York. If you can make it here, you can make it anywhere.

Click here to see BusinessWeek's picks and pans of the 2009 New York Auto Show.


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus