23 August 2016

Brand Series - Premium

Premium models are on a profitable road 

Just above the mainstream starts the premium car. It has a brand that people respect and extra quality that makes the owner feel that little bit special, or dare I say, superior. The gap between those two layers of vehicle has narrowed recently. Mainstream these days is generally good quality and premium cars have moved into segments that they eschewed not that long ago. Small hatchback premium for example.

The thing with this category is that while a premium car may be 10% better in quality than those of the mass market area, the price charged could be 50% more. Added to that the popularity of premium vehicles is growing faster than mainstream. So with greater profitability and strong growth, car manufactures in this area of business are generally doing well. So how are individual premium brands (or should that be marques) faring?

Germany: The BAM trio have been the most aggressive and have taken a decisive lead. Competition between them is intense and they have sort out niches to add new models. They seem to have gone about as far as they can in that area, so future growth will depend on marketing and keeping up with the latest technology. The other German premium marque - Porsche - has diversified successfully into SUVs and seems happy to consolidate its present position.

Sweden: Volvo has been a major player in this category for so long but seemed to lose it's way and fell behind its Germanic competitors. It now is enjoying a revival, but still has plenty of scope for a wider model range and improved sales. Saab wasn't so lucky and is no more.

UK: JLR as a combined company is blossoming under Tata. Jaguar fell on hard times under Ford but is now suddenly exploding. LR has been the more consistent, only entering the premium segment with the Range Rover and steadily building on that. More models will be added as it continues its successful growth path. MINI was an instant hit for BMW, but has recently cut back on unpopular fringe models and will probably hold what it has now in terms of volume.

Italy: Once proud Alfa Romeo was terribly run down but FCA promises a renaissance. We are still waiting for that to happen.

USA: Cadillac and Lincoln have mainly sold in their home markets and more recently China. There isn't much appeal for them outside of the 'States and they have been somewhat neglected by their owners, GM and Ford respectively. An opportunity missed as premium sales grew, and the way back will be a hard one.
Tesla has taken the electric route into the premium segment and that point of difference has meant surprisingly quick acceptance in what otherwise is a traditional market. Will the bubble burst?

Japan: Honda was the first Japanese company to enter this segment with Acura, but shows little interest in taking the marque outside of northern America. I find that passivity baffling. Toyota is serious about Lexus being a global success and is making progress. Nissan has belatedly shown signs of taking Infiniti to the world but it is too early to tell how that will pan out.

Newbies: Korea wants in on the action (and profits) with Hyundai releasing a new marque, Genesis. I see it doing well in the USA but Europe will be a difficult proposition. PSA has spun off its Citroën brand the DS range to push into the premium arena. It's not there yet and again a tough road ahead to establish a prestige reputation. A recent Chinese effort with Qoros seems to be struggling for traction, while the Borgward marque is in the process of being resurrected.

Summary: Those car makers who succeed in this segment find it a very profitable. However, the competition is intense and reputation is so important. You are not just buying a nice car, you also get a brand name that says you are doing well. Jaguar has shown that when you have the history and get the product right, people will notice.

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