Are some car brands losing their luster?

Roland Jones • Profile • E-mail

There once was a time when it was a sign of class to own a Mercedes. And Volkswagen stood for good, honest quality. But the world's most widely recognized automotive brands are losing ground to other big consumer products, a new study suggests.

Eleven car names are featured in Millward Brown's 2006 ranking of the 100 most powerful world brands, but the study shows that growth is cooling for nearly all the big automotive brand names compared with other consumer products.

The highest-ranking automaker in the study was Toyota, followed by BMW, Mercedes and Honda. Other car brands that made the top 100 were Ford, Chevrolet, Porsche, Nissan, Volkswagen, Renault and Lexus.

The report represents a serious financial worry for the world’s largest carmakers, said Andy Farr, president of Millward Brown’s Optimor brand consulting practice in London. Most troubling, he says, is their growth trajectory in developing countries.

“Spending on cars is flat, and auto sales are not growing ahead of gross domestic product,” said Farr, adding that most automakers’ revenues are relatively flat in mature, developed economies.

That makes brand value all the more important. “At this point, the auto companies are fighting for share,” Farr said.

The 11 auto companies named in the research firm's list stand to gain a combined benefit of about $151 billion in future earnings from the greater perceived value of their products, but only Toyota and Porsche are showing positive momentum for growth, according to the report's authors, while other brands are cooling off.

By contrast, consumers are spending more of their personal income on other consumer goods, like luxury products and apparel, according to Millward Brown’s findings.

Brands that create “real value momentum” are the ones that have unique business models — like coffee retailer Starbucks and Spanish clothing chain Zara — that differentiate them from the pack. And China’s dizzying growth has led to the rise of some gigantic Chinese brands. With more than 280 million subscribers and high levels of loyalty, China Mobile featured in the top ten of the list of the world’s most powerful brands.

In the United States, the main reason for decline in brand growth for Ford and GM is their over-reliance on sales incentives, said Millward Brown’s North America Chairman Eileen Campbell.

U.S. auto sales surged last year thanks to a discounting campaign that let consumers pay the so-called “employee” price. But as soon as the discounts expired in the fall, sales plummeted. Critics said the incentives confused customers, cheapened brand image and hurt resale values.

“Over the last three or four years we have cautioned that carmakers were relying on incentives and eroding the value of their brands — now we are seeing the effects of that,” Campbell said. “Consumers question the value of a brand when you put a bag of money on the hood of a car."

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