Chrysler's Rebadging Plan: Strategic Blunder for Nissan?
Last week one of the more bigger stories coming out of Detroit were the discussions between Chrysler and Nissan around Chrysler potentially reselling rebadged versions of mid-sized cars designed and manufactured by Nissan.
From the WSJ:
"DETROIT -- Chrysler LLC is in talks with Nissan Motor Co. about jointly producing midsize cars, a partnership that would move the U.S. auto maker toward a radical new business model.
The two companies agreed earlier this year to team up on pickup trucks and subcompact cars. Since then, they have been discussing an agreement under which Nissan would produce midsize sedans that Chrysler would sell in the U.S. under its own name, people familiar with the matter say.
A Chrysler spokesman said the company has "no new alliances" to announce, and declined to comment on any discussions it might be having.
A deal would signal a dramatic change in the way Chrysler operates, at least in its passenger-car business. For decades, major auto makers have taken pride in marketing their vehicles as products of their own engineering. Chrysler plans to continue developing new trucks, sport-utility vehicles and minivans itself, from the ground up."
The potential alliance may sound interesting, exciting and potentially fruitful for Chrysler, but I think it will fall flat on its face. The foundation of a car company's brand rests on their ability to produce high quality vehicles, and the re-selling another company's products by a company with a weak brand effectively tells the consumer: "we're incompetent so we're going to sell you someone else's cars" . Such a strategy just reinforces the customer's negative feelings about the brand and just makes things worse.
Consider this brief history of Detroit selling rebadged versions of Japanese cars:
The first two generations of the Mitsubishi Eclipse were resold by Chrysler as the Eagle Talon and Plymouth Laser, in this case the Mitsubishi Eclipse became a racer boy classic that is still in demand today and the latter two vehicles were discontinued due to lack of interest. I tried to find a used Talon or Laser on AutoTrader and could only find one, whereas I had several options for a used Eclipse many of which cost in the $7-$10k range. Not bad for a 10+ year old car that was in the $20k range brand new.
GM (GM) has its own misadventures in rebadging as well:
The Geo (and later Chevy) Prism was simply a rebadged Toyota Corolla, the latter was a top seller and the former isn't even sold anymore. The Pontiac Vibe is a rebadged Toyota Matrix (itself a Corolla based wagon) and while 2007 sales were close (37k vs. 46 respectively), sales have been dropping steadily (17.8% decline in '07, 14.7% in Jan & Feb of this year) while Toyota expects to sell 70k units this year.
As you can see from the above Detroit has struggled to sell rebadged versions of cars that were smashing successes for their original manufacturer.
The issue here is that offering consumers a rebadged version of another automaker's more popular vehicle doesn't really work, primarily due to the way in which the cars are rebadged (appearance, switch-gear, etc) and the fact that consumers are generally more interested in the company that originally made the car. It's an issue of branding and authenticity.
On the branding side you have the fact that many of the customers that Chrysler hopes to attract by reselling re-badged Nissans (NSANY) are at Honda (HMC), Nissan and Toyota (TM) dealerships, and will probably never stop by a Chrysler dealership in the first place. The simple act of rebadging a Nissan as a Chrysler won't attract many customers because they're just going to see a brand and product they're not interested in, even if it is a "Rose by another name" and that Rose is the Nissan Altima they're shopping for/have sitting in their garages. Finally Chrysler further weakens its brand by giving in to consumer perceptions by trying to sell a car made by someone else, "this isn't really a Chrysler" isn't a particularly good sales hook; which leads us to the authenticity issue.
Even if consumers do stop by Chrysler dealerships to test drive the "Chrysler Altima" why would they want to buy the Chrysler version when they can get the real thing, especially when you factor in considerations like re-sale value, the potential for the Nissan version to be better due to any modifications made by Chrysler, etc? For all intents and purposes the Chrysler versions will come off as cheap knock offs, and why would a consumer want to buy into that situation? Even if the Chrysler version is cheaper the higher rate of depreciation will result in the car being more expensive in the end, thus nullifying the only real "hook" Chrysler would have to get customers to choose its version of the car.
Chrysler's partnership with Nissan will fail for many of the same reasons other rebadged cars have failed to sell particularly well, in addition to the reasons mentioned above. While it sounds like a good way to save money on development and production costs, have access to more popular vehicles, etc, the strategy will face on its face due to the failings of the Chrysler brand. People interested in mid-sized Japanese cars simply aren't shopping for Chryslers in the first place, and there will be few reasons to choose the original over the rebadged version. Just ask the people who chose Matrixes over Vibes, Eclipses over Lasers and Corollas over Prisms.
You can more read more on this topic here. [Additional source: Business Week: "Pontiac Tunes Up Its Vibe" -- Thane Peterson, March 28, 2008.]
So why in God's name is Nissan teaming up with Chrysler? While Nissan has had its own issues in the past it doesn't make sense to partner with a company that is arguably on life-support, has an abysmal brand and few areas of strength to even offer a potential partner. While I can understand the appeal of partnering with another automaker to save on manufacturing costs, it just makes more sense to team up with a company that can offer strategic advantages related to product development, co-engineering, etc. You can team up with nearly anyone to sell money on manufacturing, so why not team up with someone that has more to offer?
Subaru (SBUOF.PK), Volkswagen (VLKAY.PK) and even Tata Motors (TTM) (via Land Rover and Jaguar) all have more to offer Nissan than Chrysler, and in terms of preparing for the future it just makes sense for Nissan to team up with someone who can provide them something beyond cost savings in the manufacturing arena.
I suppose Nissan may be thinking in terms of gaining a stronger foothold in the American market, but at this point the foreign manufacturers effectively own it anyway so why bother working with Detroit at all?
Last but not least, here's a quick graphic depicting sales volume for various mid-sized vehicles:
Graphic courtesy of the WSJ
Just based on this list, Chrysler is the last company that should expect any sort of sales boost via selling rebadged Nissans (NSANY), as it appears the few people shopping for any mid-sized car are even considering Chrysler in the first place. If Chryslers are so poorly thought of in the marketplace, when would consumers shopping for a mid-sized car even have contact with the rebadged Nissan? It takes Honda (HMC) and Toyota (TM) less than two months to sell more Accords and Camries then Chrysler will sell Avengers and Sebrings all year, and even the Ford (F) Fusion outsells all of Chrysler's mid-sized offerings by a wide margin.
Of course when the numbers are this bad almost any increase is a reason to celebrate, however if the plan backfires and brand perception of mid-sized Chryslers falls even further their mid-sized car business could completely disappear. In fact it's quite possible that Cerberus is already considering this possibility and figures it's easier to shutter your mid-sized car business when you're just a reseller.
As an aside note how the aggregate sales of GM's (GM) mid-sized vehicles only lag the total sales of the Camry by less than 12%, how much more profitable would GM's mid-sized car business be if they were selling one car instead of three?
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article.
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This article has 22 comments:
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Doug Korthof
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32 Comments
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Aug 14 09:39 AMOn the other hand, most likely, they won't gain, either. But for Chrysler, it's worth the gamble: no loss vs. some possible gain, however unlikely.
Chrysler's problems are legion, but NONE of them involve the UAW or line workers. ALL of them involve betting the company on big, gas-guzzling monster hemi-mobiles; they just don't have the expertise, let alone the money, to develop a small excellent car.
Chrysler's best bet is to sell some brands to a company like Nissan that wants to be considered 'American'. And that's what they seem to be starting to do. If I were them, I'd rebrand the Nissans as "Plymouth" or even "Desoto", and eventually drop the Chysler connection, just sell them at rebranded Nissan dealers as "Plymouth Dealer". After all, Nissan was once Datsun...
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pedro66
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3 Comments
Aug 14 09:45 AMMaybe it should be Chrnissanrenault?
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keepthemhonest
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1 Comment
Aug 14 10:02 AMI really doubt the average car buyer cares who made their car. I see Dodge Dakota's sold as Mitsubishi's for quote a few years now. Also Ford Escapes sold as a Mazda.
Many people now buy the line that Honda's and Toyotas are "Made in America" (actually just assembled from foreign parts) so why not buy that a Nissan is a Dodge? I think the Bottom line is that Both company's are trying to "outsource" based on expertise. Nissan gets better Trucks, Chrsyler gets better cars.
I did read one article that had a real reason why these rebadgings are bad ideas. - Margin- If Chrysler makes all the profit(and keeps it) on a Minivan, these will be highlighted in advertising, Special discounts, financing etc. If they only make $1,000 from a re-badged Nissan there will be less incentive to reduce price and or increase advertising. The vehicle is there just to plug a spot in it's Line-up. And, therfore that will lead to the failure of the product.
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flexmarketman
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3 Comments
Aug 14 10:19 AM-
mycargets52mpg
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12 Comments
Aug 14 10:49 AMOne more point - after the Talon/Laser came the moderately popular Sebring/Avenger, again built off the Mitsu Eclipse platform. Did anyone know, or care? I didn't think so, either.
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MellowGuy
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15 Comments
Aug 14 11:34 AM-
User 243367
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1 Comment
Aug 14 11:37 AMNow with the re-launch of the new generation Vibe and $4.00 per gallon gasoline, GM is once again advertising the car, the fact that it's one of the more fuel-efficient cars in the GM fleet, notwithstanding.
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User 169775
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60 Comments
Aug 14 12:07 PMAgreed. Toyota has left the door open for Chrysler to introduce a hybrid minivan for the past 5 years. And Chrysler has not taken advantage of it!
The window of opportunity is closing fast. Toyota has been selling their Estima Hybrid minivan in Japan for years, and in the next couple years they plan to bring it to the U.S. as the Sienna Hybrid.
The opportunity is there.. It's just Chrysler is doing everything they can to flub it!
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Markham Lee
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73 Comments
My Website
Aug 14 12:11 PMRebadging has been a failure in the past and I doubt that will change in the future, because many consumers DO care who made the car and why bother with the rebadge when you can get the original? Especially when the original will have higher resale value? Besides most people research cars online and will be able to easily find out that Nissan made the car, which will likely push them to just buy the Nissan version.
If consumers didn't care who made their cars and just bought based on price, Detroit wouldn't be in trouble right now.
Chrysler's brands aren't worth much so it doesn't make much sense for Nissan (or anyone else to buy them), there is little point in putting a brand on your car that will cause people to think less of it.
-M
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cynnatalie2000
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3 Comments
Aug 14 12:15 PMThe mystery is why Nissan would want to associate with an inferior brand like Chrysler.
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twwintn
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1 Comment
Aug 14 12:58 PM"Chsyler's"
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car_guy
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36 Comments
Aug 14 02:13 PMThis is consistent with the announced deals with Nissan and Chery. Both deals provide Chrysler with slightly modified vehicles (rebadged) that do not compete with existing models. Nissan would provide B class vehicles based on the Versa , for Latin America and Chery would provide A or B class vehicles for North America. Chrysler has nothing this small and rebadging a partners vehicle is much faster than building your own from scratch. Designing a new vehicle off of an existing platform is quicker and more reliable than designing everything from scratch (which is why every Auto OEM in world takes this approach). Chrysler will ultimately develop a B class vehicle for sale in growing foreign markets and will replace the rebadged vehicles at that time.
Chrysler is already designing the replacement vehicles for the mid-sized C/D segment. This is the highest priority project at the company. However, as the chart above shows, they missed horribly with the latest version of the Sebring/Avenger. The previous versions were more competitive and the new management is focused on doing their homework and hitting the market correctly, like GM did with the Chevy Malibu.
Which is exactly what everyone claims they should do....
Guess they are damned if they do, damned if they don't.
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User 243487
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3 Comments
Aug 14 05:25 PM-
User 243487
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3 Comments
Aug 14 05:36 PM-
Miken
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48 Comments
Aug 14 08:36 PMIn today's competitive environment I don't think there's room for an extra profit layer.
In addition, I'm not sure that Nissan has a strong enough product line to pull it off anyway.
I think Carlos Ghosn just likes to see his name in print as the "deal maker". I would suggest he has a full time job getting the Nissan/Renault combination to work.
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User 243487
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3 Comments
Aug 14 08:48 PM-
Paul Killinger
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1025 Comments
Aug 15 10:27 AMBy any other name, Nissan's no stranger to it through its alliance with Ford, and GM's been doing it all our adult lives (read Chevy, Buick, Pontiac, Oldsmobile and Cadillac, just changing the nameplates).
Chrysler may have to resort to this to stay in business. They would probably have a better chance of surviving if they quit manufacturing vehicles altogether, and sold and financed rebadged Nissans through their existing dealer network.
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Markham Lee
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73 Comments
My Website
Aug 15 04:38 PMAlso if you check my blog you'll see that SA aggregated multiple articles into one, so the messaging makes more sense on my blog.
I agree with the commentators who noted that margin wise the deal makes little sense as well.
Overall I just have little faith in this when these partnerships (in the past) have produced cars that were hits for the original manufacturer and flops for the company selling the rebadge.
When I was finishing college a coveted car was a '98/'99 Mitsubishi Eclipse, especially the Spyder version - even if they were still available, trust me, no one wanted a Plymouth Laser (or a Plymouth period). The reason for this is the weakness of the Chrysler brand, you can't successfully sell a rebadge when the consumer isn't especially fond of the "badge" in the first place.
As always thanks for reading, I always enjoy it when my articles stimulate conversation.
-M
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windygowings
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2 Comments
Aug 19 08:28 PMPlease watch your grammar. We do not say more bigger, just bigger is enough.
Yoroshiku.
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gas savers
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Nov 11 08:44 PM-
gas savers
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Nov 11 08:54 PM-
gas savers
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Nov 11 08:55 PM