IMI Magazine

IMI Magazine

News Analysis - By Arthur Way

Caddy come-back is a tough nut to crack

General Motors’ announcement that Cadillac is to re-enter the UK market as part of a move to establish the marque as a global brand is unlikely to cause many sleepless nights in Munich or Stuttgart - nor indeed at other European centres of luxury car production. Previous attempts by American car companies to gain a UK foothold with vehicles assembled on the other side of the Atlantic have produced marginal results at best, and it is tempting to believe that this latest initiative will go the same way.

After all, even the might of Toyota with its Lexus marque has failed to shake the foundations of BMW, Mercedes-Benz and other premium car producers in the European marketplace. To the end of October, Lexus accounted for a miserly 0.4% of the UK new car market, considerably behind the two German producers, and has yet to demonstrate anywhere in Europe the kind of impact that has been achieved in North America.

In an attempt to remedy this, Toyota is planning to invest £350m in a three-year product development and promotional programme. It seems improbable that GM is anticipating a similar budget for its European foray into the luxury vehicle market.

However, it would be wrong to be entirely dismissive of GM’s ambitions for Cadillac. The quality and content of American vehicles have improved markedly in recent years and, in the words of GM vice chairman Bob Lutz, US cars are no longer “sloppily put together, with poor handling and no brakes”. Moreover, GM knows that credibility in the rest of the world demands that something more than a token presence is required in the European marketplace, and therefore it is certain that price will be a key weapon in the attempt to woo customers. Something different will always appeal to a portion of the market, and it is possible that Cadillac’s passage will be smoothed if Mercedes-Benz continues to languish in customer satisfaction ratings and BMW upsets too many followers over current styling and technology.

The clincher, however, arises over distribution arrangements for which GM has enlisted the support of Pendragon, the UK’s largest vehicle dealer group, as sole retailer. The intention is to establish within the next three years a network of Cadillac Experience Centres throughout the country, backed up where appropriate with service-only sites. Trevor Finn, Pendragon’s CEO, describes Cadillac (and Corvette, which is also making a market entry) as welcome additions to the company’s portfolio of brands, and tellingly noted that Pendragon’s experience at the luxury end of the spectrum has given it the confidence to anticipate UK market success.

Shooting the messenger

Mixed signals have emerged from Volkswagen over the departure of Axel Mees as Audi of America’s boss, a position he had held only since the beginning of March when he joined the group after a 20 year stint at BMW. 

A review of US new car demand indicates that Audi has had a poor year with unit sales to the end of October 10% lower compared with the same period of 2003. This in a market which shows a gain of almost 2%. It seems a touch unfair, though, to be judged after little more than eight months at the helm, the more so in the context of an increasingly outdated model range which is about to be extensively revised.

It is more probable, therefore, that Axel Mees’s exit stems from injudicious, albeit entirely sensible, remarks made at a recent press conference when he criticised Volkswagen for entering the luxury car market and expressed no surprise that the Phaeton had performed so poorly in the US market. Commenting that it could be the best car in the world and he would still not buy it with a VW badge will have done nothing to endear him to the ultimate bosses at Wolfsburg either.

Aside from vanity and a manifestly misplaced faith in the power of the VW brand, it is difficult to understand the mindset which allowed the group’s management to allocate resources for bringing Phaeton to market, especially with Audi and Bentley in the same stable. The Phaeton episode should prove once and for all the folly of thinking that volume car marques possess the credibility to enter the luxury car sector. From the standpoint of the VW group’s shareholders it’s a pity that the lessons that Ford and GM learnt at the start of the 1990s were not heeded.

Meanwhile, the hope must be that Mees resurfaces elsewhere in the luxury car sector where his experience and good sense can make a valuable contribution.

The right match at last?

MG Rover’s flirtations in Asia have been neither successful nor edifying. To begin with, there was the matter of a promising relationship with Honda jettisoned in favour of BMW. The proposed joint venture with Chinese Brilliance dissolved in embarrassment, while the attempt to provide an entry level model through importing the CityRover from India’s Tata has nowhere near met sales expectations.

So what should be made of the proposed liaison with Shanghai Automotive Industry Corporation (SAIC) which envisages a joint venture with MG Rover providing the engineering and design capability while the (majority) Chinese partner provides the cash and secures the right to assemble cars with the Rover badge?

It would not be difficult to draw up a comprehensive list of opportunities and threats which accompany this deal. In the final analysis, though, there is a clear and urgent imperative for MG Rover to link up with an international partner if it is to have a sporting chance of surviving in the medium term. The likelihood of another vehicle group acquiring the operation and preserving car manufacturing at Longbridge is remote, and hence the company’s future rests on its ability to forge an alliance which will provide the new models needed to prevent further market erosion.

Playing safe with the 3 Series

Following the release of official pictures of the latest 3 Series, which makes its debut at Geneva next March, BMW aficionados everywhere will be celebrating the apparent loss of nerve that the company has experienced on the styling front. Unlike the 5 and 7 Series which have come in for heavy criticism from some quarters, the revised 3 Series appears to combine all the positive aspects of its predecessor while embracing the nuances which enable it to emerge as a crisper and more modern version.

In adopting this more conservative approach it is safe to conclude that BMW has been mindful of the vital importance of the 3 Series in its manufacturing and marketing programmes. The motor industry is littered with examples where market position has been damaged by alienating customers when replacing a much loved model. The 3 Series was simply too significant for chances to be taken, even though latest evidence suggests that a distinctly wacky approach can reap huge rewards.

Nowhere is this more apparent currently than at Renault where the Mégane has struck a strong chord with European consumers and almost toppled Focus from the top of the UK best sellers listing in October. Renault made a big gamble but has won a big payback.

Let down, right, left and centre

The latest SMMT ‘Issues’ survey provides encouraging support for the view that the UK retains a vibrant motor industry. According to the findings, most companies are expecting to expand over the next five years, with a hefty 81% describing growth prospects as ‘good’. Moreover, the sector’s admirable export record is likely to be maintained as 72% of respondents noted that the best growth prospects are likely to be in international markets.

Less positively, 95% believe that the ever increasing burden of meeting legislative requirements will add significantly to their costs during the next five years, while 86% contend that the inadequacies of the UK’s transport infrastructure renders it more difficult to remain competitive. And on the crucial issue of personnel, around two-thirds of companies report difficulty in recruiting employees with appropriate skills, although 83% are committed to more support for employer training and education, and the Automotive Academy is recognised by 81%.

The conclusion could hardly be more clear or plain. Members of the industry are doing their bit to bolster the country’s prosperity but are being let down left, right and centre by government. With a general election likely to be called within the next five months the onus is on every political party to state in detail what they would do to help industry and thereby address the stark finding that 95% of the survey’s respondents are looking for more commitment to manufacturing on the part of government.

News digest

Ian Robertson, 46, managing director of BMW South Africa, has been named as the new  chairman and chief executive of Rolls-Royce Motor Cars.

Dealers are set to face hefty VAT charges on the private use of demonstrators by sales staff as HM Customs clamps down on what it sees as a tax loophole. 

The National Audit Office has blamed the Highways Agency for failing to introduce measures to ease congestion on the UK's roads. The NAO said the agency had spent just 12 per cent of its £1.7bn budget on improving traffic flow because it was more interested in building new roads.

The Toyota Prius petrol-electric hybrid has been named Car of the Year 2005 by a panel of motoring journalists from 22 European countries.

Austrian drinks company Red Bull has bought the Jaguar Formula One team from Ford which withdrew the team after this year's world championship.

MP Chris Ruane has introduced a Bill calling for the mandatory regulation and licensing of the vehicle servicing industry.  His move, under a Commons’ ‘Ten Minute Rule’, follows repeated criticism of servicing standards. 

The Vehicle Builders and Repairers’ Association has secured OFT approval for its consumer code of practice.  It’s the second to have been obtained by a motor trade body. The SMMT has one, but the RMI’s ‘Carwise’ scheme was withdrawn. Association director general Ron Nicholson said: “Members who have signed the licence for the use of the OFT approved code logo can use it to gain significant commercial advantage and raise awareness of their good practice.”

For a more comprehensive news round-up, visit the IMI website at www.motor.org.uk and click on ‘industry news’.