THE AUTOEXTREMIST

November 28, 2012

The VW Group masters a classic formula: Product Desirability = Profitability.

By Peter M. De Lorenzo

(Posted 11/26, 10:30 a.m.) Detroit. It was interesting to read that Mazda now desires to become an upscale brand, after wandering around aimlessly in the mainstream market for years, according to Automotive News. This is after Toyota’s Lexus has spent, oh, 25 years working at it to a very successful degree while Nissan’s Infiniti division, which has been toiling away for the same duration, is only now getting serious at becoming a player. To that end, Infiniti has become the title sponsor for the now three-time champion Red Bull Racing Formula 1 team after a two-year associate sponsorship deal and is becoming deeply involved technically with the team in an effort to boost its credibility.

Johan de Nysschen, the now president of Infiniti, said in a press release: “While our first 24-months have been very beneficial to both parties, our new increased relationship will bring increased advantages to Infiniti and Red Bull Racing. As title sponsor, Infiniti Red Bull Racing will help us garner even more worldwide exposure for our brand, products and technology.”

And de Nysschen can speak with a measure of authority about tuning-up a luxury brand, as prior to his stint at Infiniti he led Audi to new heights in the U.S.

The endless quest for credibility in the premium car market never ends. Look at Audi, which has been on an ongoing journey to ascend to the top rung of the luxury-performance market for fifteen years. And after a staggering run of wins at the 24 Hours of Le Mans and after producing a stunning array of products, they have well and truly arrived.

(So Mazda is going to flip a switch and it will all come good overnight? Oh, if it were that easy. I’ve got news for Mazda CEO Takashi Yamanouchi, Mazda has only a sliver of a chance at cracking the upscale market, and even then I firmly believe that there’s not a snowball’s chance in hell that they can do it. And besides that, are they ready for at least a fifteen yearlong journey? I would imagine not.)

I’ve written columns about cracking the code in the premium market before, and nothing ever changes, because it’s all about the product, always has been about the product and always will be about the product. But though the parameters may not be wavering from that fundamental industry High-Octane Truth, how automakers are pursuing this quest for excellence is showing signs of unexpected boldness.

We only have to look as far as the VW Group to see how things are dramatically unfolding. As most industry insiders know, the VW Group, led by the maniacal genius, Ferdinand Piech, is on an unbelievable roll right now. The VW Group boasts twelve brands from seven European countries: Volkswagen, Audi, Bentley, Bugatti, Lamborghini, Porsche (and SEAT, SKODA, Ducati motorcycles, Volkswagen Commercial Vehicles, Scania and MAN).

That’s quite a lineup. Normally, it would be a recipe for disaster leading to a train wreck of monumental proportions, a quagmire of dismal profits, hazy brand images, rampant cannibalism among the Group’s brands in the marketplace, and generally a heaping, steaming bowl of Not Good. But somehow, someway the VW Group is orchestrating the most successful array of brands the industry has seen since GM’s heyday (roughly 1957–1977). And they’re doing it in a similar fashion too.

As in GM’s heyday the VW Group’s individual brands are allowed to run fairly autonomously, with individual design, engineering and product development functions tuned to the specific brands. And on top of that for the most part the VW Group seems to get the whole “image wrangling” thing, employing highly disciplined marketing positioning and advertising strategies. The result? The brands all have a distinctive identity in the market and are clearly defined to consumers.

Believe me, there are manufacturers with single brands to worry about who can’t even come close to the brand differentiation going on in the VW Group.

But the kicker in all of this and the one thing that confounds and infuriates its competitors? The VW Group employs 520,000 workers. That’s more than GM, Ford and Fiat-Chrysler combined (plus another 82,000). And, as my “Autoline After Hours” co-host John McElroy pointed out, in the first six months of 2012 VW built 200,000 fewer vehicles than General Motors, and it needed 310,000 more people to build them.

Just a cursory glance at those numbers would have any rational participant in the industry say, “WTF? How can this possibly be? How can that level of inefficiency be rewarded with success in the market?” Well, let’s see, VW has posted $7.7 billion in profits to date this year, as compared to $4.6 billion for GM.

Again, I can still hear people saying, “How can that possibly be?” Well, maybe the car I’m driving this week – the 2013 Audi S7 – gives just a glimpse at how the VW Group’s profitability is soaring (see more on the S7 in “On The Table” – WG). The Audi S7 shares the vehicle architecture with the A6 underneath, and then it is given the full zoot-suit treatment by the magicians at Audi.

The S7 is graced by elegantly swoopy fastback bodywork found in the A7 (concealing a hatchback), and it signals its presence on the road with an array of LED lighting that would warm the heart of any Hollywood production designer. Stuffed with a 420HP V8 and finished off with the usual exceptional Audi interior design and detailing, the S7 is indeed an impressive piece.

But let’s not forget it started out as an A6 underneath. The Audi A6, in case you’re wondering, starts out at an MSRP of $42,200. A regular A7 starts out at a price of $60,100 and the S7 starts out at a base price of $78,800. The S7 I’m testing this week comes in at a stunning $94,570, however, albeit with a boatload of options.

So if you’re wandering how the VW Group does it, the S7 is a graphic demonstration of how it’s done. But then again it’s still more than that, which brings us full circle.

You first have to have the product and that will never, ever, change. Then you have to have the kind of brand image that is crystal clear to consumers, one unwavering in its execution and consistency. And if it’s dead-on – as Audi’s marriage of product and brand image is – then you’re able to create the fundamental desire for your product that will have people paying real money to acquire it.

It’s a classic industry formula – Product Desirability = Profitability – but one that Audi and the VW Group have spit-shined to perfection.

And that’s the High-Octane truth for this week.

See another live episode of "Autoline After Hours" with hosts John McElroy, from Autoline Detroit, and Peter De Lorenzo, The Autoextremist, and guests this Thursday evening, at 7:00PM EDT at www.autolinedetroit.tv.

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