Joseph B. WhiteBy JOSEPH B. WHITE , Wall Street Journal Online
The idea that carmakers can make money selling consumers the same basic vehicle in different guises has been fundamental to the business since the days of Alfred P. Sloan, the architect of the modern General Motors Corp. Mr. Sloan perfected the idea of the brand ladder--Chevy at the bottom, Cadillac at the top and Pontiac, Oldsmobile and Buick in between. Over the years, those middle brands were increasingly stocked with cars that were basically fancier versions of the Chevrolet design.
More recently, just about every auto executive assigned to turnaround a car company has established building more vehicles from "common platforms" as a cornerstone of the strategy to regain profitability.
Implicit in this strategy is a belief that most consumers don't know and don't care whether a car branded as a Ford Fusion is fundamentally the same under the skin as the car sold as the Mercury Milan or the Lincoln MKZ. Instead, consumers are assumed to care only about superficial stuff--such as the exterior design, or whether a car has leather seats, or a specific branded audio system.
In the late 1970s, GM got sued by customers shocked to discover that their Oldsmobiles had Chevrolet engines under the hoods. Today the notion that there is such a thing as a "Buick" engine specifically for Buicks or a "Chevrolet" engine unique to Chevrolets is quaint. GM uses similar engines across its various brands--and its rivals do likewise.
Repackaging the same basic hardware to sell at different price points makes a lot of sense on paper. There are many examples of how it works just fine. Toyota, for instance, gets away with selling the basic guts of a V-6 Toyota Camry as both the Toyota Avalon and the Lexus ES 350. Ford seems to be having some success with the Fusion, Milan and MKZ--referred to in Dearborn as the "triplets."
But in a market with more than 300 different models--depending on how you count--fielding two or three or even four of the same basic car can lead to some very thin slices of pie, especially when increasingly well-informed shoppers can figure out in two or three mouse clicks that a Saturn Outlook and a Buick Enclave and a GMC Acadia are just three different styling takes on the same large crossover wagon.
In the case of those GM wagons, consumers have voted in favor of the Buick and GMC designs. The Enclave and Acadia, as of Jan. 31, had inventories of 41 days and 51 days, respectively. The average Enclave is off the dealer lot in just 15 days at an average transaction price of $38,479, according to data from the Power Information Network.
Meanwhile, however, GM is passing up potential Enclave and Acadia sales because the factory that builds those two vehicles has also spent time building Outlooks that sit unsold on dealer lots. As of Jan. 31, 10,690 Saturn Outlooks--138 days worth--were waiting for buyers. GM has offered 0% financing deals and other incentives to get Outlooks moving. When Outlooks do sell, they go out at an average transaction price of $32,824--nearly $6,000 less than the Buick Enclave. From December through Feb. 17, just over 19% of the Outlooks sold went out on loans with interest rates under 5%--reflecting a 0% promotion--compared to 6.3% of the Enclaves sold. (Average cash rebates for Enclaves and Outlooks were virtually the same, $921 and $922 respectively, according to Power Information Network data.) What will happen when GM rolls out a Chevy version of the same wagon--expanding the clone family to four--is anyone's guess.
Chrysler LLC has a similar problem with its trio of compact hatch-wagons, sold as the Dodge Caliber, Jeep Compass and Jeep Patriot. The Compass and Caliber sit unsold on dealer lots an average of 170 days and 116 days respectively, according to Power Information Network.
The Patriot, however, turns over in an average of 76 days. Not stellar, but better than the other two. Moreover, the Patriot, which looks like a miniature version of an old Cherokee, commands a higher average price than its two siblings.
The existence of three Chrysler compact cars appears to be more "production oriented than customer oriented," says Tom Libby, senior director of industry analysis with the Power Information Network. Chrysler bet that having three different variations on a basic car sold through two of its brands would give the factory that builds them a better shot at running profitably. Instead, Chrysler has two vehicles--the Compass and the Patriot--that are priced "on top of each other," Libby says.
Chrysler's senior management recently declared that it wants out of the clone game. The company, which has the advantage of being closely held and thus not as concerned about what outsiders think, has outlined plans to kill a flock of its slow-selling clones, and focus its efforts on selling more of each model that remains.
This might upset some Chrysler or Dodge dealers, who have relied on Chrysler to provide both Dodge and Chrysler and Jeep versions of their most popular vehicles, in order to support their sales volumes. Chrysler's reply, in effect, was, "too bad."
Customers don't care whether they buy a minivan from a Dodge dealer or the Chrysler dealer just down the street. They just want a good minivan. In these difficult times, Chrysler can't really afford the capital and marketing effort to promote two functionally similar versions of a three-row box on wheels.
Chrysler's break with the industry's clone theory won't happen overnight. But if it works, rivals might be tempted to cull their herds as well. In the meantime, sharp-eyed consumers who want to save a few bucks and aren't hung up about driving the hot seller or the hip brand, might do well to adopt one of the industry's red-headed step childre