The process of getting a new vehicle to market is an expensive and time-consuming journey. From parts suppliers to dealers, big bucks are spent across the total value chain.
While all parties share the risk, the largest portion is borne by OEMs and suppliers. Yet, all stakeholders hope for sales and share success, so the level of success achieved is worth measuring.
At W.P Browne Consulting, we evaluated 103 light-vehicle product improvements across three major groups: Asian Leaders, European Leaders and the Detroit Three.
The study defined success using volume and share metrics. Specifically, does all the spending on major improvements, or all-new vehicles, generate more business than minor updates? Our metric: % Maximum Potential, a summary of sales and share gains over a 1- to 3-year evaluation period (see Detroit Three: Vehicle Improvements Show Mixed Sales Results).
Prior to reporting the European group’s performance detail, it is worth reviewing summary results for all three groups.
Major and new-vehicle programs scored higher than vehicles with minor program improvements across all three groups. On average, they generated sales and share improvements that justify the increased spending. Portfolio additions were even more successful.
Overall, a significant portion of all new/major program changes were rated excellent or superior, indicating they not only had a good launch but also maintained sales and share performance in subsequent years. Previous articles identified the Nissan Rogue, Toyota Corolla, Ford Fusion and Ram Pickup as volume and share rock stars (see Asian Leaders: Vehicle Improvements Best Detroit Three Entries).
Asian product programs scored higher than new programs introduced by the Detroit Three and Europeans. A whopping 77% of Asian-sourced program improvements received an excellent or superior score. Advantage to the Asians: increased light-vehicle share since 2012, up 1.2 points.
Unfortunately, a significant portion of European and Detroit Three program updates did not lead to sales and share increases. Many had declining sales during the launch year, or did not hold up against increased competitive reactions. No OEM can be 100% successful over its total portfolio revamp. Yet the Asian group, with 13% of new programs being rated poor, appears to have established an appropriate floor of acceptable underperformance. Any higher percentage should be classified as a failure. Biggest losers: the Ford Focus, Kia Sorento and Cadillac CTS.
In this final installment, the BMW, Audi, Mercedes-Benz and Volkswagen brands were evaluated. As before, a premium entry needed to sell 25,000 units annually to be evaluated; a mainstream entry had to sell at least 60,000 units. Porsche and the European exotic brands were excluded due to this volume restriction.
Group 1: Minor Program Improvements (six programs form the baseline group)
Minor program improvements implemented by the European group performed substantially worse than either the Detroit Three or Asian leaders. VW’s 2013 Jetta, with handling and powertrain improvements along with a hybrid addition, had sales declines every year. VW also turned the Passat’s competitive diesel advantage into an albatross.
VW’s diesel scandal certainly had a negative influence on Group 1’s score. Eliminating these two entries would increase the maximum potential score to 45%.
SUVs from Audi and Mercedes-Benz provided the group with something other than the zero scores generated by VW and BMW. Audi’s 2013 Q5 minor, with small visual improvements, new powertrains and a hybrid model, generated a 41% increase in sales and a maximum potential score of 84%. The 2013 M-Class from Mercedes gathered momentum from a new off-road package, rear-drive option and new powertrains prior to its replacement by the GLE.
Group 2: Major/All-New Program Improvements (nine programs)
Major and all-new program improvements outperformed Group 1 by 54 points, the largest variance in the overall study. However, the European group had a wide bandwidth of scoring. Only three of nine programs beat the average.
Among winners, VW’s 2015 all-new Golf had an exceptional score of 221%, the highest of all 103 programs evaluated. The improved Golf gave VW dealers something to cheer about, and arguably saved their financial performance. The Golf’s modifications were extensive: new styling and powertrains, an electric, wagon and 290-hp R versions helped boost sales growth at launch by 94%.
Mercedes’ super-premium 2014 S-Class helped the racing rich answer the question, “Is 550 hp enough?” with a resounding “No.” With a V-12 generating 621 hp, surrounded by new styling and interior refinements, the S-Class improved sales at launch 90%. A new coupe in 2015 did not do enough to keep volume from deteriorating. However, the first-year sales boost was enough to sustain volume and produce a final score of 143%.
BMW’s 2014 all-new X5 contributed with a final score of 105%, with the second-best sustainability score among the Europeans. The introduction of a rear-wheel-drive X5 with increased horsepower and improved fuel economy helped generate the excellent score.
Mercedes’ C-Class deserves a mention due to its significant position in the brand’s portfolio. The 2015 upgrade delivered exterior and interior improvements and a host of new powertrains. These improvements generated good overall sales and share performance, but not enough growth to catch the BMW 3-Series.
Among misses, BMW’s 3-Series, the perennial premium-car market leader, scraped the bottom of the scoring barrel at 25%. The 3-Series was updated to all-new in 2013 and achieved outstanding sales performance at launch.
Unfortunately, the 3’s sales performance did not hold up against external and internal competition. Likewise, the E-Class from Mercedes-Benz joined the “thanks for showing up” group with a maximum potential score of 26%. Both companies spent considerable money to upgrade these volume models; both faced declining sales each year after launch. Not a pretty picture.
Group 3: Portfolio Additions (five programs)
The best-scoring European portfolio additions rocked, with one entry among the best five programs in the overall study. The weakest performers pulled the group’s average down to 89%.
The 2014 Audi A3 established itself as a serious entry-level luxury vehicle with a 62% increase in volume; its competitiveness was maintained with a plug-in-hybrid hatchback in 2015, leading to a score of 183%.
In 2014, Mercedes added a CLA to its car portfolio without seriously hurting C-Class volume. BMW was not as fortunate. The 4-Series was launched in 2014 with a coupe, Gran coupe and convertible and scored a respectable 82%, but some of this sales gain was accomplished by defections from the 3- and 5-Series.
Included in the misses is Mercedes’ 2015 GLA CUV, which did not generate the same enthusiasm as the CLA. The BMW X1 became the most affordable BMW CUV: lots of horsepower and variants but disappointing sales. The 2016 product improvement (not included in the study) helped the entry earn its way back to ultimate-driving-machine status.
European Leaders: New Program Conclusions
BMW, Audi and Mercedes really have picked up the pace on introducing new models over the past three years. All three have increased their car market share. However, only Audi and Mercedes have increased their light-vehicle share over the evaluation window. Mercedes also grabbed the top luxury marque in 2016.
Audi also benefited from Q3 and Q7 sales performance, most notably in 2016. These CUVs were not included in the study due to their initial low volume level. New GLC and GLE SUVs from Mercedes boosted its truck share as well. These Mercedes entries also were excluded due to changes in 2016.
As with the Detroit Three and Asian leaders’ new programs, the European leaders had program changes that just didn’t deliver the targeted sales return or live up to auto-show hype.
VW’s 2015 Golf is the winner among the car group. With domestic and imported supply, the Golf has established itself as a competent car competitor. The truck winner is the X5. In 2014, BMW’s X5 improvements propelled the SUV to German-engineered sales leadership, a title that was lost to the Mercedes GLE in 2016.
Overall Study Conclusions (103 programs evaluated)
OEMs wince when a new vehicle does not increase sales during the launch year. Auto suppliers panic. Later, spin doctors provide the press with carefully crafted excuses. Some explanations include the classic, “next year’s product improvements will produce a sales recovery.” Yet, some failures just can’t be camouflaged.
As we have said before, not everybody wins, and the reality of the market has shown many program improvements yield results that were classified as poor. These poor performers typically had stagnant sales during the launch year or just could not sustain segment share over the evaluation window.
But product planners and engineers should not be discouraged. There are plenty of examples that provide insight into well-executed programs that paid the rent, that is, generated sales and market-share improvements and maintained them over time. Notables: any of the 29 programs rated excellent in the study. These programs provided consumers with significant improvements and expanded content. They provided their divisions with portfolio rock stars. Innovation paid off.
Automotive suppliers beware: Before you take on more risk with your next RFQ submission, ask your OEM partner more questions about overall program content, not just your piece of the pie. Probe the marketing types about the program’s goals, and then compare it to what the winners shown below delivered. You will sleep better.
Warren Browne is an adjunct professor of economics and trade at Lawrence Technological University, and has his own consulting firm. He led the vehicle forecasting team at General Motors in the 1980s.