When mass automakers go after luxury brands

Dec 05, 2012
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Strange bedfellows

The news couldn't have come at a worse time. Just as Skyfall was packing pre-Christmas movie theatres, there was word that James Bond's favorite automaker, Aston Martin, was falling further into foreign hands. Published reports had it that Indian tractor maker Mahindra and Mahindra was eager to buy up to half of Aston from a Kuwaiti investment group.

The disclosure ignited much handwringing. What would ownership by a maker of farm equipment from the subcontinent mean to the very British high-end Aston brand? "It's difficult to visualize a tractor and an Aston Martin in the same garage," said Mads Kaiser, a Denmark-based fund manager, quoted by Reuters.

In fact, high-end automotive brands have for decades been used like shiny Christmas ornaments to brighten the image of manufacturers of more pedestrian products -- some with more success than others. Here's a look at how mass has handled class.

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Aston owners can start to relax. When Tata bought Jaguar from Ford in 2008, onlookers wondered if buyers looking for an authentic product of jolly old England would settle instead for a car produced by a manufacturer from its former colony best known for the Nano, the world's cheapest (in monetary terms) car. In fact, the buyers have, confounding many predictions. Worldwide sales of Jaguar vehicles have been climbing, new models are emerging -- like a new Jaguar sports car, the F-type, making the rounds of the auto shows -- and Jaguar is extending its reach into developing markets in China, Russia, and South America.

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Tata/Land Rover

Tata has been even more successful with Land Rover, Jaguar's stablemate, also purchased from Ford in 2008. An all-new, aluminum-intensive Range Rover has been launched, and Tata has formed a joint venture with China's Chery to produce vehicles for the fast-growing Asian market. Jaguar Land Rover is generating BMW-worthy operating margins and now accounts for 90% of Tata's profits. Its revenues rose 23% in the third quarter, and Tata says it plans to invest $12 billion in the two brands over the next five years.

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Volkswagen's decision to acquire the Bugatti brand was a head-scratcher when it was made in 1998 and remains so 15 years later. After all, the original maker of Bugatti automobiles had been shut down for half a century, and the name had little resonance. VW went ahead to develop a monster it called the Bugatti Veyron, a super-fast (top speed: 250 mph) and super-expensive ($1.7 million) car hardly ever seen outside the collections of Middle Eastern sheiks. Only 30 were sold in 2011. One analyst estimates that VW loses $7 million on every Veyron it builds.

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VW has had better luck with Lamborghini, which it bought in 1998 form a Malaysian investor group. The automaker continued Lambo's tradition of in-your-eye design while using cost-saving and quality-improving parts from Audi's parts bin. Sales increased by 23% in 2011 to 1,602, and a new model, the 217 mile-per-hour Aventador that stickers at just under $400,000, was introduced last year.

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Also part of the VW Group since 1998, boutique maker Bentley has kept its British roots (the cars are still made in England) while thriving under German leadership. Its Continental line, built with underpinnings similar to the VW Phaeton, has been successful, as has been its progress in China, now its largest market. Bentley is profitable, and sales rose 37% in 2011, largely on the strength of the Continental GT, a two-door whose prices start at $175,000. Buyers who want something a little roomier can opt for a $325,000 Mulsanne.

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The Porsche brand has proved indestructible over the past decade, as it was stretched to include SUVs (Cayenne) and sedans (Panamera). The company's acquisition by VW, completed in July, should only accelerate its growth. VW is a master at managing most of its upscale brands (see Bentley and Lamborghini), and access to the Group's vast engineering and supplier resources should lower its costs and speed its adaption to stricter fuel economy standards.

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As part of its streamlining strategy, Ford sold Volvo to Chinese automaker Geely in 2010. Since then, Sweden's pride has almost disappeared from view as it struggles to replace aging models and lift its image to better compete with German luxury brands. Major strategic issues loom, such as how to protect the high-cost manufacturing base in Sweden while enhancing its appeal of Chinese buyers. Volvo suffered a major setback in October when CEO Stefan Jacoby, author of its $11 billion expansion plan, was replaced after reported clashes with his Chinese superiors.

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Fiat/Alfa Romeo

The 112-year-old maker of sports cars and upscale sedans has travelled a bumpy road since becoming part of the Fiat Group in 1986. One of the key building blocks of CEO Sergio Marchionne's expansion strategy -- Alfa's return to the U.S. -- has been repeatedly delayed. Meanwhile, projections of its future growth have been slashed as sales slide to their lowest level since 1969, according to Automotive News. VW's chairman Ferdinand Piech would love to add Alfa to his house of brands, but Marchionne says he isn't selling.

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