Status symbol or just vehicle for transportation?

The Big-3 automakers are still stuck in the middle of no-man’s land. Although Ford has essentially pulled out of the running for government financing, GM and Chrysler could go bankrupt very soon if the current administration doesn’t step in with a rescue plan.

I’ve read/watched many financial experts debate this issue.  The bankruptcy advocates typically have a myopic focus– they believe that this will provide GM/Chrysler with a “clean slate,” allowing them to wipe debt away and renegotiate so many onerous deals with unions, vendors and others that have hurt the companies so badly. The naysayers (on the other hand) seem to spend most of their time hitting the major (and obvious) point that bankruptcy will create a serious domino effect, forcing thousands of suppliers to go out of business. This, in turn, will ricochet back to all the car companies who won’t be able to buy parts for their vehicles. Ultimately, this would create millions of more lost jobs at the worst of times.

Both points of view have merit. Surprisingly, I’ve only read a few articles focusing on what I believe is a critical point in this giant mess– brand appeal.

I remember reading a survey a few years back in Brand Week which asked consumers of all demographic types what is the number one factor in selecting their automobile. More than nine out of ten answered brand appeal (that stuck out in my mind). The survey did a good job of digging deeper by asking these same respondents why brand is so important. The response by most (sorry, I forgot the statistic) was that it made them feel good about themselves as it was perceived to be a status symbol.

Consumer marketers have always understood these points. But, I’m not sure that those who are advocating bankruptcy for GM and Chrysler do. I’ve argued in past blogs that the Big-3 made their messy beds and now we should let each lie in them (by letting those who can’t survive go bankrupt.) But, on the flip side, I also believe that the negative connotation associated with bankruptcy will prove incredibly damaging to a number of mid to higher end automotive brands, especially in this economy.

Think about those who purchase a Cadillac, or more specifically, an Escalade. These consumers are typically urban, affluent and everything they wear, drive or purchase is focused on the status of success. Do you think most Escalade customers will continue their love affair with this brand when it is equated to the exact opposite, failure? I highly doubt it.

Of course, most brands from these manufacturers are designed for middle and lower classes. And, in this economy, price will certainly trump other features. Still, consumers representing all income levels are clearly in the “driver’s seat” when it comes to the car and type of deal they select these days. I think that a bankrupt GM will push many to select a Honda Accord versus a Saturn the next time around. And, the same goes for choosing the Nissan Altima instead of the Chrysler LeBaron if this company fares the same. By allowing these companies to fall into Chapter 11, their brands will be considered by many to be bankrupt as well.

Comments

[Steve]

Could someone explain to me why Cerebrus Capital Management, Chrysler's owner and an *exceedingly* rich company can't "bail out" Chrysler? Why should taxpayers pay instead of a rich private equity company? Why can't they invest more money in their business, the way I have invested money in my own company when it needs it?

[Matt]

We've posted an interesting take on where the auto companies went wrong over at our Reason Enough blog, written by a guy with 15 years experience inside the industry's mar/comm machine. Please check it out: http://peppercomblog.typepad.com/my_weblog/2009/01/cue-thelma-and-louise.html#more