We’ve seen this movie
before. And it’s a lesson for all entrepreneurs about how to position your
product for a changing market.
EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V
AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1
JAN 7, 2025
Several decades ago, I was directly
involved in one of the greatest efforts ever to position and brand entire new
lines of luxury vehicles, whose Japanese manufacturers were planning to enter
into the U.S. market. I was the CEO of a company that made millions of calls
each year to measure the relative satisfaction of car customers with their
sales and service experiences.
In the mid-1980s, the overwhelming
perception by U.S. vehicle owners was that cars made in Japan were
cheap-looking and unstylish, despite their reliability. We advised management
at both Nissan and Toyota (and eventually Honda) that to succeed in the luxury
space, they needed to establish new brands and new dealership facilities, and
to enforce exceptionally high standards of dealer sales and service behavior.
An elite group of existing dealers were awarded the opportunity to sell these
new brands based on exceptional customer satisfaction levels as measured by our
surveys and technology.
It was a given, of course, that the
actual quality of the new cars needed to be high, but that was less of a
concern than the need to overcome the negative consumer impressions of vehicles
made in Asia. Luxury German, Italian, and English cars screamed elegance – but
Japan conveyed a different image.
Remaking that image is the origin
story of Infiniti (Nissan), Lexus (Toyota), and Acura (Honda). These
brands – at least in the cases of Lexus and Acura – have triumphed in America
and come to be regarded as high-end, high-quality luxury lines with most car
buyers not making the slightest connection to the parent companies, or to any
remnants of their former prejudices and perceptions.
Can Hyundai’s Genesis Pull Off the
Same Branding Trick?
The latest entrant into
the luxury branding sweepstakes is Hyundai, and the exceptional job it has
done since launching the Genesis luxury brand in 2008 – again without the
slightest look backward at its origin as a low-end Korean manufacturer. While
most consumers still don’t even recognize the brand or badge, Genesis sales
have continued to accelerate. New models have been added to the lineup and
massive, flashy TV advertising has driven increased awareness. The cars
themselves look largely indistinguishable from the major European luxury
players (which the latest Genesis ads insist isn’t the case) while the
built-in gimmicks, gadgets, and electronics are actually leading
edge.
Interestingly enough, and a lesson for
entrepreneurs and startups, is that much of the new tech in these cars is
relatively untested and somewhat unstable, but the advertising and promotion
value of being leaders in the space has seemingly overcome the desire to make
sure that all the stuff actually worked as promised. The major players are far
more concerned, constrained, and even regulated in these areas and – as a
result – are far behind. This is very much reminiscent of the Tesla
self-driving fiascos, which are instances of the same old “forgiveness rather
than permission” philosophy, but sadly, much like Theranos,
represent serious ongoing risk to life and limb.
BYD Is Yet Another Asian Competitor
Ready to Crack the U.S. Market
The next vehicle invasion is already
underway. This time it’s coming from China with brands and players, like BYD,
that most car owners have not yet even heard of. They will soon. While the
Musk-hyped media continues to drool over Tesla and bolsters its market cap,
Tesla made about 1.8 million vehicles globally in fiscal 2023 while BYD
produced more than three million EVs and ranked as the world leader. “Made in
China” used to have negative connotations – similar to the earlier Japan issues
– before the world learned that everything that Trump sells to the MAGAt
suckers is manufactured in China and that’s made things apparently hunky-dory
with the cult.
We’re now watching Tesla sales decline
for the first time in a decade, with the often-ridiculed Cybertruck leading the
downward spiral. This is partly political, tied to CEO Elon Musk’s hard right
turn and his boorish and infantile behavior. Driving one of those
monstrosities may soon be perceived as the vehicular equivalent of a MAGA hat
on wheels.
In fact, especially where certain
energy technologies like batteries are concerned, there’s an understanding and
even acceptance that China is now leading the pack. So, no one’s worried about
hiding the backstory and both Elon and Trump can’t get seem to get enough of Xi
Jinping. Tesla has its own very substantial facilities in China and is highly
dependent on materials supplied from there as well as the revenue from the many
Tesla vehicles sold there.
Trump has been talking big about
tariffs on Chinese imports and also eliminating the EV tax credits, but most of
that conversation was before he and Elon made their unholy and wholly confusing
partnership. I’m not betting that anything adverse to Tesla (or Tik-Tok for
that matter) is likely to happen any time soon, since nothing talks louder or
more persuasively with the Orange Monster than the money that people put in his
pocket. It’s also possible that Chinese firms have already begun planning to
create assembly (and possibly manufacturing) facilities in the U.S., which
would be expressly designed to get around any Trump tariffs.
In fact, to give Musk his due, if it
weren’t for Tesla’s cumulative edge in data capture, which will be critically
important to the next autonomous generations
of EVs, the Chinese would probably roll over the entire U.S. vehicle
industry. There’s a precedent. Various Asian players have already done so
in the steel industry, even as President Biden blocked their latest
acquisition actions – Nippon Steel’s attempt to buy U.S.
Steel.
Car Dealers Will Need to Stay
Aggressive
The Japanese vehicle invasion of the
1960s and ’70s caught U.S. manufacturers largely flat-footed. On the other
hand, the biggest and smartest dealers that had available capital jumped on the
new bandwagon, built new dealerships, and largely shut out any new entrants
into their respective marketplaces. The captive dealers that were still playing
the Detroit game and thus largely dependent on the old-line manufacturers lost
several competitive steps and still haven’t really recovered. Today the
mega-dealer chains like the Penske Automotive Group (with more than 200
locations in 28 states) have continued to expand and are probably already
positioning themselves to add Chinese lines to their domestic offerings.
While some of the best and biggest of
these dealer chains may finesse parts of the risk, most dealers won’t be able
to resist the invasion by themselves. The prior Japanese history should be more
than a fair warning that, if the domestic manufacturers don’t aggressively step
up their EV game, they may lose this battle as well. That means millions of
Americans will be driving BYD vehicles by 2030, if not sooner.
