Mike Smitka, Economics, Washington & Lee Univ
Toyota will eliminate the Scion brand; Ford is withdrawing from Japan. In the US, Suzuki, Hummer, Pontiac, Plymouth, Mercury, Oldsmobile, Isuzu, Renault, Yugo, Saturn, Hyundai (since returned) and others vanished years ago. Excluding upscale marques, today only 2 other brands have market shares in the US below Dodge's 3.5%: Fiat at 0.2%, and Mitsubishi at 0.6%. Meanwhile Scion averaged 0.3% for the whole of 2015, and hasn't been consistently above 0.5% since hovering near the 1% level under the high gas price era that ended in 2008. The Fiat 500 had the misfortune to launch even later, in 2011. Now my categories are arbitrarily mine. BMW's Mini is also at 0.2%, but the base two-door starts at $20,000 while net of current rebates the Fiat 500 starts at $15,000. Even the Chrysler brand, which to me is not now particularly upscale, has a 1.6% market share.
So how many marques will the market support? That should be a function of the size of the market, and the costs of maintaining a brand. Of course that would assume that incumbents have positions that are assailable, and that minor brands are up to the battle. Now on the market size end the answer is clear: these brands are all devoted to passenger cars, and that market ran at 7.2 mil (SAAR) in February 2016, but at 10.8 million 30 years earlier, in February 1986. Have the costs of supporting a brand changed? You still need national advertising, a dealership network and staff to support it, and parts distribution infrastructure when you can't piggy-back on an existing brand (Mitsubishi can't, I don't know whether Fiat uses the Chrysler network). Oh, and both Fiat and Mitsubishi are imported, so they need port infrastructure, delivery services that may not be near the center of their market, and perhaps somewhat larger inventory in the system as a whole. Is marketing cheaper than in the past? Does the shift to multibrand store complexes make it easier to recruit dealers? I don't know, but I suspect not.
So let me assume that the costs of running a brand as a share of revenue have been constant over time. Without Scion there are then 29 brands today. In addition, basic IO (Industrial Organization) theory, which today should more accurately be called the economics of strategy, posits a square root relationship for the number of players versus the market size. We might then expect √10.8/7.1 = 1.233 or about 25% more brands in 1986. That implies the presence of 35-36 brands versus today's 29.
Now my crude count – I don't have a sales table for 1986 – comes in at 34. A more meaningful comparison would eliminate luxury brands (was BMW one in 1986??) and brands that focused on light trucks. Today I count 18 such brands; in 1986 I count 26, though that's including among others Oldsmobile, Volvo and Saab as non-luxury marques.
These back-of-the-envelope calculations are exactly that. Brands that compete with one another might be a better indicator, but that would require a lot of detailed data and its own set of judgement calls. Another calculation would be the number of luxury brands relative to the market size, however arbitrarily defined "luxury" might be. How about Europe, where once relatively independent national markets saw competition from inside the European Common Market, particularly once the Block Exemption on cross-border shopping by consumers was eliminated. Ditto Japan, where several firms (Mazda and Mitsubishi and even Toyota) pared the number of sales channels, as the relative weight of compact cars, regular cars and "kei" minicars shifted. With enough data, the relationship might not turn out to be the square root, but the sort of "power law" found in many parts of nature and social structures. And obviously, while it might be hard to come by, data on the fixed costs of a brand would be helpful, though all that might be possible is to look at the smallest brand that appears to be making a profit. (My sense is that financial statements seldom provide much detail, particularly as imports are subject to pricing-to-market so margins vary over time.)
A more ambitious analysis would focus on models and not brands. As background, with Japan's shrinking market Mazda has announced it will cease making minivans, Subaru (FHI) is quitting "kei" minicar production and Mitsubishi will not develop a next-generation Pajero SUV (Nikkei, Feb 29). How many mid-sized car models relative to market size, or minivans, or pickup trucks, or many luxury models? At what point does a segment become large enough (crossovers) to support luxury models? An alternative approach would focus on brands over some market share threshold, to eliminate those in the process of entering or exiting the market, or driven by the ego trips of management infatuated with being in the US (or some other particular market) that hang on despite all commercial logic. Anyway, the overall line of analysis would be the same.
As the various national auto markets evolve – China "maturing" (whatever that means), India growing, Japan shrinking, and new powertrains seeing volumes beyond the experimental levels of (say) a Tesla at the high end or a Renault Zoe at the low end, well ... there are practical implications.