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What is the value of an automotive brand?

What is the value of an automotive brand?

The third big strategy topic comes from the automotive sector, titled, “Big Value Chain Profit Pool Shifts Are Painful.” It’s like going to a dentist to have a root canal without any anesthesia. I’m going to pin this entire conversation around a sub-question: What is the value of an automotive brand? What is the Porsche brand worth? What is the Kia brand worth? What is the General Motors brand worth? What is the Volkswagen brand worth? What is the Volvo brand worth? Automotive brands are worth billions of dollars. They are anchors of national pride. I’m sure that Italians are proud that Ferrari comes from Italy. I’m sure Germans are proud to say that Porsche is manufactured in Germany. Brands are valuable, and they are powerful symbols of national prestige.

The good news—and bad news—for many automotive companies is that we’ll soon find out what a brand is worth because Apple has raised the stakes. By having conversations with different automotive companies about whether they will manufacture an Apple Car and brand it an Apple Car and give up their brands, Apple is basically saying this: This is the choice you need to make. Do you believe your brand is so valuable that you want to go all in and invest in it? Or would you rather have stability of volume contracts from Apple—a high degree of certainty of large volume but at a lower margin? What do you think is more valuable: your brand, or certainty with us?

Here is the strange thing. This means that car companies only have powerful brands or see their brands as being the core of their business if nobody breaks ranks. If not a single automotive company signs with Apple, we will never know the answer to this. But the reality is that someone will most likely break ranks. First, many automotive companies are struggling, losing billions of dollars a year. The cost of switching into connected vehicles, electric vehicles, autonomous vehicles and AI-powered vehicles is so high that it’s inevitable some automotive company is going to say, “We’re going to be a supplier, and it’s okay,” and they’re going to break ranks, and the question will be answered. An automotive brand is not as valuable as you think it is. Of course, some brands are going to be very valuable, like anything in life, but some of them are likely going to decide it’s better to be a contract manufacturer for Apple.

The second reason is that it’s not just automotive companies that are being spoken to. Contract manufacturers—like Foxconn, which already does a lot of Apple’s precision manufacturing in China, Taiwan and India—see an opportunity or may say, “Automotive companies don’t want to do this. Why don’t we do it? We’ll go to Apple and say we’ll build their cars for them.” So, automotive companies are caught in a difficult position. If they say no to Apple, they open an opportunity for someone who’s not in automotive manufacturing to get into automotive manufacturing fully subsidized by Apple. Saying no to Apple doesn’t stop Apple. At the very least, it just means that you allow a very big, powerful company to get into your space.

It’s also an unprecedented shift. From the 60s-90s, many Asian economies grew because they had the manufacturing capability, but they didn’t have the brands. Taiwan is a great example of this. They would manufacture for companies like Compaq, and they would put the client’s logo on it. We call them original design manufacturers—white labeling. The holy grail of white labeling was not to be a white label but to be a label, a brand. Over time, those companies migrated up the value chain, got closer to customers and branded themselves.

It’s a historic shift for a brand of an automotive company’s caliber to decide to give up their brand and manufacture as a white label. I haven’t seen that strategy before. It’s unprecedented, extremely rare, and it has a significant impact. It’s going to cause dislocations in the automotive sector. Countries that had powerful brands and add manufacturing in that location to the powerful brand may realize that they’re losing their manufacturing capacity because these days, it doesn’t matter where they manufacture because Apple’s logo is on it—even if it’s manufactured in Bangladesh. Manufacturing could move out very rapidly from Germany, France, Spain and Mexico.

Where are the profit pools going? How do you get ahead of it? Someone’s going to do the contract manufacturing for Apple. It may not be Apple, but someone’s going to do it. The question becomes: If this shift is happening in automotive, how do you get ahead of the shift? If it can happen in automotive, in what other sectors can it happen? That’s what you have to think about.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #17. Many of you have found Monday Morning 8 a.m. so useful that you’ve asked us to release a book version of these newsletters. We’ve obliged and released a Kindle version, which you can find on Amazon under “Strategy Insights.” It contains the insights from previous Monday Morning 8 a.m. issues, edited into a bite-sized format that’s very easy to use. And you can learn about other FIRMSconsulting books here

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