Are Big Three Just California Dreaming?

It's been a long time since the Beach Boys sang about Chevrolets, since the free-wheeling image of big-finned domestic automobiles fit perfectly with the carefree, larger-than-life-style embodied by California, and the combination resonated with American culture at large. Then for 30 years, wave after wave of Japanese and then Korean imports landed on America's nearest shore and pummeled General Motors, Ford and Chrysler, making U.S.-based brands essentially irrelevant in the state that was always defining and redefining the nation. They got help from superior Japanese engine technology at a time when California had to take the lead in boosting mileage and cutting emissions out of sheer self-protection, as well as a boost from a news and entertainment media that began talking down American cars and would continue to do so for decades.

But the Big Three never let go of the dream of re-establishing themselves in the California market, even after decades as an also-ran. And now, General Motors and Ford finally have been able to faintly smell the jasmine, hear the surf and sense that they might be latching on to fresh, long-term success in America's most important — and the world's most beguiling — new-car market; and even Chrysler is talking about renewed hope there. The bellwether state has emerged as a top destination for some of the newest and most important vehicles in the Big Three's product portfolio these days, and domestic marketers are trying to make sure that the Golden State indeed proves golden for them in the years to come.

"We've been looking for that sweet spot in California for a long time," said Lew Echlin, Ford's marketing manager for global cars and crossovers. "As with anything, it has taken a great deal of perseverance and consistency in California. We've had a cohesive California strategy that's gone back for years ... But it's taken us a long time to get in perfect harmony with the California market. We've found a sweet spot that we had found [only] in spurts before, but now we've consistently hammered on it." Ford's overall market share in California has risen to 11.6 percent for 2011 to date compared with just 10.0 percent for all of 2008, thanks largely to the popularity there of its newest small cars, the Ford Focus (top) and Ford Fiesta, according to Polk data.

Up From 'Terrible'
Similarly, General Motors sees new hope in its rising results in California. GM's California market share through September was 12.2 percent compared with its national average of 19.8 percent, with sales in the state up by 1.5 percent for the year to date compared with a 0.8 percent increase for the nation as a whole over 2010, according to Polk data. And like Ford, GM has been predicating its turnaround there largely on small cars — in this case, great acceptance for its new Chevrolet Cruze compact, which is widely considered a vast improvement over the Cobalt subcompact that it replaced. "With the launch of the Cruze, we've gone from zero to hero in California pretty quickly," said Alan Batey, vice president of the Chevrolet division. The launch of the cutting-edge Chevrolet Volt extended-range hybrid also has given GM a new-age panache in California, he said.

Even Chrysler, which remains "flipping terrible" in California in the words of one of its executives, sees some very new reasons to hope that it can turn around its long-term irrelevance in the state. Chrysler sales in California have ticked up this year, by 1.0 percent of market share over the year to date for 2010. But for Chrysler at this point, any progress in California simply can't be product-led: Its only small cars, the Chrysler 200 and Dodge Caliber, simply don't represent anything close to best-in-class in that segment. So Chrysler is starting its California revival efforts at a different point: the dealership. The company has been taking advantage of the bursting of the commercial real-estate bubble on the West Coast to pick up a handful of properties and move toward establishing new dealerships or re-establishing outlets in metro areas that seem newly promising or where Chrysler regretted having to wash out underperforming dealers during the purge of 2008 and 2009. "What's been different and new is the focus and intensity we have put on getting more solid representation in California," said Peter Grady, Chrysler's vice president of network development.

These Big Three executives are talking up their California hopes because they realize they can't keep underperforming there and have any real chance of significantly reversing their decades-long loss of U.S. market share. In sheer numbers, California and its new-vehicle trade dwarf everywhere else. The state accounted for 10 percent, or $57 billion, of overall U.S. vehicle sales through dealerships in 2010, according to the National Auto Dealers Association; that compared with just 8 percent for Texas, 7 percent for Florida and 6 percent for New York. Moreover, the $44 million in average sales per dealership in California was 40 percent higher than the national average in 2010.

Everything Starts There
"Though the California market has been down lately more than the rest of the country," Grady said, "it still will end up [2011] being the largest car market in the country. "We can't go without it." Said Batey: "For Chevrolet to be strong and take effective leadership, we need to do better in the biggest market in the country. There's no rocket science to that; we must have vehicles that are relevant to consumers in that market."

Likely even more important than its size is the California bellwether effect that is evident in cars just as it is in every other aspect of the American economy and culture. In 1986, after Ford used a Hollywood sound stage to introduce what then was the revolutionary styling of its Ford Taurus and Mercury Sable mid-size cars, the company saw consumers in California and the East Coast become the first to embrace their sleek new look. Then, the vehicles' "jellybean" design caught on further and further inland until only a narrow strip of Midwesterners, for a hundred miles or so on either side of the Mississippi River, were holdouts. "It's no secret that California customers spend more time in their vehicles than anywhere else," Echlin said. "And in California what you drive, and how it looks, is extremely important."

Regional patterns of embracing the new and different don't assert themselves too much differently today: California starts just about everything. Even recently, however, Ford kept learning that lesson the hard way. Seven years ago, when Echlin was Ford's regional marketing manager in California, about 75 percent of the company's sales in the state were pickup trucks, and its F-Series was the undisputed leader among truck brands in California. Though apparently sitting pretty, however, Ford's California position was just a portent of problems to come, because at that point about half the new vehicles being sold in the state were cars, not trucks. "So what we were offering to customers wasn't in lockstep with the California market," Echlin acknowledged. Fast-forward to the last couple of years, when Ford's supremacy in trucks has begun to take a back seat in importance nationwide to its sales performance in small cars — certainly an echo of what it experienced in California several years earlier.

Ford's California Key
Nowadays, however, not only has Ford caught up to national consumer preferences for highly contented, fuel-efficient small cars, but it is beginning to exploit in a significant way the amplification of exactly those preferences that drives the California market per se. Californians' long preference for small, fuel-efficient, low-emission cars certainly is the most prominent of those markers. Thus about 12.3 percent of Ford's Fiesta subcompact are sold in California, which has 10 percent of the entire new-vehicle market nationally, and most recently about 9 percent of its Focus compact."

But beyond the mere size of its successful nameplates, Ford has become much better at exploiting another primary characteristic of the California market: Buyers emphasize the appearance of their vehicles, in and out, and prefer more than other Americans to load them up with advanced standard features and options. Echlin and his colleagues first absorbed that lesson several years ago when marketing the company's first CUVs, Edge and Flex, in California. (Ford introduces the next-generation Flex as well as the new Escape at this week's Los Angeles auto show.) "We recognized that, rather than showing the typical vehicle on the road, and a ‘great price,' we'd advertise the long list of content you would get," he explained. Today with Fiesta, Focus and other cars, he said, "We've consistently hammered what content you get for the price."

So, in California, Fiesta buyers pay 2 percent more for their vehicles than the national average, Echlin said, because they content their purchases more highly. For instance, hatchbacks have reached more than half the mix for both Focus and Fiesta in California, much higher than for the rest of the country, and those versions retail for $500 to $1,000 more. And about one-quarter of all Fiestas sold there, again high for the nation, are rendered in the highest trim series available for the vehicle, which includes a push-button start — an option that, until very recently, was included on only a very few nameplates in the U.S., mostly luxury vehicles. "We're making and offering products in segments where customers want them, and we have an incredibly solid hot-content-for-the-price story that has been particularly strong in California," Echlin concluded.

Golden State Demographics
Ford's target demographics have a particular slant in California as well. About 25 percent of Ford's California customers are first-time buyers, more than 10 percentage points higher than for the United States on the whole. For Fiesta, nearly 40 percent are first-time buyers in California, versus 30 percent nationally, indicating particular success for Ford in getting the entry-level customers that are the nameplate's primary target. Similarly, Ford has been successful targeting Hispanic consumers, with whom small cars are very popular, Echlin said; local dealer associations have cooperated effectively with the brand in that regard. "We've been able to get considerably higher penetration than we're used to in the Hispanic market, he said. "You really can't carry California without it."

The very diversity of Ford's dealer body in California, Echlin said, also has helped the brand achieve greater traction there. "California has a very distinct culture and also a number of micro-markets, he said. "Having our dealer body understand and represent those micromarkets better than anyone else, we've been able to capitalize." Four of Ford's top five volume dealers of Fiesta are California-based. Also helping has been a greater marketing emphasis on test drives and "experiential" events in California than elsewhere, he said. Next, Ford hopes to boost its California sales of Fusion and Escape, Echlin said.

GM has been "underrepresented in California for years" in sales of four-cylinder vehicles, Batey acknowledged, but Cruze and Volt already have given the company new hope there. Cruze sales, he said, "have done brilliantly. It's due to the fractd of understanding what compact-car customers need and want." That only begins with fuel economy he said. In the case of Cruze, Californians — especially parents buying cars for their kids — also like the nameplate's five-star safety rating and OnStar availability.

Hitting The Streets
GM is extending its emphasis on California with the current launch of its Sonic. It's one of six key states for grass-roots marketing initiatives and sales-promotion events, Batey said, including "street teams" of marketers, vehicle displays, ride-and-drive events and on-campus marketing to collegians. "We're creating lots of opportunities to engage with California customers who've, frankly, not considered Chevrolet in their lives, or in their passenger cars, for a long, long time." And when GM introduces a new Chevrolet Malibu next year, coming out first with an Eco fuel-friendly model, California will get an out-sized share of initial marketing attention as well, Batey said.

Understanding Californians' egregious concern about appearances, Batey said that Chevrolet also has in particular targeted dealerships in the state for physical makeovers as part of its huge redevelopment plan over the next year for its outlets nationwide. "Our dealerships, in all honesty, haven't been as cosmetically appealing as some of the imports'," he said. Improving the look and feel of Chevy dealerships is especially important in the Golden State, he said, because Chevrolet has been "underrepresented there, and it's the area with the biggest opportunity for our brand. So California has been frontloaded in our national plan."

Overall, of course, GM CMO Joel Ewanick has been talking about transforming Chevrolet into the kind of ubiquitous consumer brand that Apple has become. Accomplishing anything like that would be a huge stretch, but if it's going to happen at all, it's got to take place in California. That's one reason why Chevrolet also is trying to learn from another iconic brand with huge ties to the state: Disney. Chevy is starting to send dealership owners and important managers through a Disney course on customer experience. "We believe we can learn a lot of important things from someone who's a leader outside our industry," Batey said. And a brand that happens to own one of the most notable attractions in California.

Chrysler's California Climb
Chrysler is a long way from flirting with Disney to help it understand California. But the company's Grady said that it is determined nonetheless to build its presence in the state beyond anything Chrysler ever has had there. "When we came out of our bankruptcy [in 2009], we were less than three-quarters populated in the markets we wanted in California," he said. "Now we're in varying stages of finishing up construction where we'll have dealers going back into the [California] market again" in areas including Van Nuys, Calif., which Grady called "one of the biggest sales areas in the country. We're blocking and tackling with our dealers like factory guys are supposed to do." The company also has sliced regional management of just California out of an office that used to handle all of the Western United States and headquartered that state-specific operation in Irvine, Calif.

The company has been handicapped by the lack of hot new products that it could aim effectively at California. So Chrysler has been trying to manufacture some interest in its brands and nameplates there. "As a company, we have tried to spend a fair amount of time understanding the unique market, and you're starting to see more and more of what we're doing reflect California," Grady said. For instance, one of the primary TV spots in Chrysler's mid-year launch of an advertising campaign for the new 300 has been one featuring rapper Dr. Dre driving through southern California, ending with a different take on the brand's signature line from the Eminem "Imported from Detroit" spot that electrified Super Bowl viewers in February. "This is L.A.," Dre says in the ad. "And this is what we do."

Also, the ramp-up of the Fiat brand has been California-heavy. Moneyed millennials are a huge target for the new Fiat 500, and Chrysler is helping Fiat locate a disproportionately high number of its dealers in the Golden State. "The typical buyer in California is really leaning toward an import," Grady acknowledged. "And it's important for Fiat to do well in California. Also, a lot of the underpinnings of Chrysler products is Fiat technology. So it's importnat for the Fiat brand to get a good foothold in California, not just the 500."

The Big Three have stepped successfully through a window of opportunity in 2011, picking up sales, market share, momentum, and even favorable new labor contracts. But can they take bigger advantage in a way that will reshape their fortunes, and the U.S. auto market, for the long term? Are GM, Ford and Chrysler capable of leveraging their new advantages in product balance, profitability and marketing into a reversal of decades of relative decline? "Rising" a new series by AutoObserver, looks at their chances.