Cannibalism in the auto industry

The auto industry is fairly structured with its overall line up of vehicles. There are many categories of cars and most of these categories have about 5 main models from the various manufacturers. In order to compete in a wide assortment of categories, some car makers have multiple brands. This allows them to have a brand for the low to mid price scale and one for the high or luxury price level. We see this with Toyota and Lexus, Ford and Lincoln, Nissan and Infiniti, among other examples.

Typically a model of a particular car undergoes a revamp every 4-5 years (although this range can vary greatly) and every time this happens, customers expect the new version to be better in every way. Sometimes auto manufacturers do too good a job at making the new versions better that it becomes too good for its own category and enters the one above it. When this happens then the price generally goes up as well and that doesn’t necessarily make it a bad move, however, this creates a different problem that does make it a poor decision. It creates cannibalism within a model lineup.

The best way to explain this conundrum is with examples. In the 90′s and even early 2000′s Nissan had a vehicle that competed head-to-head with the Toyota Camry, but it wasn’t the Altima which the Camry competes with today. Instead it was the Nissan Maxima that competed with the likes of Toyota Camry, Honda Accord and Chevy Malibu. Many of these older model Maximas are still on the road as they were quite popular. However, in a quest to out do the competition, Nissan added features to the Maxima and made it more refined. If you look at the current Maxima now, it is clearly a level above the Camry and Accord. In fact, pricing on the Maxima starts at around the same range that the Camry ends when you put all the bells and whistles in it. I haven’t yet described the problem though.

The problem with this strategy is that Infiniti, Nissan’s luxury brand makes a popular luxury car called the G37 (previously G35). If you look at the price range of this vehicle, you will notice that it actually has a slightly lower starting price than the current Nissan Maxima (less than $1,000). Nissan clearly did not think this one through all the way because why would anyone buy a Nissan Maxima when they can buy an Infiniti for the same price? They wouldn’t. This is why seeing a current model Maxima on the road is like whale watching in the Atlantic- They’re out there, but you might want to bring binoculars.

2011 Nissan Maxima2010 Infiniti G37 Sedan

Another example is the Toyota Avalon and the Lexus ES350. The Avalon costs essentially the same as the luxury Lexus ES, except you’re driving a Toyota and not a Lexus. This is why we also barely see any Avalons on the road.

These poor decisions could be a sign that these companies are so big that the bureaucracy produces inefficiencies such as redundant products. To be honest, I don’t know exactly why these companies do this sometimes because I can not imagine making redundant products in such a big way. If someone has any ideas why they do this, I would like to hear them.