Beep, Beep! There Goes Ford's Explorer

Jeep. It's a brand name as rugged and durable as its four-wheel-drive vehicles. To marketing gurus, Jeep's robust sales in the late 1980s, even as other Chrysler nameplates struggled, offered powerful proof of a brand's value.

Now, however, the Jeep brand has lost its edge. According to data released in early January, unit sales of Jeep vehicles fell 21% in 1990, and auto analysts expect the slide to continue through the first half of 1991. That's the first drop in eight years--and it couldn't come at a worse time for Lee A. Iacocca and Chrysler Corp., which acquired Jeep in its 1987 purchase of American Motors Corp. The third-ranked U. S. carmaker is in the midst of an enormously expensive new-product cycle that's gobbling up the company's cash. It was counting on its hot-selling minivans and its trendy Jeeps--with margins of up to 18% and sales gains year after year--to help carry it through the tight spot.

GARAGE MATES. But now minivan sales are soft, and Jeep has run up against the new king of the off-roads--the wildly popular Ford Explorer, a brand that didn't even exist a year ago. While Chrysler tinkered with the Jeep, the Explorer roared onto the scene to replace the aging Bronco II in the Ford lineup. With a strong customer appeal that surprised even its own marketers, the Explorer outsold the Cherokee almost 2 to 1 in the second half of 1990 and pushed Ford past Jeep in the off-road vehicle market. Says Christopher W. Cedergren, senior auto analyst with J. D. Power & Associates: "The Explorer is the best executed vehicle in its segment, and there are not many U. S. models you can say that about."

Throughout the 1980s, the same could have been said for the four-door Cherokee. But then, the segment wasn't very crowded. As affluent yuppies snapped up Cherokees, Chrysler reveled in market research that showed the most common garage-mates of Jeep Cherokees were Mercedes-Benz and BMW cars.

But in truth, it wasn't the Jeep name that was attracting buyers--it was the four doors that made it easier for families to pile in for a trip to the beach or the mall. Most rivals' products had only two doors. For buyers wanting some room, says Larry W. Baker, Jeep-Eagle Div. general manager, "Cherokee was the only game in town." In other words, "a lot of people who bought Jeeps didn't have any brand loyalty," says Joseph S. Phillippi, auto analyst at Shearson Lehman Brothers Inc. "They weren't really buying a Jeep. They were buying a four-door, four-wheel-drive station wagon."

Heading into 1990, Jeep executives knew that Cherokee would be tested when General Motors, Ford, Toyota, and Nissan introduced their own four-door off-road vehicles. Chrysler is readying an all-new four-door Jeep, labeled the ZJ, but it won't be out until spring, 1992. In the meantime, Jeep executives decided to hammer home the power of the Jeep brand in their marketing, changing the chief advertising tag line from "Only in a Jeep" to "There's only one Jeep." Another ad early in 1990 showed the Cherokee besting its rivals in a kind of Western-style shoot-out.

As it happened, most of Cherokee's new competitors had neither the product innovations nor market presence to make major inroads. The Nissan Pathfinder SE was well-received, but Nissan and other Japanese manufacturers couldn't supply the volumes for a major run at Jeep. And in a failure that surprised auto analysts, GM's new four-door Chevrolet Blazer and GMC Jimmy did not draw many new buyers. The Blazer, in fact, lost market share in 1990. The reason: Both GM models were designed first as two-door models, then "stretched" to add extra doors. Customers quickly concluded that the stretched Blazer and Jimmy did not have the extra roominess they expected from a four-door.

The Ford Explorer, however, was designed as a spacious four-door from the start. Explorer's designers realized that many more women were buying off-road vehicles or influencing purchase decisions, so they made changes for them as well as for men. As a result, the Explorer has safety features such as front-seat head restraints and rear shoulder belts, often lacking in off-road vehicles. Driving is a lot easier, too: Switching from two-wheel drive to four-wheel drive only requires pressing a button, even while driving. In contrast, Cherokee drivers shift into four-wheel drive with a more awkward parking-brake-like lever on the floor.

DATED LOOK. The Explorer's lead in the headlight-to-headlight battle with Cherokee serves as a reminder that even the strongest brands need more than marketing budgets to stay on top. Says Al Ries, chairman of the marketing firm Trout & Ries, who once did some consulting work for American Motors: "The product cannot be old-fashioned, even when the brand is powerful." And, beside the Explorer, the Cherokee looks dated: The most recent major reworking of its decades-old styling came in 1984.

Auto periodicals such as Four Wheeler dubbed the 1990 Explorer the best vehicle of its class, while Consumer Reports gave Explorer high marks for its safety features. Even Chrysler's allies admit Explorer's strengths: "Its mix of individuality and performance strikes a very personal note among customers," says Laurel Cutler, vice-chairman of ad agency FCB/Leber Katz Partners and a Chrysler marketing consultant.

Ford, meanwhile, says that the Explorer has been selling itself. "Product is the alpha and omega of the marketing game," says Thomas J. Wagner, Ford Div. general manager. "If you have good product, you look very good in your marketing." Explorer advertisements play off the vehicle name, inviting drivers to explore new territory, while at the same time stressing the comfort and safety of the drive. Ford also combined the image of quality and better value. For its top-of-the-line customers, for example, Ford built a $21,315 Explorer with leather interior and other touches designed by outdoor-apparel maker Eddie Bauer. The price tag was nearly $4,500 below the top-of-the-line Cherokee Limited.

POWER TRAINS. Since the fall, Chrysler has been launching a series of counterattacks against the Explorer. First, there was an improvement of the Cherokee. "These buyers react to power trains, so we upped the horsepower," from 177 to 190, says Chrysler President Robert A. Lutz. Jeep also added optional all-wheel antilock brakes and shift-on-the-fly four-wheel drive that permits a shift into four-wheel without going into neutral. The upscale Cherokee Laredo features leather seats to match the Eddie Bauer Explorer.

Second, Chrysler started discounting Jeep for the first time, slashing the Cherokee Limited's price by $1,200 and adding "50th anniversary discount packages" for selected options ranging from $500 to $1,600.

And Jeep launched the Cherokee Sport, a stripped-down four-door whose price of $16,608 is designed to go head-to-head with the basic Explorer, which costs $16,511. About three-quarters of Jeep Cherokee sales had been in the upscale Limited and Laredo lines, but the company wants to push the lower-priced Sport to rebuild volume. The cost: thinner margins. Shearson Lehman's Phillippi estimates Jeep's profits on the Cherokee have dropped to around $2,500 a vehicle, from about $4,000 to $4,500 before Jeep had to battle the Explorer.

PRODUCTION CUTBACKS. Jeep has also been advertising lavishly to boast of the new features and the Sport's affordability. The Sport ad declares: "The biggest obstacle you face in a Jeep Cherokee shouldn't be the price." That line was written "to overcome a perception that a Jeep is just totally out of reach," says Jeep's Baker.

Despite the new marketing efforts, Jeep has had to cut back on production. While the Louisville (Ky.) Ford plant that builds the Explorer has been on steady overtime, the Toledo Jeep plant was closed in late 1990 and is not scheduled to reopen until Jan. 28. Jeep executives argue that the Sport will really move in the spring, the season when bargain-hunters typically buy cars. And Baker points out that it's not the whole Jeep line that's suffering. "Wrangler is still the icon of the brand," he says. Wrangler, which most resembles the sturdy World War II military vehicle, held its own in market share in 1990.

But annual Wrangler volume is only 50,000 vehicles, well below the usual level of 150,000 units sold for Cherokee. Jeep's other main line, the Wagoneer, sells only about 20,000 units every year. So, to recover in four-door sales, Jeep will be relying on its new entry to match the Explorer. The new ZJ vehicle is supposed to combine the rugged Jeep image with more contemporary styling and better options, such as a V-8 engine. Baker vows the ZJ will restore Jeep's edge: "We're going to have to play catch-up, and we will." But playing that game will be a lot tougher next year after Ford has had 12 more months to score gains against one of the best-known brand names in the world.