Troubled Automakers' Golden Goose: Licensing Other Products

Why GM Is Putting Miniature Hummers in McDonald's Happy Meals

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DETROIT (AdAge.com) -- GM lost $3.2 billion globally in the second quarter. Last year, GM-brand licensed products in the U.S. sold nearly as much.
GM and McDonald's have a deal to give away 42 milliion toy Hummers in Happy Meals and Mighty Kids Meals. | Comment on this story in the 'Your Opinion' box below.
GM and McDonald's have a deal to give away 42 milliion toy Hummers in Happy Meals and Mighty Kids Meals. | Comment on this story in the 'Your Opinion' box below.

Key rings and T-shirts
Of course, it's licensees and retailers who take much of that, but as cash-strapped auto marketers scour for ways to make profit numbers, revenue from key rings, T-shirts and other licensed goods is regarded as a golden goose that can extend brands and bring in hundreds of millions of dollars at little cost.

That potential has begun to stretch the boundaries of the licensing game. Last week GM, much to the chagrin of environmentalists, announced it was going to put Hummers in the hands of consumers who won't have driver's licenses for about a decade, thanks to a deal with McDonald's to give away 42 million toy SUVs in Happy Meals and Mighty Kids Meals.

BMW's 'Kids Bike'
GM's not the only one looking to connect with pre-teens -- BMW has a $300 BMW "Kids Bike" designed for users as young as 2-and-a-half to 6 years old. Nor is it the only one innovating in the area: Omnicom's Beanstalk Group, which handles Ford Motor Co., just inked a deal in China for Land Rover products that include outdoor footwear, said President Michael Strong. Then there's the even more tenuous Dodge PC Ride, a personal computer that comes with a hard drive shaped like a Charger sedan, Viper roadster or Magnum sport wagon.

"It's a significant marketing tool that gets consumers to incorporate our brands into their lives," said Phil Bockborn, senior manager of global event marketing at Chrysler Group, which sifts through a mind-boggling 5,000-plus proposals a year. "That person is a walking billboard for your brand and you can't buy that kind of exposure."

Since 2004 the Chrysler brand, which has 200 licensed products from some 50 licensees, has beefed up its licensing revenue 40%, Mr. Bockborn said. Jeep now has 600 products and 150 licensees and its licensing revenue has risen by 20% in the past two years. Dodge, with 400 products and 100 licensees, saw its royalty revenue jump 20% in the period, he said.

Exact royalties unknown
Determining the exact royalties to automakers is difficult because the fees vary from 3% for mass-market small toys to 15% for pricier offerings by luxury marques, said Steven Ekstract, publisher of License magazine.

Robert Hollander, president of Brand Sense Partners, the outfit that handles Dodge's licensing deals, puts its licensed-product tally at $450 million in retail sales last year. Among the newest is a line of Dodge Hemi power tools for national hardware chains being presold at Dodge dealerships.

The concept is a great fit for Dodge, whose truck owners are performance enthusiasts. "With the competition being pretty fierce out there, licensing is a way to extend advertising and extend the brand and bring in revenue," said Mr. Ekstract. "Carmakers can also bond with consumers emotionally via their licensed goods."

GM top licensor among carmakers
The magazine ranked GM the top carmaker in retail sales last year via licensing goods and ninth among all marketers, with $3 billion in U.S. retail sales. Ford Motor Co.'s stable of brands was 22nd in 2005 with $1.3 billion, while DaimlerChrysler came in No. 32 with $1.1 billion.

Strangely, two of the best-selling car brands, Toyota and Honda, have never made the magazine's Leading 100 lists. Neither did Nissan North America, until the carmaker "woke up" and hired Equity Management, San Diego, in 2002 to handle its licenses, Mr. Ekstract said. In 2005, Nissan was No. 71 with $165 million in retail sales.

Equity Management's Troy, Mich., office, which also handles all of GM, inked Hummer's deal with McDonald's.

First days of Hummer promotion
In the first five days of the promotion, roughly 10 million of the first two of eight Hummer models were given out and some outlets ran out of the SUVs, said Martin Walsh, general manager at Hummer, which licenses a lot of toys, including remote-controlled SUV and die-cast models. "I do it as an extension of advertising," he said. "Any time you get your brand in front of people, that's an extension of advertising."

While it's true young children won't be able to drive for years, auto-branded toys can influence their parents and can build brand loyalty, said Stu Seltzer, partner of licensing consultant Marketing On Demand.

The downside is brand dissatisfaction if kids have a bad experience with the products. Mr. Seltzer said his kids were very upset when the battery on their Jeep Ride On died. They "hated Jeep for the three weeks it took to get a new battery" online, he said. "However, now it's running, and they love the brand again."
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