US car companies spent more than $50 billion on marketing in 2000—more than any other US industry and upward of 200 percent of the total global net income of the top five automakers. Yet from 1996 to 2000, while the marketing costs per vehicle of the Big Three auto companies increased by 87 percent (to an average of $2,900 per car sold), their combined market share dropped by more than four percentage points, representing $15 billion in lost revenue for 2000 alone. More spending is not the answer. The industry cannot turn the tide until it addresses a deeper problem: the loss of brand identity.

In recent years, the number of car makes and models has grown in every product segment. At the same time, the once vast gaps in quality, performance, safety, fuel efficiency, and amenities have all closed significantly. Although variations in quality and performance persist, the remaining possibilities for differentiating products, and thus achieving competitive advantage, revolve around styling and other intangibles and the emotional benefits they confer on the customer. But instead of attempting to convey these benefits, carmakers spend 55 percent of their marketing budgets—$24 billion a year—on rebates and incentives. Price has become,...