Operations

Luxury Auto Makers Grapple With Slumping Sales Market

Posted on October 22, 2008 by LCT Staff - Also by this author - About the author

DETROIT – About six years ago, Helmut Panke, then the incoming chief executive of BMW AG, forecast a new direction for the auto market.

The auto market, Mr. Panke said, would be shaped like an hourglass. There'd be a lot of sales at the bottom, fewer sales for middle-priced, middle-class brands, and more demand for premium cars with luxury amenities and higher-caste brand images.

During the ensuing years, the market took on the hourglass shape Mr. Panke described. BMW, Mercedes, Lexus, Acura, Audi, Infiniti and a rejuvenated Cadillac boomed as they lured upper middle class consumers into their showrooms with lease deals and financing that made their $30,000, $40,000 and $50,000 cars and sport utility vehicles affordable to people who might once have purchased Buicks or Mercurys.

Now, many of these same luxury brands are battening down for a bleak year or two as their sales crumple. The easy credit that boosted luxury car sales isn't so easy any more. The stock market has blown off trillions in wealth, and thousands of jobs. Homes that once had plenty of equity to finance new wheels now don't have so much.

During August and September 2007, a BMW 3-Series sedan sold 28 days after it hit the showroom floor, on average, according to data from the Power Information Network. During the same period this year, the average 3-Series sedan sat unsold for 49 days.

Some of the big sedans older, wealthier people like to drive are having an even tougher time. A Lexus LS sedan sold in just 21 days on average last August and September. This year, the average LS sat around for 62 days before it sold – for an average of about $5,000 less, according to PIN data.

Luxury brands have faced rocky economic times before. But what's different from the early 1990s is that now, Lexus, Acura, BMW, Mercedes and the like are not niche, low volume brands catering to people so wealthy that rough economic seas don't really rock their boats. Now, these brands are exemplars of the mass luxury trend that swept through other industries – housing, for one – during the past decade.

Luxury car makers now face a challenge to sustain interest, and as much as possible demand, to keep their dealer networks healthy and keep factories operating. But they can't go overboard to push sales, or they risk undermining brand images and resale value records that are the bedrock of their long-term success.

"The worst thing you can do is push products into the market when people aren't in a mood to buy," says Jack Pitney, vice president for marketing and product development at BMW's U.S. marketing arm. That means BMW is likely to slow production at its plant in South Carolina, and its overseas factories. The company is taking steps to support dealers, and is looking to make lemonade out of the market lemon. Strong demand three or four years ago mean that a healthy crop of leased BMWs will be returning to dealerships for resale. BMW will promote these with tools such as a warranty, stressing that they represent a value in difficult times.

At Audi AG, Johan de Nysschen, head of Audi's U.S. operation, says he sees "an acceleration in the downward trend in luxury sales… We are not optimistic this will improve in the short term. We should brace ourselves for more of the same." Audi, he says, is forecasting the U.S. luxury market will contract by 15% to 20% over the next 18 months, and slowly stabilize from there.

Mr. de Nysschen says his biggest worry isn't that 40-somethings will stop buying A4s – he says Audi is fortunate that a redesigned A4 is on the way this fall. He sees more weakness among consumers in their late 50s, who perhaps were thinking of buying a luxury car to drive off into retirement.

Mr. de Nysschen says Audi is responding to the turmoil in part by looking again at its future model mix and technology choices. Large SUVs aren't selling right now. Audi is betting that it can reinvigorate demand for its Q7 sport utility vehicle, and its larger cars, by offering them with more efficient diesel engines, similar to those it sells in Europe.

"Consumers can still have a big car, but it gets mileage of 30 miles per gallon." Smaller Audis could get 50 miles per gallon he says, and perhaps longer term use biodiesel fuels.

At Lexus, general manager Mark Templin says in an email sent during a road trip that he is seeing "some hesitation among luxury buyers" and the brand is managing inventory to keep from overloading during the slump. He sees the market recovery coming as more of a "Nike swoosh" – a slow ramp up from the bottom.

To stay competitive, Mr. Templin writes, Lexus is emphasizing its quality and playing to its image as the "intelligent choice."

All three of these executives agreed that consumers appear to be taking a more rational approach to buying a car, at least for now. Rationality is a frame of mind that isn't conducive to parting with $40,000 to 50,000 or more for a car that will sit in the same traffic jams as second hand Oldsmobiles.

Still, for brands such as Audi, Lexus and BMW – which developed a wide range of vehicles to broaden their appeal in the era of the hourglass – they have a better shot at appealing to a suddenly practical consumer.

The 45% collapse in sales of Porsche AG's sports cars and high performance SUVs in September shows the problems that can be caused by consumers who suddenly have to think about how they spend money. A recent Porsche ad promotes a $650 a month, 36-month lease deal on the Cayman model with the headline: "Don't listen to anyone who says you can't have a Porsche. Especially you."

Indeed. If you're already on the road to ruin, why not go really fast?

Source: Wall Street Journal

View comments or post a comment on this story. (0 Comments)

More News

Anti-Trump Protesters Block Uber Headquarters

The TNC's CEO Travis Kalanick is one of several technology executives who's part of the president's Strategic and Policy Forum.

Toronto Operator Emphasizes Occasions

WebXclusive: Ash Fadil works to provide experiences that will have his clients coming back for more than just one special event.

What Judges Look For In OOY Award Entries

Read up on what some contenders have already submitted in their running to become an Operator of the Year.

Atlanta Operator Supports Strength In Numbers

Chad Casey knows industry involvement is a must when discovering new affiliates.

Chauffeur Retention Made Easy: Show You Care

WEB-X-CLUSIVE: The key to happy employees is understanding what they mean to you and your business.

See More News

Facebook Comments ()

Comments (0)

Post a Comment

Submit

Blogs

See More

See More

See More

See More

LCT Store

LCT Magazine - January 2017 $12.95 THE MONEY ISSUE COVER STORY: * Dashboard Helps Steer Company Finances * *



Connect

Experience the three annual industry events for networking for business, showcasing vehicles and products, and getting the tools for success.

Read About Your Region

What’s Happening Near You?
Click on any state to see the latest industry news and events in that region.

More From The World's Largest Fleet Publisher

Automotive Fleet

The Car and truck fleet and leasing management magazine

Business Fleet

managing 10-50 company vehicles

Fleet Financials

Executive vehicle management

Government Fleet

managing public sector vehicles & equipment

TruckingInfo.com

THE COMMERCIAL TRUCK INDUSTRY’S MOST IN-DEPTH INFORMATION SOURCE

Work Truck Magazine

The number 1 resource for vocational truck fleets

Metro Magazine

Serving the bus and passenger rail industries for more than a century

Schoolbus Fleet

Serving school transportation professionals in the U.S. and Canada

Please sign in or register to .    Close