Rising U.S. gas prices and the American mortgage meltdown has hit sales of new vehicles hard. In terms of the product mix, a lot of ink has been expended on the rapid, ongoing transition from gas-guzzling SUVs to more miserly models– a change that's hurt the truck-heavy domestics particularly hard. There's been something of a presumption that luxury and near-luxury brands are safe from the tumbleweeds blowing through mass market showrooms. Marketing Daily reveals that it ain't necessarily so. "Recent years represented a boom-time for American investors and the luxury marketers that filled their homes with Lexus SUVs, Rolex timepieces and Coach handbags. Now, the net worth of even wealthy Americans is dipping as real estate prices slump and stock portfolios sag. And, as investment banks and government economists begin beating the drums of recession, even high-net-worth households are cutting back." Is this the right time for Mercedes to launch their AMG sub-brand, or VW to go upmarket? Hell no. And one has to wonder if [presumed] declining sales at Lincoln (the main cause for optimism at Ford), Land Rover (whose sale is already in jeopardy), Jaguar (mega-dittos) and Cadillac (whose CTS is the poster child for GM hopes of a product led turnaround) will stress the automakers to the point of no return. Watch this space.
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Luxury cars, million dollar homes, etc are never immune, its just BS from those brands and whoever is selling the junk to convince people not to dump the stock or that should be paying $700 a square foot for a home that is “appraised” using comparable sales.
Appraised is BS too. Comparable sales are those homes sold at the peak, among investors, or as Countrywide and Wachovia did — pay appraisers to boost the numbers to get the sales.
Immune, ha! Tell that to the person who needs the sale, the “immune” mansions being auctioned at 65% off in Santa Barbara.
I just think of those idiots I met one day. They mortgage the house with a HELOC, bought 2 mercedes and a Lexus SUV. 2 years later the house was foreclosed when the ARM reset, the cars were repossessed. Fools. Traded in their house for cars and lost it all. Jack and the Beanstalk? The fool traded in the family cow for beans. In this case the reality is no beanstalk to riches, just pathetic cesspit greedy individuals.
Maybe the mortgage lender who bought her 80K s-class is going to keep it, but I doubt it since her money tree is gone. No more literally busing in illegals and getting them qualified for nonsense mansions.
More Wealthy Americans? Hardly, ALL credit driven expansion. The few who got some money either stretched themselves again or were part of the few who got out in time. Credit is gone in this market, say goodbye to idiots who splurge on 70K Mercedes SUVs when they make 30k a year.
Is this the right time for Mercedes to launch their AMG sub-brand, or VW to go upmarket?
There’s no good time for VW to go upmarket. You would have thought that they would have learned from the Phaeton, but corporate hubris has a tendency to get in the way of clear thinking.
VW’s problem is that it has spent so much time defining its other brands that it doesn’t know what to do with its main one. Currently, VW is cannibalized by SEAT and Skoda; the dream is apparently to change the cannibals to Audi and Bentley, instead.
Cannibalization never works. At the end of the day, you still end up with a bloody carcass, no matter who ate it.
It depends on which group of people is buying the luxury makes. For example, BMW has traditionally based its volume (3-series, X3) on aspirational luxury buyers – evidenced by BMW’s very high lessees versus buyers. Well… there’s going to be a little less aspiration in the near future, and I would expect the new 1-series, for example, will only drive so much new growth. It is likely that other entry-level luxury cars (ES350, C-class, G35, MKZ, CTS) will definitely face strong pressures as well. What will be interesting to watch is if they absorb some sales of people moving down from more expensive vehicles (buying an ES instead of a GS and saving $10k, for example). But the rich, even if their net worth is declining, are still rich, so you never know. It might be the right time to get that deal on the CLS500 you’ve been looking at.
In February, it was very bloody: no one, not even the vaunted Toyota-Lexus machine, escaped decline – suffering nearly a 10% decrease in sales. Infiniti with its new FX35 was the closest at only a 0.4 decrease. Of note for Ford, Lincoln is still up on a retail basis YOY. That means better net pricing than they’d otherwise receive, which is the key to making money. I would bet that Lincoln can hit another year of retail growth with the new MKS – and I think that will be the key to growth this year: new models. If you don’t have them in the luxury or specialized (sports car, large sedans) categories, you’re going to decline.
Sounds like a ghastly year to come!
Law Stud: That was the cold hard truth!
I would like to see a high line automobile[ 50K +] that averages over 30 mpg . Maybe this market will make that happen.
It dosen’t help the new car business that recent cars are much better built and can handle much higher mileage. Time to sit on your hands.
I think its possible new luxury car prices may drop a bit. Premium construction is still more expensive. Options like bigger panel gaps and less powerful engines seem feasibly marketable. With Prices lowered and mixed with less premium goods. Buyers will ask for things, companies will come up with offerings. Everyone needs food on the table.
Many vehicles seem to sell on image primarily. Perception may change a bit in this shaky economy. The financially able may be forced to become more logical and/or adapt better financial strategies.
Cars might become more positionable in a more tolerant market. Real wood or faux wood? V6, V8, or V12? Leather or no? The new Genesis pushes boundaries, CTS and GTR too. China gets the A6L, Europe gets a V6 ClS, etc etc. I wonder how big a role luxury plays in the way America works today. Lost perception of being in the upper class by some may hurt the economy. Which may still be a net gain for society. Wow, the world is immensely elaborate.
I’m surprised how few people have mentioned Volvo at this point. For the month of February they only had 7500 units sold. That averages out to… let’s see (S40/V50, S60, S80, V70/XC70, XC90, C30) 1200 units a month per model. 41.5 model sales per day. Less than one daily per state. Ouch!!!
In the meantime they are ‘forecasting’ 50,000 units per year for the Volvo XC60. You know what? I think it’s got a great shot at achieving that sales level. It just won’t experience the brunt of it’s sales in the States. Not in this market.
Consensus: hunker down! Or, if you want to be a contrarian, heed the words of a member of the Rothschild family, which has been wealthy for centuries, who when asked how he invested replied “I buy when there is blood in the streets.”
Back in the oil bust of the 80’s, nearly-new drilling rigs could be bought for ten cents on the dollar; now it’s a sellers’ market.
This year could be a good time to buy a foreclosed McMansion (for long-term appreciation) or a repossessed Bimmer (for short-term enjoyment). Steve Lang has reported there’s currently strong demand for affordable, gas-sipping cars. But if luxury vehicles depreciate enough, even gas hogs will attract buyers.
In the US entry level luxury (3series,C Class, A3-4,S40-60,IS250) will be affected, especially that many of these vehicles are leased to an aspirational customer who might be facing additional “headwinds”.
As the prices escalate higher (over 100K)the impact is less, since these vehicles cater to high net worth individuals.
In entry level luxury there is a lot of “churning” where prospects jump from one lease deal to another depending on the flavor of the day or the month. The manufacturer that comes up with a flavor that is responsive to the current reality will acquire business at the expense of other manufacturers.
Luxury items like expensive cars are prestige objects by which you announce to others how well you are doing (or how well you can pretend to be doing). When the economy improves, people will flock back to their favorite prestige auto.
Paradoxically, there has never been a better time to NOT purchase a really expensive performance car (Cars listing for north of $50k). While not chump change, $50k has never bought more car. For example, that amount will get you a reasonably equipped 335i. Short of going to a race track, can you use much more performance than this car offers??? Need more? You can chip this car for $1-2k for still greater performance. Why spend the $70-80k for a M3, RS4 or GTR??? Don’t want to spend that much and you still have some great options like the G37 or G35 or 135i. If you are willing to trade some civility for added performance, you can throw the STI and EVO in there as well.
Entry level luxury will be crushed in the next couple of years. Too many people with Civic incomes are making Lexus payments. Some of the mid-level luxury (5 series, M35. etc) sales will downgrade to entry level sales, as consumers tighten their belts.
The entry level lux market seems oversaturated to me. Compare today’s numerous great cars with the offerings from 10 years ago. I don’t think the current model glut is sustainable during the rough times ahead, not sure which brand will suffer the most, though my guess is BMW for various reasons.
My prediction on sales performance for the next twelve months (from best to worst) is the following.
1. Mercedes-Benz
2. Infiniti
3. Lexus
4. Acura
5. BMW
6. Audi
7. Cadillac
8. Volvo
9. Lincoln
10. Jaguar
11. Saab
12. Buick
13. Hummer
14. Land Rover
For the first time in well over a decade, Mercedes-Benz actually has a very competitive product with the C-Class and it’s derivatives. However they are also going to be far more immune to the changes in today’s market than anyone else due in great part to their high end offerings. The separation of AMG into a distinct brand is also a very intelligent decision given MB’s general image of offering conservative higher-end vehicles to a generally snobbish audience.
I think everyone from Lincoln on down has about a 30% chance of disappearing within the next five years from the NA market. However that viewpoint will be a rant for another day.
I occasionally have occasion to look in the payroll files of my company. I am perpetually shocked by the ratio of auto to income that many people have. Any brand catering to those people will be CRUSHED by the coming downturn. I suspect a year from now will be a fantastic time to obtain a repossessed ‘luxury’ automobile at far below today’s rates. Leasing has made automobiles fundamentally non-luxury goods, if by luxury you mean only available to the rich. The Mercedes S-class may be unaffected but entry level will suffer.
Maybe I’m old, but I distintcly remember during the 92-93 downturn the “end of luxury brands” media frenzy.
Didn’t quite happen, as it turns but made for good copy.
Luxury brands will be challenged, no doubt, but it will likely be thatthe poseurs are the ones killed off.
No way. With banks and corporations across the board likely to post record losses, the executive bonuses should be huge.
With the dollar tanking against the eura and the yen there’s NO WAY that prices will be reduced in the US on imported luxury cars. In fact I suspect the prices will be increased even as sales fall just to maintain some minimal profit margin.
New luxury car sales might suffer, but CPO sales of entry luxury cars might actually increase.
Our current economic difficulty may make people reassess what they value. Some may find that rather than spend $32-35K on a car, they may only be able to $25-29K. Now, if they are a person who HAS to have a new car, then they are back to shopping Camry, Malibu, Accord, etc. But, if they search for value, they can get a 2-3 year old “luxury” vehicle for the same price. Over the past 10 years I have grown used to my car having certain items – leather, dual-zone ac, nice stereo, heated seats, and having a certain cache (yeah, I’m shallow like that). Over the past few years a few “non-luxury” cars have appealed to me enough that I have taken the time to check them out in person. However, the exterior appeal or utilitarian appeal or “blast to drive” appeal usually fades when I see the interior…and I drive Infinitis, not necessarily known for their interiors. I guess you just grow used to a certain quality. On the occasion I actually service my cars at the dealer, I like the service experience better too; they kiss my ass. So, I don’t want to drop down to non-luxury cars, but at some point, I get tired of burning money on fuel….I can handle $4 a gallon, and I can make $4.50, but if it goes to $5.50-6.00, well, then I’m out. It becomes a “principle” thing at that point.
If anything, the luxury brands somehow need to change the idea that luxury = use lots of gas.
I love my G35, but my next car is going to be a hybrid. It just is. I think it will be a Nissan Altima, but if Acura made the TSX a hybrid, I would be all over it. If they made the TSX AWD and hybrid, I think they would have a hit. Is it even possible to make a RWD or AWD hybrid?
I don’t know the scientific answer to my question, but if that were possible, that would be sweet. So you lose some acceleration power – but you gain fuel economy (would you lose it all with added weight of AWD?), and you get to keep the luxury and if you have RWD or AWD you get improved handling. Sounds like a fair enough compromise to me. Light and flickable is quite entertaining.
But it all comes down to changing the mind of the consumer, or, at least waiting until oil prices change the mind of the consumer, thus eliminating the, luxury = I can blow as much cash as needed on fuel.
I hope this was coherent.
“No way. With banks and corporations across the board likely to post record losses, the executive bonuses should be huge.”
Are you saying that execs compensation will go up as their companies results become worse? But, but, this wouldn’t be right, would it?
No, but it’ll be real as Toll Brothers builders have demonstrated with recent moves in the board room. A new bonus plan has been adopted that will base CEO Robert Toll’s bonus on criteria different than used in 2007 when he received no bonus. Up to now, his bonus has been tied in part to shareholder equity, but the stock price has fallen 50% over the past three years and 35% in the past year. He received a 2005 bonus of $27.5 million, $17.5 million in 2006, and no bonus in 2007. Screw that. Under the new bonus plan, Mr. Toll will get an amount based partly on the company’s income and on whether Mr. Toll meets a “varied,” but undisclosed, set of criteria determined by a compensation committee. Now we’re talkin’. In 2007, if the proposed plan had been in place, Mr. Toll would have received a $1.36 million bonus based on income and could have been eligible for as much as another $5.2 million if he had met the other criteria. Who wants to bet he gets it done with the ‘undisclosed criteria’.