Automotive News [sub] offers-up the not-so-startling fact that luxury car buyers are trading down. “Downscaling.” Common sense suggests the number one reason not to buy a high-priced luxury car: the buyer can’t afford it. As any good car salesman will tell you, “afford” is an entirely subjective, infinitely malleable term. Hence the term “consumer confidence” as a measurement of whether or not people think they can afford something. You know; even if they can’t, really. And while you’re contemplating what all that means for the American economy, how about this: the “Power Information Network” (J.D.’s mob) reckons the move down the automotive food chain is a reflection of buyers’ psychological need to NOT impress the neighbors. “Especially in this recessionary period, neighbors may not want to show up one another as ‘For Sale’ signs go up everywhere,” [PIN general manager Geoff] Broderick said.” I call bullshit. Since when do Americans tailor their consumption patterns out of sensitivity to their neighbors’ financial distress? The whole stealth wealth thing is a myth. A California Mercedes dealer disagrees . . .
George Grinzewitsch Jr. owns three Mercedes stores in Sacramento and is a partner in one in Reno, Nev. Grinzewitsch, Haines’ dealer, is beginning to see signs of a recovery, but he is cautious.
“Conspicuous consumption is definitely verboten right now, he said. “I’m seeing lots of trades of S class for E class, or a certified pre-owned from someone who would normally buy new.”
AN assembles a chorus of experts to affirm the article’s central thesis: nouveau riche has suddenly become unacceptably gauche.
Flagrant opulence is on the way out, said Lincoln Merrihew, an analyst with Compete’s automotive consultancy in Boston. “I expect folks would be proud to show neighbors they went new — as long as they traded down in size,” he said . . .
Scott Keogh, Audi of America’s chief marketing officer, is playing on the trend to show Audi as a savvy luxury choice compared to its rivals.
That’s one reason he thinks Audi’s sales are off just 10 percent so far this year, compared with the luxury segment’s decline of about 29 percent.
“There is affluence, and consumers have means, but frivolousness has gone away,” Keogh said. “We’re seeing movement away from the old-world luxury of focusing on the badge and flaunting what you have.”
Badge snobbery is out? Sure, just as soon as the manufacturers manage to change human nature. Meanwhile, did I just hear the E-Class product manager wince?
So, how does eight-time Mercedes owner Haines feel about driving a lesser vehicle?
“I was comfortable moving down,” he said. “The car I had was really, really, really nice, and the car I have now is just really nice. But I don’t know if I’ll move back to the big one.”
It’ll be interesting to see how this shakes out. If bling is now out, then here are my predictions:
Ascending:
Audi
Lexus
Infiniti
Lincoln (nowhere to go but up)
Static:
BMW
Losers:
Mercedes
Cadillac (if they can’t follow up the CTS with a better STS)
Off the radar:
Acura
Volvo
Saab
Why would Mercedes lose, while BMW treads water? Because for all its strangeness, BMW hasn’t abandoned its core engineering values. Mercedes has.
Consumers stopped buying highline cars when the home ATM machine shut down. Most MBZ and BMW buyers had no business buying those cars. The formula is simple, strictly an item for the truly wealthy. Anyone working everyday cannot afford waisting money on a highline car.
Another reason I believe is fear for their life. As neighborhoods go into foreclosure I don’t think anyone wants to be seen scooting around town in the latest greatest 100 grand set of wheels. There are plenty of pissed off, out of work, stressed out neighbors , that could snap at any moment.
Might have something to do with the fact that the new E class is almost as big as the old W116 and the new C class has reached the dimensions of the W124.
Enjoy downsizing, select the Classic version (preferably in sad-black with a fresh mouse-gray interior) and nobody will envy you anymore.
I was at my BMW dealer for a part (windshield wiper arm) that wore out 2 weeks ago, and looked around the showroom. I found prices ludicrously high even for tiny little models, and go over the $100k mark even for the “base” 7 (the 8 cylinder, and not even the “L” version).
I have also seen that Automotivenews article today and was not at all convinced by their stats (even if true) as pointing to any major shift, despite the above prices, from the top to the lower models.
Mike: …”Ascending:
..
Lexus
Infiniti
Lincoln (nowhere to go but up)
Static:
BMW “
While I agree with your other predictions, I am not sure that either of the above three will be ascending, and sure not any more than BMW will ascend.
Lincoln may be in the dumps, but just because it is, this does not prove it will go up, it may go the way of Pontiac and Saturn (and soon Buick!). The Eco Boost is great, but the models are obese and really fugly.
I am also really not impressed with any Lexus except the LS460, and none of the current infinitis, no matter how the mags gush about them. Their Sales (the Infis) are no better than Acuras, BTW, which you correctly classified as not even on the radar.
Since when have American’s consumption habits *NOT* been affected by the opinions of neighbors? It’s all about keeping up with the Joneses. Only now they’re kicked to the curb in foreclosure and filing bankruptcy because they’re out of work. Suddenly “keeping up” means following their lead, but progressing less far instead of surpassing.
Gee, does this mean we’re going to see a revival of Brewster-bodied limos on flathead Ford V-8 chassis? Or the 21st century equivalent?
My key take-away from the article was that every single customer interviewed was doing SOMETHING purely for show … which, rather than enthusiasm, is pretty much the only reason most people buy any cars in this category. The guy trading his nearly new S-Class for an E-Class, and the clown buying a new 7-Series in the same color as his old one, hoping his lackeys wouldn’t notice, both prove Robert’s thesis that nothing will change human nature.
Well apparently europeans prefer to remove badges off of their luxury vehicles more than any other country. Which I agree with, just because it makes the vehicle look nicer overall.
Sorry, but I think the very fact that you LIVE in a place where trading an S-class for an E-class could be seen as frugal makes this all BS!
Kinda like down-sizing your new private jet, or your yacht.
BTW, I agree totally with CyCarConsulting: very few people can actually afford $800 or $900 car payments without the home equity ATM. I don’t think it will hit MB and BMW as bad as Cadillac, Lexus, and anyone selling $60k trucks.
I noticed and remarked on this trend over a year ago, when I noticed a surprising number of TrueDelta’s members getting Hondas and such as their luxury car leases ended.
As has already been mentioned, people have less money to spend. Beyond this, they don’t FEEL nearly as wealthy, nor do they FEEL as positive about the economic future. Buying a luxury car would no longer express how they feel.
Compared to these factors, sensitivity to the neighbors is probably a distant third, at best.
Sparks: Who is paying $900 car payments? Nobody buys a new BMW. They lease it. Then BMW sells it again at a sane price. Why buy it when you’ll just trade it in in a few years anyway?
Pretty sure that’s the basic business model. And if you’re the kind of dude who just buys a 7 series, you ain’t worried about the car payment.
For right or wrong, I know this is happening. A friend on mine has considered getting rid of his S600 because he didn’t want to look like an ass. His wife firmly put her foot down that he worked for that car and he deserved it, and there was no way he was getting rid of it.
It wasn’t an issue of not being able to afford the car, but rather, he was thinking about what his employees might think.
He got over it after he realized that he invited many of them over to his 15,000 square foot house for the holidays, so they probably knew he had some money…
If born-again frugality is the current fashion in the US, then it will be short lived. Smells like the 70s all over again (which was followed by an orgy of conspicuous consumption in the 80s).
Showing off your improved socioeconomic status is simply part of human nature. As commented above, it’s a much more likely that a bunch of aspirational buyers took out one too many home equity mortgages to pay for their leases and are now fleeing to a more affordable set of wheels.
If any of this is true, I guess a lot of us will need to re-do our future plans.
The way I figure it, the 2012 Mercedes-Benz E550 Coupes will be coming off lease in 2015 and ready for purchase.
The 2010 model is nice but the car should have three years to mature. The three year lease period (2012-2015) will let the 50% depreciation run its course on someone else’s dime.
Eric G. Harrison is right on the money. We’ve seen this with a bunch of my clients, and it works both ways: the owners/execs are embarrassed to drive these cars when they’re laying people off and mid-level execs are afraid of being looked down upon by the upper-level execs if they stroll in with a brand spankin’ new highline.
The most telling, though? I have several clients who have ‘new cars’ but make a very pointed effort to get across that “it’s a CPO”.
As for this being temporary – I don’t think it will be as temporary as Wall Street or the government would like. Tastes and values change, but I have a feeling we’re going to see a prolonged period of downsizing from cars to houses and clothes for the majority of Americans.
Confidence and fear I think both play a big role in this. Fear of losing big I imagine is the biggest concern. I think people are afraid of looking like bigger losers. That is just me though. I mean the reason for many to have a big car is to look successful, but with an uncertain economy, plus more eyes on the rich, the green movement, and less prestige, I think all these possible failures are pushing confidence buttons and fear buttons.
“I’m seeing lots of trades of S class for E class”
Wouldn’t it save even more money to just keep driving the S-class? You already took most of your loss they day you drove it off the dealer’s lot.
Autosavant :
October 12th, 2009 at 3:26 pm
While I agree with your other predictions, I am not sure that either of the above three will be ascending, and sure not any more than BMW will ascend.
I think that in this environment, the brands that succeed will either be the ones best focused on engineering excellence, or the ones most focused on value.
I think Lexus is a good bet because it’s always been a strong value brand. Audi has a strong emphasis on engineering excellence and understated style – their cars that can run with BMW and Mercedes, without the bling.
Infiniti’s product is on a serious upswing – have you driven the G sedan? – and will get better with the new M being introduced soon. These guys can compete on value AND performance. Good omen.
BMW has always been – and is – very focused on producing cars with a certain driving experience. Even the SUVs, and the ever-weird X6 have a distinct BMW driving flavor. As long as they keep that focus, they’ll be OK.
Mercedes, I think, is the brand set for the biggest fall. Their entry level product, the C-class, is weak compared to the BMW 3-series, and I’m not impressed with the E-class. But most importantly, their cars have become almost generic to drive. Add that up, and include high prices, and you have a bad omen.
Anyway, that’s my two cents’ worth.
Eric G. Harrison :
October 12th, 2009 at 5:03 pm
For right or wrong, I know this is happening. A friend on mine has considered getting rid of his S600 because he didn’t want to look like an ass. His wife firmly put her foot down that he worked for that car and he deserved it, and there was no way he was getting rid of it.
I think execs who are caught up in downsizing lose either way. I mean, what cube dweller is going to sympathize with a guy who has to “downgrade” to a cheaper Mercedes?
On the other hand, rolling up in the Benz isn’t going to win points with the troops either.
I think the key is to keep on being as good a boss as you can be. That will inspire respect with the employees you want to keep, and if the others are solely focused on your ride, then, well, you know which ones to put on the short list come “maximizing shareholder value” time.
There will always be people perfectly comfortable flaunting wealth- it happened in the 70s before all the latest “financial bubbles.” It used to be caddies parked in front of shacks..
The irony to me, while shopping for the mommyvan/family vehicle, was that the german diesels were the only ones getting decent mileage. (except highlander hybrid- 50k if you can find one post c4c- certainly no dels to be had there yet). So go green, spend a lot of green, look like you’re flaunting wealth.
We went for the mazda5 instead. Don’t miss my 5 series lease payments, either. Oh, and picked the subaru over the a6 3.0t for the exact reason- didn’t want to roll up everywhere in a town with 11-14% unemployment in a 55-60k car. Just sayin…
In a slightly lighter, and deeper note?
Anybody else think that video of the Merc sound like one long flatulent experience? Seriously!
Also, the uber serious driver never attacks the track enough to make a single tire break loose even a little.
Even with all that, I’d still get one if I had enough disposable income. To hell with what the neighbors think of it (or my gas problem).
Agreed that car sounds a bit farty. Doesn’t seem like the driver is enjoying himself much either. What a dour expression on his face.
One thing to keep in mind all the kids who are graduating now and able to get jobs are going to be spending far less on mortgage payments than those who graduated 10 years ago.
Some friends (mid 20’s) the husband is an accountant for the government (starting salary 55k) wife is a nurse making +50k. The bought a house in a short sale for 210k that has sold for 380k back in 2006. The mortgage drops from 2025 to 1125 – that’s 900 extra a month to potentially spend on cars, vacations, savings, whatever.
@FreedMike – I think you underestimate Mercedes and the new C and the S class, both of which I think are competitive in their markets (although reliability is always the bugaboo).
And I don’t think anyone considers an Audi to be a non-bling choice. They are just for people who are bored of BMW – which there seem to be a lot of nowadays.
And people are way too forgiving of BMW and the continual bloat, the 1-series, and the crappy interiors of the 3. A badge can only take you so far.
Lexus will do well selling its crap (except the LS) as people will buy them outright and hold onto them for the long haul. I’d predict Lincoln will die, about 5 years after it should have – the brand is just so ridiculously tainted. Cadillac will tread water because the CTS is too masculine in styling immediately limiting its appeal but the SRX looks nice.
jmo,
that’s hope and change America for you. You see someone in a fat car, and the immediate response will be ‘man, I bet you he works for the government….’
Did anyone consider that the new E class is just a nicer vehicle than the old S class? I thought Mercedes would showcase all their new stuff on the E-class before any other. Also,if you drive an S-Class, wouldn’t you live in a place where your neighbors also drive an S-class or similar? Makes sense to me. Unless these are people like this guy I know living with his family, sister’s family and parents in a three bedroom house, busting his behind in construction but drives a loaded M3.
I’m not seeing any more heavily-subsidized “bargain” luxury car leases like there were in 2006-07. This was a lot of why I bought a less expensive car when the lease on my Audi was up.
Since when don’t people want to look successful? If you are in business, you need to look like you succeed in business. What kind of people “downscale”? Losers!
BMW has been airing a whole series of ads that tell us that buying a BMW is good for the environment. To all those moronic tree huggers out there, who have cash – they can buy a BMW and feel good about it, is what these ads are saying. And that is what will work.
The Japanese brands are dull and appeal to the old Cadillac crowd. Grandpa is trading in his Camry and moving into a Lexus, just as his father traded in his Oldsmobile for a Cadillac or a Mercedes. Considering the size of the Boomer generation, this is a growing geezer market. These people still think it is cool to drive Japanese and will end up with their oxygen tanks in a Lexus or an Acura. Even the Japanese have been trying to keep their luxury brands out of the hands of the gnarly-fisted geezer, and failing. They might have switched blue hair for ponytails, but they are AARP lemmings, just the same.
But the successful businessperson will choose a brand that is aware of the needs of others in their community. Not only does BMW do this better with their stupid ads, but it helps businesspeople to justify their BMW purchases in light of some kind of weird environmental view still being popularized.