Few status symbols have attracted the type of everlasting and loyal fame as the luxury car. The reason for this is simple: a truly classy vehicle speaks volumes of opulence. Every detail about these cars conveys a longtime history of painstakingly excellent engineering and craftsmanship. Their refined features, like heated leather seats and a driving ability as graceful as a ballerina, inspire feelings of prestige and high status in those lucky enough to afford them.
Yet that’s exactly the problem today – the lingering effects of the international economic crisis have significantly reduced the number of luxury enthusiasts willing to put their money where their mouths are, mouths that once held silver spoons. Brands like Mercedes and Lexus trudge on and continue to court buyers. Yet how can they cope with the cut in consumer interest?
When in Rome… Ride Your Bike?
Italy, the birthplace of such classic luxury cars as the Alfa Romeo and the Ferrari, has borne witness to an unparalleled event. For the first time in history, more bicycles are selling in the country of car connoisseurship than actual cars themselves, by a small yet unavoidable margin. The drop in Italy’s automobile sales, whose car ownership rate leads the world at 60 vehicles per 100 people, serves as a microcosm for an international dilemma.
In the wake of worldwide economic crisis, vehicles of all stripes are seen as luxuries for which there is no room in pinched budgets. It would not be folly to extrapolate this fact to the smaller yet more lucrative world of luxury cars. If average car makes and models suffer from poor sales, wouldn’t it be likely that fancier automobiles would also feel the economic struggle?
Stephen Winkelmann, the head of Lamborghini, seems to think so. He acknowledges that luxury cars are “a very volatile product,” that consumers purchase them “because they want a dream fulfilled.” But there’s nothing like money trouble to defer a dream indefinitely, and further jab into the wounds of the luxury market as a result.
To be sure, woebegone Italy is a bellwether for the plague of dull activity in luxury car sales that has rampaged Western and Southern Europe. Since many of the makes that Americans regard as “luxury” are indeed European, including Mercedes-Benz and BMW, stateside car enthusiasts would do well to regard Europe’s market activity with watchful eyes.
Europe: the Epicenter of Auto Woes
According to industry experts, Europe’s luxury car market is still 25% below it’s peak sales market before the economic downturn, with financial brass at Bentley believing that luxury car sales can expect to grow, at most, 6 to 8 percent at most next year.
Many regard Germany, Europe’s largest economy, to be the international hub of luxury car excellence. After all, the country has manufactured the most successful names in auto luxury for decades: Mercedes-Benz, BMW, Audi, Maybach (a favorite of cognoscenti and hip-hop artists alike), and Porsche, for example. Yet car registrations in Germany decreased by nearly 5 percent in August; profits at Mercedes-Benz tumbled this year to an all-time low; and Porsche is significantly downsizing its roll-out of newly manufactured vehicles. Luxury finds itself hard-pressed even in Deutschland.
Via India Automotive.
This past August, sales in Europe dwindled by 8.5 percent, the second steepest decline of the year after February’s freefall. In response, manufacturers have had no choice but to submit to the market’s demand and draft sticker prices with enormous discounts. Audi, for example, increased its pricing incentives by close to 10 percent.
Have these incentives proven successful for luxury carmakers? Audi and Mercedes would definitely answer in the affirmative, as both marks declared sales growth in September.
But as high-end auto manufacturers have done what’s necessary to lure consumers with prettier price points, they have had to balance the reduced pricing with reduced production throughout their premises.
Deutsch bank profile manager Stefan Bauknecht firmly believes that the European car market can weather the slump with an emphasis on conservative practices.
“I want to hear that carmakers are cutting production, cutting working hours, as I would be worried if they weren’t,” says Bauknecht. “That gives me confidence that they are on top of the situation.”
While those heading the European luxury car market are employing subtly successful means to indeed stay ahead of the situation, their American counterparts are not necessarily enjoying perfect sales circumstances themselves.
The Atrophy of American Luxury Cars
Leading the way in luxury car sales in the U.S. is Lexus, the high-end subsidiary of Toyota. But for the first time in nine years, two European makes (Mercedes and BMW) knocked Lexus to the third place position. The recession cannot be labeled as the sole factor in Lexus’ fall from industry-leading grace; the recent natural disasters in Japan did much to damage the brand’s manufacturing procedure.
And Edmunds.com has clarified that interest from “entry-level buyers” has not waned despite the economic slump. In actuality, the American luxury market is largely suffering from sales of its premium, showstopper models — the cars that necessarily tote the highest price tags.
As the media has covered to a great extent, the entire American auto industry is reeling from the recession blues; the luxury segment, being more expensive, has simply withstood a larger impact.
Fortunately, difficult circumstances have brought out a newfound ingenuity in the luxury sector, both in America and Europe. Their strategies to spur new growth involve expansion into promising new markets and an emphasis on a key refrain: “nothing feels as luxurious as luxury.”
Changes and China: Glimmers of Hope for the Industry
The Mercedes SLS AMG Coupé Electric Drive, via SuperYachts.
When one area sags, seek another to inflate. This seems to be the philosophy at the heart of luxury car magnates looking to capitalize on the promising markets in China and India.
One of America’s best-known luxury brands, Lincoln (of the Ford company), recently announced its intention to launch a campaign to court Chinese buyers in late 2014. Lincoln is by no means alone in this push: Mercedes Benz, Volkswagen, and nearly every other famous make are looking to make headway in the East. Luxury car sales are actually increasing there, by a huge margin: 36.1%, with a projection that China’s market will surpass America’s by the next decade.
The only problem facing luxury carmakers in China is, well, competition from other luxury carmakers. Shrewd branding and marketing will prove essential to capitalizing on China’s potential. So far, Mercedes Benz impresses the most, with what’s being called “the world’s most powerful electric supercar,” the 740hp SLS AMG Coupé Electric Drive.
Though the Electric Drive might not enter the Indian auto market just yet, experts are betting that consumers in the country won’t balk at the lofty costs of ownership. “People who prefer high-end cars will not feel the pinch as they are willing to pay high prices,” says Lalgudi Srinivasan, joint secretary of the Tourist Taxi Operators Association.
Stateside, manufacturers are trying to bait empty-pocketed yet aspirational consumers with pre-owned models. Their lower purchase prices, less expensive monthly payments, and extended warranties could prove to be catnip for those who’ve dreamt of one day affording their dream car.
Only time will tell if these choices, to focus on new markets and cater to consumers with trendy or cheaper auto options, will prove effective. But it’s highly unlikely that the luxury market will peter out entirely. As long as stately vehicles remain effective status symbols, outstanding yet expensive cars will always have an audience ready to spend.