| || |
A Ferrari dealership isn't like a Ford dealership; when you drive by one, you won't see a lot of unsold vehicles parked in the lot and signs advertising big discounts and incentives. But what they share is that both are selling far fewer cars these days.
Luxury auto brands, which until recently had been outperforming the rest of the U.S. market, have started to sag. Many people had thought high-end Italian sports cars would remain as invulnerable to the economic downturn as Hamptons real estate and Louis Vuitton bags, but that's beginning to change. To some extent, the higher you go in the luxury spectrum, the stronger the market remains, but even ultraluxurious brands—such as Bentley, which is down 27.9% this year—are showing vulnerability. And "mass luxury" brands, such as Mercedes-Benz (DAI), Porsche (PSHG), and Toyota's (TM) Lexus division, have seen some of the greatest drop-offs in sales, especially with their most expensive models.
That's because North American sales the past few years were artificially inflated by the housing boom and access to easy credit. As more Americans fooled themselves into thinking they were richer than they were, luxury automakers raised their production capacity and sales targets and enjoyed boom years. Customers who could never have afforded such cars as the Mercedes-Benz S-Class, the Porsche 911, or the Lexus LS, found that carmakers, banks, and dealers were happy to toss them the car keys. Now, for those who were borrowing against the ever-increasing value of their homes or planning to spend their fat Wall Street bonuses, the drive is over.
"You've got some people who've got money, and they're coming in and buying those premium brands," said Roger Penske, chairman of Penske Automotive Group (PAG) in Bloomfield Hills, Mich., one of the nation's largest dealership groups. Penske's remarks came in a July 30 conference call. "But with the financial markets down some, that's off slightly, and you have to expect that." Penske specifically mentioned some Porsches, expensive BMWs, and Mercedes.
That trend isn't going to get any better, if New York Governor David Paterson is right. He recently stated that Wall Street bonuses are going down a projected 20% this year. New York State Comptroller Thomas DiNapoli estimated earlier this year that the securities industry paid out $33.2 billion in 2007, an average of $180,420 per recipient.
Luxury-car dealers look forward to those bonuses almost as much as the stockbrokers who get them. But with the financial industry down and stock markets and real estate values down, no one is immune.
"It is wrong to say certain segments of the market are immune to economic downturns in the market, as far as we're concerned," says Geoff Dowding, worldwide operations manager and vice-president at Bentley Motors in Crewe, England.
Bentley's U.S. sales this year were off 27.9% through July from a year earlier, according to AutoData in Woodcliff Lake, N.J. For all of 2007, Bentley sold 3,990 in the U.S., nearly 10 times its sales in 2003, when parent Volkswagen (VOWG) took over and relaunched the brand.
A slowdown was inevitable, since those big gains were built on adding all-new models, and for now, Bentley has its lineup complete. The economic climate, however, is a factor, says Dowding. He suggests that even those customers who can afford one may hold off buying for fear of being seen as showing off at the wrong time.
"We are hearing that people are being cautious," Dowding says. "Property values, the scale and growth of financial portfolios—all that has made people cautious. The repeat purchaser could be saying, 'Maybe I'll wait.' In some instances, we feel people are afraid of creating the wrong impression in terms of extravagance and so on."
That doesn't seem to be inhibiting Rolls-Royce buyers. Rolls-Royce's U.S. sales are up an estimated 48.8%, according to AutoData. Just as Bentley did over the past few years, though, Rolls-Royce is adding a series of all-new models.
"It's not really a straightforward comparison, because we're in the middle of adding models," says Paul Ferraiolo, president of Rolls-Royce Motor Cars North America, a division of BMW based in Woodcliff Lake, N.J. "We have definitely seen some of our clients suffer in this economy. I would never make a broad statement that our clients are immune to what's going on, or not sensitive to the plight of others. We are up, and up significantly, because people are very loyal to the ownership experience, and we have a very high repurchase rate,"
Even in a soft economy, exclusivity is an important part of the allure of extreme high-end brands, says Marti Eulberg, president and CEO of Maserati North America in Englewood Cliffs, N.J. She says showroom traffic is down for Maserati's 56 U.S. dealers, but sales are up, and there's a waiting list for new models. "I won't say we're seeing as many people [coming in] as we've seen historically, but what's happening is, customers are coming in because of the exclusivity. We're providing something they can't get from, for lack of a better term, 'mass-luxury' manufacturers.
Lamborghini and Ferrari also report waiting lists at their U.S. dealerships, even though AutoData figures indicate their U.S. sales are down slightly. Sales volumes are so low for those exotic brands that a single shipment of cars from one month to the next can make a significant percentage difference in their sales. Sales for Lamborghini and Ferrari are up worldwide. Spokesmen for both companies say separately they expect to finish 2008 with sales at least even with 2007's.
Sales vary so much by region in the U.S. market that it's hard to generalize, says Lamborghini CEO Stephan Winkelmann. "Let's say that the U.S. is huge, so that in different markets, there are different realities all over the place. States such as Texas are very strong and don't seem to have problems. Others are more affected by real estate, such as California. Overall, it's not something that's bothering us so far, because we are getting a [sales] level that is good and reasonable."
Mitch Katz, CEO of Premier Financial Services in Woodbury, Conn., says his business is up. Premier leases new and used exotic cars, including some vintage collector cars. "Our business is a little bit ahead of last year, which we find surprising in this market
A couple of wealthy entrepreneurs, William McMichael and Ari Straus, have placed a big bet that demand will stay strong at the extreme high end. With their partners, they recently built Monticello Motor Club at a former municipal airport in Monticello, N.Y., about two hours north of Manhattan, with a helicopter pad and a 4.1-mile race track, for members to race their exotic and vintage cars.
High demand in Asia, especially in China, is taking some of the pressure off U.S. sales for the ultraluxury brands. That helps Bentley and other manufacturers and dealers manage a "customer-pull" system, in which products are always in short supply, as opposed to a "push" system, in which too many cars are chasing too few buyers.
"It wasn't that long ago that the U.S. was 60% of our global sales," says Bentley's Dowding. "Now it's in the region of 40%. The world market is definitely rebalancing slightly."