Thanks to Uncle Sam's Cash for Clunkers program, even the weakest of America's mainstream automakers will live to die another day. Meanwhile, the so-called mass luxury brands are hurtin' for certain. The falling tide of the global economic meltdown has left Audi, BMW, Cadillac, Lexus and Mercedes stranded, flopping around on the metaphorical beach, gasping for the oxygen of financial lubricity. It's hard to feel sorry for any of them. The upmarket marques marked the last ten years or so by chasing volume sales with entry level models that cheapened and weakened their brands. Is it any surprise that the very customers that fueled their expansive profits have abandoned them in droves, as badge snobbery has kept pace with financial security (or lack thereof)? In other words, the fact that these luxury brands are suddenly in worse trouble than everyone else is their own damn fault.
Yesterday, the Wall Street Journal (WSJ) highlighted the fact that American luxury car sales fell almost 21% last year - double the decline in overall car sales - and continue to slide this year. It's a bit odd that: tagging the tanking trend with last year's annual stat and declaring that, in general, sales still suck. A snapshot of the last seven months via Automotive News shows that luxury car sales have gone from bad to hideous-keeping in mind (as we must) that the numbers are relative to last year's fall from grace.
So far, Audi's sales are down 18.9 percent. BMW's are off by 27.6 percent. Cadillac clocks-in with a 45.4 percent tumble. Lexus is 41.9 percent off of last year's pace. And Mercedes' cha-chingery dropped by 33.6 percent.
And what of margins? It's no secret that moving even this ever-declining number of units has required radical price reductions. Take it or leave it has become make me an offer and I won't refuse (e.g., my kid's doc got $25K off a brand new Audi S4). While new car inventories don't appear disastrously high, turnover has slowed to a trickle. Meanwhile, pre-unloved 2010 models are heading for palatial, tumbleweed-strewn showrooms.
Bottom line: luxury car prices are about as firm about as a bowl of Jello in a Turkish steam bath. And the difference between MSRP and actual money tendered is coming out of the manufacturers' hides.
Mass luxury automakers have painted themselves into a coroner [sic]. By expanding their model range into the mainstream, they've become addicted to volume. Their entire business model-from manufacturing through to the size of their dealer network-depends on moving a large amount of metal. But buyers at the lower, larger end of the spectrum are the first to abandon luxury makes when money's too tight to mention. Ipso facto.
So what's a luxury automaker to do? According to the WSJ, Car companies aren't taking chances. Some are preparing smaller, cheaper versions of their high-end nameplates. Others are tweaking their messages, emphasizing 'sustainability' and fuel economy in a market segment that for years competed on who had the highest horsepower and richest leather. Yeah, that's the ticket. When sales crater, accelerate the move downmarket, or sacrifice decades of upscale branding on the altar PC fashion.
To wit: Cadillac still swears it's going to introduce a sub-CTS model called the ATS. Lexus is pushing ahead with plans to offer a luxury compact based on the hybrid Prius. Despite generating just 335 A3 sales in July, Audi's introducing a diesel variant, reflecting the German brand's re-branding as makers of oil import-reducing diesels.
Along the same lines, BMW's US website leads off with a $4500 Eco-Credit (discount?) for their drug-on-the-market 3-Series and X-Series oil burners. Responsibility may have never been so exhilarating, but with three out of the five videos emphasizing fuel economy, the change in Bimmer's brand emphasis is obvious. Meanwhile, Mercedes has introduced the sub-ML GLK.
There is an alternative: retrench. Reinvigorate the ailing luxury car brand by returning it to the stratosphere. Pare the number of models, adhere to the core brand promise and build a limited number of best-in-class vehicles. Earn a price premium through excellence and exclusivity, and charge the consumer full whack for the privilege of owning same.
It's the slowest, most expensive, most painful, least likely, most difficult and most dangerous option. But it would work.
The economy will recover, eventually. Car buyers will be back. Some day, again, still, they'll be an excellent market for exclusive automobiles. The best cars, the most desirable cars, will generate fabulous margins. Meanwhile, someone should remind these misguided automakers that Lincoln and Jaguar already died for their sins.
I know: BMW was down market before it went up market. Mercedes builds taxis in Europe. Audi's already moving in the right direction. Lexus didn't get where it is today by ignoring the value-for-money equation. And Cadillac doesn't have a clue, really. But all of these brands lost their halo/mojo in the headlong pursuit of profit. They must either begin the long trek back to genuine brand cachet or continue their inexorable slide into mundane mass market mediocrity and correspondingly slim margins.
The thing of it is, as we've pointed out before the economy went south, these luxury brands should have never dallied down market in the first place. If they'd stayed small and tightly focused, they could have hunkered down and weathered the storm, ready for the recovery. As it is, there's no guarantee that any of them will emerge from the current downturn with their brand untainted by the stench of massive discounts and how-low-can-you-go financing. And when it comes to the long term future of any luxury product, branding isn't everything. It's the only thing.