Friday 16th March 2012

Recession? What recession?

Luxury brands coin it in while mainstream ones flounder - what the heck is going on?

---

This really is a head-scratcher. We're in the middle of a prolonged financial slump and yet the makers of expensive cars are absolutely minting it. Meanwhile, many companies selling more reasonably priced motors are barely breathing.

Big Audis equal big profits

So here are the success stories. Audi posted a record profit in 2011, and makes so much money for VW that it accounts for half the group's income.

Porsche is another. Thanks to demand for the Cayenne, the company's biggest seller in many markets, including the UK, the maker posted record profits of 1.7bn last year.

BMW, the world's largest maker of luxury vehicles, tried and failed not to crow about its record 2011 profits by saying it expects to surpass them this year as the new 3 Series hits showrooms.

Ferrari also joins the luxury record breakers by selling 7,195 cars last year, more than ever before. It also announced that it sold 10m worth of branded red tat (not Ferrari's description...) at the store within the new Abu Dhabi Ferrari theme park last year.

You might not like it but there are people that will

The list continues with Jaguar Land Rover, which said the last three months of 2011 were the company's most profitable ever.

Bentley rather let the side down by failing to beat its 2007 record of 10,014 cars sold worldwide, but did say that the 7,003 figure last year was back at pre-recession levels.

Meanwhile the mainstream brands struggle to make any money at all. PSA Peugeot-Citroen said its core car business was in the red last year. It's worse at Vauxhall/Opel, which made a loss of 355m in 2010, and, without its budget Dacia brand, Renault wouldn't have been profitable.

So what's going on? China is helping of course. A fanatical desire for luxury labels, especially European ones, has added pounds to the premium makers' bottom line, giving them those desirable upward curves that get financial officers hot under the collar. China is now Audi's biggest market, for example, while the country now accounts for a third of all Bentley sales.

Fresh product for BMW expected to do well

The top-end companies are also giving us cars we want to buy, an obvious, but important point. "The premiums will be able to maintain their market share because of product expansion, " says Jonathon Poskitt, head of European sales forecasting for JD Power Automotive Forecasting. "They're filling gaps."

A typical premium range 10-20 years ago was barely six cars strong. Now look at them. BMW has 19 different models to choose from, including four SUVs.

Right now one in six cars sold in the UK is either a BMW, Audi or Mercedes. In a country still doubled up from a combination of bankers' excesses, a weak pound, and euro debt pains, that's pretty telling of the premiums' ability to make desirable cars.

[LordFlathead]

That's better

Edited by LordFlathead on Friday 16th March 13:26

[appletonn]

China is now Audi's biggest market??!

Slightly staggered by that fact alone!

[Nursing a hemi]

Simple answer, it's because "we're all in it together".

Oh, hang on...

[GroundEffect]

appletonn said:

China is now Audi's biggest market??!

Slightly staggered by that fact alone!

Why?

1.3 Billion people with rapidly growing GDP.

[Wafflesmk2]

High sales and big profits dont do us peasants any favours

[will261058]

I dont see what you are struggling to understand. We may be in a slump but the rich are barely affected by slumps its always the people at the other end that bear the brunt!

[LordFlathead]

will261058 said:

I dont see what you are struggling to understand. We may be in a slump but the rich are barely affected by slumps its always the people at the other end that bear the brunt!

Exactly this. The uber successful are devoid of these financially problematic times due to their own success and personal wealth. They are effectively recession proof and not reliant upon employers income nor the restraints that many people are placed under from their employer.

[Cheib]

This is a reflection of the way the wealth gap has widened over the last 10 years mainly driven by Emerging Markets and Commodities....same thing is driving prime London property which appears to know no boundaries.

[DavidHM]

LordFlathead said:

Exactly this. The uber successful are devoid of these financially problematic times due to their own success and personal wealth. They are effectively recession proof and not reliant upon employers income nor the restraints that many people are placed under from their employer.

But in the early 90s recession it was the high end market that suffered most (I don't mean the individuals who could have spent this, but the car makers, property developers, etc. catering to this market did worse than those at the lower end). So something is different this time; though maybe it's not so much that the rich aren't cutting back as that the availability of credit for the lower end of the market has declined so significantly.

[hornetrider]

Cheib said:

This is a reflection of the way the wealth gap has widened over the last 10 years mainly driven by Emerging Markets and Commodities....same thing is driving prime London property which appears to know no boundaries.

will261058 said:

I dont see what you are struggling to understand. We may be in a slump but the rich are barely affected by slumps its always the people at the other end that bear the brunt!

It is an interesting world we live in.

[ewenm]

LordFlathead said:

Exactly this. The uber successful are devoid of these financially problematic times due to their own success and personal wealth. They are effectively recession proof and not reliant upon employers income nor the restraints that many people are placed under from their employer.

Is the average Audi/BMW/Merc buyer part of that uber-successful group though?

[ewenm]

DavidHM said:

But in the early 90s recession it was the high end market that suffered most (I don't mean the individuals who could have spent this, but the car makers, property developers, etc. catering to this market did worse than those at the lower end). So something is different this time; though maybe it's not so much that the rich aren't cutting back as that the availability of credit for the lower end of the market has declined so significantly.

Perhaps the rich didn't (need to) jump on the credit bandwagon in the recent boom and so aren't feeling the pinch of potentially expensive debts now.

[Devil2575]

Nursing a hemi said:

Simple answer, it's because "we're all in it together".

Oh, hang on...

Indeed.

[jbi]

Fuel costs and taxes on middle class citizens

/thread

[hilly10]

Its not hard to see where the profits are coming from. I did read that a Range Rover in China cost 134k all the premium brands love selling in Asia due to what they charge for the cars. Audi are not making that much in the UK last week I was offered A5 convertable with 6.5K manufactures contribution discount,same car in China 64K

Edited by hilly10 on Friday 16th March 13:32

[Devil2575]

Perhaps the reason has to do with this:

http://www.bbc.co.uk/news/business-15487866

[VR6 Turbo]

hilly10 said:

Its not hard to see where the profits are coming from. I did read that a Range Rover in China cost 134k all the premium brands love selling in Asia due to what they charge for the cars

they get taxed to the high hills in those markets. Thailand has something like 70% tax on new cars

VR

[Steve vRS]

In part it's daft people like my wife who would like a new car (5 door mid size hatch) and can't see beyond an Audi A3 (which she has at the moment, abet a 11 year old one) or a BMW 1 series to a Focus, or Astra.

Ask her the technical merits that warrant the additional spend for the perceived premium brand and she struggles to think of anything beyond the badge and looks.

Steve

[Ozzie Osmond]

In case you haven't noticed, the rich are getting richer and everybody else can go hang.

Meanwhile the state is taking greater and greater powers to monitor and suppress dissent.

Socialist revolution approaching....

[DavidHM]

Steve vRS said:

In part it's daft people like my wife who would like a new car (5 door mid size hatch) and can't see beyond an Audi A3 (which she has at the moment, abet a 11 year old one) or a BMW 1 series to a Focus, or Astra.

Ask her the technical merits that warrant the additional spend for the perceived premium brand and she struggles to think of anything beyond the badge and looks.

Steve

There aren't any in the A3; in the 1-Series you might prefer rear wheel drive. But it barely matters because they're only about 2k apart on list price and probably 3k apart at three years old - so as long as the discount is within 1k the cost is the same and even if it's more, badge and looks might be worth it to some people.