Luxury sales hit a bump in the road
When economic worries rise, many consumers forgo life’s little luxuries.
Those luxuries are getting a lot bigger.
March proved another tough month for carmakers, with overall U.S. sales declining 12% compared to the same month last year, reports released Tuesday showed. While results were bad in nearly all categories, among the larger drags were luxury vehicles, which declined 15%, according to Autodata Corp.
That decline would buck the conventional wisdom that the wealthy are largely immune to market woes. To some degree that’s true, as the relative stability of $5-million-plus real estate in the face of the housing crisis has shown. But weakness in the “low-priced” luxury auto segment -- generally defined as cars costing $35,000 to $60,000 -- seems to indicate that the country’s financial troubles are creeping into loftier socioeconomic climes.
“This is that middle- and upper-middle-class income group, the prime buyers of entry-level luxury cars,” said Jesse Toprak, analyst for Edmunds.com.
He and others suggested that such consumers had been buying luxury cars as aspirational items, frequently using money borrowed against their houses. “It’s their homes that are losing value, it’s their wealth being diluted, and it’s their finances getting hit the worst,” Toprak said.
Tuesday’s numbers seem to bear that out. Sales for Toyota Motor Co.’s Lexus division fell 18%, compared with 5.7% for the Toyota and Scion brands. Porsche was down 26%. And even Mercedes, which had a strong February, was down nearly 4%.
Ford Motor Co. saw overall sales slip 14%, but was hardest hit in its high-end Lincoln division, which fell 26% in March, worse than any major brand except Hummer.
George Pipas, sales analyst at Ford, attributed some of the slide to decreased sales to commercial fleets, but added that “the view that luxury holds up better in a recession is proving a myth. Some of the people driving these cars perhaps didn’t belong in them.”
There were some bright spots in the lower-luxury segment. The Cadillac CTS, which tops out at about $45,000, was up 24%, a major plus for General Motors Corp., which saw total sales plummet 19%. And Mercedes had a booming 50% increase in sales of its entry-level C-Class sedans, which start at $32,500 and were redesigned this year.
More typical, however, was BMW, which fell almost 9% compared with last year. It suffered declines on every model except the 7-Series, its most expensive sedans. “In this climate, customers are known to be cautious,” BMW spokesman Jan Ehlen said. Still, he says, the company expects to sell as many vehicles as it did in 2007 -- nearly 300,000.
Automakers and analysts were eyeing Tuesday’s numbers to get a handle on the pace of car sales for the year.
In 2007, 16.1 million vehicles were sold in the U.S., and most experts expect that to decline somewhat this year. But two weeks ago, J.D. Power & Associates shocked the industry by predicting that 2008 sales would reach only 14.95 million cars and light trucks.
The new figures indicate the industry is headed for a 15.1 million total, which, incredibly enough, comes as a relief for many. “It’s not that bad,” said Wes Brown, president of Los Angeles-based auto consulting firm Iceology. “It’ll be tough to fall down to what J.D. Power was predicting.”
With Toyota posting a 10.3% drop, Chrysler falling 19.4% and Honda and Nissan both down more than 3%, there were few real highlights for the month.
Among large-volume makers, only Hyundai and Volkswagen posted increases, and the latter was a substantial 12.9% uptick, attributed largely to rising sales of the Jetta sedan.
Meanwhile, one smaller sector showed surprising resilience: cars for the very wealthy. Ferrari, Maserati and Rolls-Royce all increased volume last month, suggesting, there was a difference between the merely affluent and the truly rich.
“The really well-heeled, they’re totally insulated,” Ford’s Pipas said.
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