If you’re the owner of a five-year-old luxury car, you might finally be thinking about getting a new one.
Five years ago demand for BMWs and Bentleys were sizzling as the stock market climbed to the moon. Then the double whammy of high oil prices and an economic crisis cooled even the wealthiest buyer’s appetite for exotic machinery. Many luxury car owners thought it prudent to hold on to their wheels while taking stock of their financial situation. At the same time, high-end automakers, seeing the market for their products seize up, are now aggressively promoting discounts and deals to their existing customers. Manhattan Mercedes-Benz, for example, is offering $0 down payment and annual percentage rate financing of only 1.9% for a trade-in on a 2009 E-Class. That’s more than 60% off the standard 4.9% APR.
Not only are there plenty of deals, but many of the new cars due out soon on the sales floors were conceived during the peak of the boom, and even a global recession wasn’t enough to put the brakes on production. Take the new Jaguar XJ, for example. While dealers are slashing the price on the outgoing model to clear excess inventory, the sportier 2010 XJ will also likely experience challenging sales. Industry analysts argue that after automakers like Jaguar poured millions of dollars into development of new models over the past several years, they had no choice but to introduce them immediately, even into such a gloomy market. “You can’t stop the train,” says Jeff Schuster, executive director of global forecasting at J.D. Power & Associates. “If all of the development cost associated with the vehicle has been spent, then it’s better off getting it into the market.”
CUV Segment Shows Most Growth
Jaguar isn’t alone in rolling out upgraded 2010 models. After years of preparation, Porsche recently introduced its four-door, $132,000 Panamera Turbo. And Mercedes-Benz (DAI) and BMW (BMW) are both introducing new hybrid models, hoping to entice green-minded buyers. In the past, they’d stayed out of the hybrid market because of their significant inroads into fuel-efficient diesel technology. J.D. Power estimates that luxury hybrid sales will jump from 17,800 units last year to 26,000 this year—a 46% rise—despite current economic woes. This year’s success in the hybrid market is just the beginning, as J.D. Power expects luxury hybrid sales to surpass 250,000 in 2015. “It gives the high-end luxury buyer an option to make a green statement in a vehicle they don’t have to compromise the size and amenities that they’re used to,” says Schuster.
While sales in the auto industry as a whole were down 27.7% through June, luxury auto sales were down 33%, according to Autodata. Some luxury marques fared even worse. Bentley sales have fallen 42.8% through June this year. In the same period, Porsche dropped 66%, while Lamborghini and Maybach both saw sales slide 54.5%.
Even higher-volume luxury manufacturers Mercedes-Benz and BMW have struggled, with sales down 22% and 20%, respectively. Still, each has some bright spots in their lineups. While both offer several options that cost $100,000 or more, they supplement those with an array of less-expensive vehicles, including compact premium crossover utility vehicles (CUVs) like BMW’s X3. J.D. Power notes that of the 26 segments they monitor in the auto industry, compact premium CUVs are the sole category where sales are trending upward.
While auto forecasters believe that the overall auto market will gradually recover over the next two years, there is the potential for a surge in luxury purchases. Why? Many luxury consumers have had the money all along, but were hesitant to spend it during the recession. “Wealthy consumers have the capability to buy, but they’re waiting,” says Lincoln Merrihew, managing director for automotive at Boston-based research firm TNS Compete. “And there are financially-savvy people waiting for the right deal.”