BMW: The Rich Will Get Richer
Low cost cars? Who needs them. BMW’s CFO Friedrich Eichiner thinks that the premium segment is where the growth is. Eichiner projects the global auto market to go basically sideways by growing 4 percent in 2012. He expects the premium segment to grow twice as fast at 8 percent. That according to an interview given to Munich’s Süddeutsche Zeitung today. Of course that growth is not spread evenly around the world. Eichiner predicts that the European car market will remain flat this year. Growth potential is seen in the U.S. and China.
“In the future, we will increasingly produce where the growth is,” says Eichiner. A decision for a new factory in Brazil should be made in a few weeks. New plants in South America, India and China are being studied.
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This has nothing to do with "the rich". There are not nearly enough rich to buy all the luxury cars out there, let alone $40K minivans and non luxury SUVs. This has everything to do with the combination of automotive leasing and the new longevity of cars. Then add longer factory warranties and better CPO programs for the luxury brand. BMW thrives because most of the "rich" lease them and then ordinary people buy them as CPOs. Yes, people like me cross shop a new Focus with a used 3 series. A new Camry with leather and V6 will run more than a CPO 328i, and will generally have a shorter warranty out the door. Back when cars were lucky to last 8 years without rusting or requiring major service, this strategy was impossible. The prevalence of leases ensures a steady flow of lightly used cars, which otherwise wouldn't exist. I see a lot of young guys in their 20's who are not close to rich, but who buy a 328, an Infiniti G, an A4, or at the least a TSX or older TL. Older folks buy a used ES350, C-class or E350. Those people aren't even considering buying those cars new, they're choosing an ES350 used vs a Camry, Accord or Sonata new.
Before the financial crash, luxury cars made up 20% of the new car market. This was an unsustainable percentage. Middle class income has been stagnant for 30 years, necessitating the need for greater debt load for a luxury car purchase. Those days are gone. I predict that the strongest car markets in the future will be for vehicles above $40k and below $20k. The rich are increasing their wealth and can afford luxury vehicles. The middle class will begin to gravitate toward the lower end of the price scale as they realize they can no longer take on more debt with no increase in income in sight.
The rich keep getting richer while the majority live off leftovers, crumbs and cast-off scaps? Yup, sounds like the current reality..."Let them eat cake" and all...well, at least until the revolution comes....tick, tick, tick...(Ok I'm kidding, sorta) Of course, the world's problems aren't BMW's to solve, and since they have shareholders to think of...I guess us car fans of modest budgets can look forward to drooling over BMW's new "genius" premium niche product, a 'Rolls Phantom Luxury Touring Hatch' a la 5-Series GT? Can't hardly wait! And Tata Nanos for the rest of us, yipee!
All valid points; but it remains true that what you drive is who you are in society. A new BMW 5 series for example shows to the world that you are in the upper middle class status. A new Bentley is sign that you are rich - millionaire. People need to feel that they are somebody. Nobody wants to be consider a nobody in today's society. Sure their are people with no class like Warren Buffett who most people think is a goofball and drives around in a 2004 era Lincoln. When you go to a cafe or a social event; you want respect and when they valet park your car; they know you are somebody with your new BMW 5 series. Sure I might be living beyond my means but I have status and that what counts!