By on April 9, 2020

Mercedes-Benz got out in front of BMW while automotive sales languish in the gutter, though neither company finds itself resting comfortably upon a bed of roses. The global pandemic has made sure of that; no segment has gone unaffected by social distancing measures, but it may be the luxury divisions that have it the hardest moving forward.

Up until recently, premium nameplates had done rather well — scooping up an increasing share of the total auto market for years. While the Great Recession momentarily suppressed their ascension in 2008 and 2009, it was a temporary setback.

Luxury brands have had a good decade overall, with any rough years being offset by expansions in their lineup (chiefly crossover vehicles). Now they’re trying to move downmarket to capitalize on younger customers with a bit more pocket money. It might have been a good strategy, were it not for the coronavirus outbreak and subsequent economic downturn. 

According to Automotive News, luxury sales (excluding Jaguar Land Rover) dropped 13 percent in the first quarter of 2020. While the outlet cited the impact of the coronavirus as a contributing factor, these figures are only a preamble for what will undoubtedly be a grim second quarter. We’ve already covered how bad COVID-19 has been for sales in general — with the takeaway being that the situation doesn’t come into focus until you look at the tail end of March.

Last month represented a 41-percent decline in U.S. auto sales overall, with things pitching sharply downward through the last few weeks. That’s when local and state governments began issuing lockdowns orders and non-essential businesses were forced to turn out the lights. But the regions most affected tend to be coastal and urban — the sort of places you’d expect to find the highest concentration of luxury buyers. As a result, J.D. Power estimates the premium sector has lost 2.7 percent of the new car market before the virus even has a chance to warm up.

The week ending March 29th saw U.S. retail sales down 79 percent, year over year. By the week of April 5th, sales were down 84 percent from the previous annum. Those figures aren’t likely to rebound even a little until rampant isolation subsides, factories flip on the lights, and dealerships reopen their doors. Yet this could be harder in metropolitan hubs, where leaders are more concerned about containing viral outbreaks than restarting the economy. New York has extended its shutdown until the end of April, while Northern California extended its shelter-in-place requirements through May 3rd.

That means Mercedes’ 67,746 domestic sales (down 4.8 percent from a year ago) for Q1, and BMW’s 59,455 (down 15 percent), are about to get a lot worse come Q2. Meanwhile, Lexus and Audi posted Q1 declines of about 16 percent — Cadillac lost 14 percent; Acura lost 19 percent; Infiniti lost 25 percent; Porsche lost 20 percent; Volvo lost 12 percent. While Lincoln bucked the trend by posting a first-quarter increase of 2.3 percent, it was an outlier. The general trend among luxury nameplates shows them fairing slightly worse than mainstream brands overall. And there are growing concerns that urban centers will continue being disproportionately affected by COVID-19, suppressing the take rate of premium automobiles more than their conventional counterparts.

Sam Fiorani, vice president at AutoForecast Solutions, surmises that a weakening stock market will frighten some premium buyers out of purchasing a new vehicle… or encourage them to visit a less fancy dealership.

“A 10 percent or 15 percent drop in the Dow is like Punxsutawney Phil seeing his shadow on Groundhog Day,” he said. “It will scare those dollar bills right back into their wallet.”

Automotive News did offer a silver lining, however:

Leasing accounts for a majority of luxury transactions — 57 percent in 2019, said Tyson Jominy, vice president of the Power Information Network at J.D. Power

“Lessees may extend their current payments for a month or two, but they can’t stay out of the market indefinitely,” Jominy said. “Will we have a blowout Memorial Day, or will it be Fourth of July? It’s too soon to know, but it’s coming.”

That’s sure to get customers celebrating. Extending your lease payments through a period where you probably aren’t going to be doing much driving and couldn’t take the car back to the dealership anyway? We’re sure auto brands will soon be overwhelmed with touching thank-you letters from grateful customers.

[Image: Daimler AG]

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29 Comments on “Global Pandemic May Hit Luxury Brands the Hardest...”


  • avatar
    SCE to AUX

    Many buyers of these vehicles are living hand-to-mouth like a lot of others. Those types of buyers will fall away, especially those who stretched to get one in the first place.

    But we may also see a bunch of already-sold vehicles repossessed or turned in early as their owners lose their jobs or businesses.

    So yes, we may see a return of 2009 conditions – or worse – because unemployment will be so widespread. The entire auto market could shift one level down in buying preferences.

  • avatar
    dwford

    One thing “poor” people don’t realize about the “rich” is that the rich are often just as tapped out financially as the poor. The dollar amounts are just higher. It’s expensive to maintain appearances.

    • 0 avatar

      Literally dwford– one of my first smacks in the head as a puppy attorney was to learn that the guy with four rental properties and the vacation house on the Shore, who showed up in a Lincoln or Benz, was always behind with everyone. His cash flow was huge but other than a zero, could be like a poor person as far as intelligent money management was concerned. Short Money can be at the high end too. Cars that sell on foo-foo are based on perceived financial health not reality, so if you want that c7….wait six months and have cash.

      • 0 avatar
        ajla

        “who showed up in a Lincoln”

        How old are you?

        • 0 avatar

          very early gen x

        • 0 avatar
          MoDo

          The lincoln avaiator has more street appeal than you’d think

        • 0 avatar
          Arthur Dailey

          For some of us the name Cadillac or Lincoln still has cachet.

          Think of how often Cadillacs are mentioned, or the roles that they play in GoodFellas, A Bronx Tale, The Godfather or Casino.

          Or how DeNiro’s character in The Irishman talks about his Town Car.

          Then there are all the movies/TV shows of the 50’s to 70’s that featured them.

          It wasn’t until one of the Ewing women was shown driving a Mercedes wagon that German vehicles began being seen by the mainstream as a legitimate competitor for domestic luxury.

          • 0 avatar
            28-Cars-Later

            This happened to dove tail with the ritual suicide period of Cadillac, Chrysler (luxury), and Lincoln to an extent while Acura and later Lexus came on the scene.

        • 0 avatar
          28-Cars-Later

          Ajla, Lincolns (and Cadillacs) used to be taken seriously but I think that dropped off sometime in the 90s.

          • 0 avatar
            Arthur Dailey

            “You think I’ve never ridden in a Cadillac? I’ve ridden in a Cadillac hundreds of times.”

            Epitomizing the public perception of Cadillac’s status among the immediate postwar generation/era.

          • 0 avatar
            28-Cars-Later

            Oh yes, to them Cadillac or Lincoln was a lifelong aspiration. I’d also met a few who thought their K-body 89 Imperial was on par status wise with the 50s/60s Imperial. I suspect those ladies were developing Alzheimer’s or some sort of dementia when they made the purchases.

            Now I don’t want to go off on a rant here, but incidentally it was a woman of my grandmother’s generation (1920) or maybe a bit earlier who decorated my house when it was built in 1976. Outside we put some kind of pink/purple limestone facade over the concrete and chose a similar purple color brick for the retaining wall (house is brown and beige brick, so in no reality did purple/pink make any sense). On the landing we chose some kind of LSD inspired puke green with yellow and red design for the tile, which is quite breathtaking in just how awful it is. Then in our kitchen, dark wood cabinets with baby blue countertops, the beige tile on every wall and floor which may be OK if it did not have *flower designs* in the tile. Topping it off we added light purple wallpaper everywhere there was not tile, because purple is where its at apparently.

            In my guest bathroom I have p!ss yellow colored tile with a sunburst pattern, a lime (I’m told “mint”) green toilet AND tub, (because f**k normal white colored ones) and the light fixtures I swear to you came from Liberace – its the most WTF thing I have ever seen. We added blue flower wallpaper in the master, and the master bath is powder blue and white which is probably the only inoffensive thing in the house. I’ve already remediated the carpet and some of the other wallpaper but have yet to tackle that stuff I named (although started chisling off the pink facade last weekend). So I wonder what was going on upstairs with some of the folks from that period based on 70s decor alone.

    • 0 avatar
      bd2

      There’s the wanna-bee (keeping up w/ the Joneses) “rich” and those who are truly rich, if not independently wealthy.

      Sales of the lower end Germans may drop (A Class, base C Class), but that of the higher end models should rebound like they did once the economy started to claw out of the Great Recession (the E Class had its best sales years during that period).

      The top 10% holds something like 70% of all the wealth in the US and the top 1% around 33%.

      Those figures (esp. for the top 1%) are just going to keep on increasing.

  • avatar
    Scoutdude

    We’ve been over this before, the people with higher paying jobs will see the least impact. Sure their investments may have taken a beating but for many their income won’t. Also as mentioned those brands lean heavily to leases and they will continue to come to the end of term. I don’t see Mercedes, BMW, et al nor their dealers letting those people walk out for cheaper brands w/o a fight, ie there will be some great lease deals.

  • avatar
    eCurmudgeon

    One other factor to consider is that during periods of wide-spread economic difficulties, picking a lower-social-profile automobile (i.e. your garden-variety Honda, Toyota or Hyundai) might be a more attractive option even if you can afford a “Luxury Brand.”

  • avatar
    dusterdude

    Agree 100% with article , luxury brands sales will be “hammered” for as long as pandemic lockdown conditions are in place

  • avatar
    Lou_BC

    Exotic car sales are up in Canada. There is a difference between the rich and the “pretend” rich.

  • avatar

    The question is will luxury car makers survive. Many of them did not survive the Great Depression. But on the other hand I read today in news that Mercedes and VAG will stop making ICE vehicles anyway. So they will probably be prepared.

  • avatar
    Arthur Dailey

    Didn’t the recession of the early 1990s cancel the Amati brand.

    As for the ‘very rich’ they generally ‘make out like bandits’ during an economic downturn. It allows them buy assets at rock bottom prices.

    The economic downturns of the Great Depression and the Robber Baron (late 1890’s in particular) so an increase in income disparity.

  • avatar
    EBFlex

    Yet more reason why this “stay at home” hysteria needs to end. This cold virus is literally going to kill the world economy. And for what?

    This isn’t as bad as its being made out to be, in any people have had it before we even knew what it was and we have treatment for the extremely rare cases that are bad.

    Get back to work people.

    • 0 avatar
      dal20402

      “This isn’t as bad as its being made out to be, in any people have had it before we even knew what it was and we have treatment for the extremely rare cases that are bad.”

      In less than a month this has killed 17,000 Americans (confirmed) and probably about that number again who were never tested, based on excess mortality data. That’s a dozen 9/11s or as many people as we kill with cars or guns in a year. Send people back to work and those numbers will jump by an order of magnitude.

      • 0 avatar
        EBFlex

        And? 17,000 out of 330 million people is nothing.

        The seasonal flu kills between 290,000 and 650,000 people globally. So far the covid cold has killed just over 100K. And they’re finding out that California had it late last fall. And no hysteria.

        I’ve had coworkers that had it in November and December. No hysteria, no panic.

        This closing everything down is a major overreaction.

        • 0 avatar
          Lou_BC

          New York city paramedics average 27 deaths per day. With COVID-19 it is around 200 per day. Those numbers haven’t been included in the death toll because they weren’t confirmed “positives”.

          Someone would have to extremely ignorant to think this is just a cold and it is no worse than the flu.

          “I’ve had coworkers that had it in November and December.”
          Confirmed “positive”?
          80% of people have zero to mild symptoms.
          15 % are going to be moderate to severe with roughly 5% being critical.

          • 0 avatar
            EBFlex

            “Someone would have to extremely ignorant to think this is just a cold and it is no worse than the flu.”

            Nah just loaded with common sense and not a blind sheep that believes all the hysteria in the media.

  • avatar
    SilverCoupe

    If your money in the stock market is going to depreciate at the same or greater rate than a car, why not buy the car?
    (sort of sarcasm)

  • avatar
    jthorner

    Nobody needs a luxury car, so when times are tight sales crash big time. The great extinction of high end automotive brands in the 1930s gives you an idea of how extreme such a trend can be.

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