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Luxury Sales Surge: Are The Fat Cats Not Feeling The Recession?

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Luxury Sales Surge: Are The Fat Cats Not Feeling The Recession?

By Bengt Halvorson

Deputy Editor

September 2nd, 2010

2010 Mercedes-Benz E-Class CoupeEnlarge PhotoAre luxury-car shoppers feeling the recession in the same way everyone else is? Take a look at the boarded-up store fronts on Main St., then check out the country club parking lot, political contribution coffers, and luxury dealerships and you might feel differently.

There's a distinct division as well between the Miracle Mile auto malls and boutique showrooms: sales of luxury vehicles, and in some cases larger discretionary vehicles, are going strong while mass-market sales continue to take a dive.

Over the past month, Audi was up 14 percent, Mercedes-Benz up 15 percent, Porsche was up 33 percent, and Jaguar sales were up 62 percent—all versus August 2009.

Meanwhile, mainstream brands are all down. In some cases, way down. Nissan, Mazda, Toyota, and Honda were all down more than 25 percent, while Mitsubishi was down 37 percent and Suzuki sales were 68 percent lower than August of last year.

Don't forget about the Clunkers

Before going any further with this, there's one very simple explanation: Cash for Clunkers. Last August, the U.S. auto market was in a frenzy, looking to buy some of the most economical vehicles that might qualify for a federal rebate of up to $4,500. It cleared lots of smaller, affordably priced cars while not generating much traffic at luxury dealerships.

And before thinking that the fat cats are spending big, it's worth considering that these numbers are all compared to last August, when luxury sales all but ground to a halt. "It stopped, effectively, all traffic at dealerships," recalled Jesse Toprak, VP for industry trends at the pricing intelligence firm TrueCar, leaving most at rock bottom for sales volume. "Some Mercedes-Benz and BMW dealerships had parties when it [Cash for Clunkers] was all over."

But there are several other reasons why luxury sales have surged. One of them is that leasing has become much more attractive. While general-market shoppers might intend to keep their vehicles five or six years or more, luxury owners tend to get a new car every three or four years, and the majority of luxury cars for those rapid-turnover customers are leased.

Luxury leasing on the rebound

Over the past year or so, leasing has recovered, from 11 percent of the market at its low point up to nearly 21 percent today. Leasing rates for some luxury brands, including Audi, BMW, and Mercedes-Benz, approach or exceed 50 percent.

"Leasing has rebounded, very strong over the past few months," said Jeffrey Schuster, director of global forecasting at J.D. Power and Associates. "That's having a lot to do with it."

While more available credit played a role, the more significant factor that's made leases more attractive and helped boost sales is improved resale value. In turn, that improvement didn't happen overnight; it's the result of better inventory management for luxury models—particularly larger SUVs—as sales have fallen. "Lower supply leads to higher prices down the line, and they'll all become used cars," Toprak commented, adding that luxury brands have understood the importance of making extreme production cuts.

But the economics of it might only be part of the explanation. "Luxury buyers are different," said Toprak, adding that image is a major part of a new-car purchase, and earlier last year many wealthier consumers saw a new vehicle as an inappropriate message to send to clients or employees.

Luxury shoppers ready again to flaunt it

"We're seeing some improved confidence versus last year, among luxury shoppers," said Toprak, who said that these types of luxury shoppers—along with high-end family-vehicle shoppers—will only wait so long, even if the economic climate isn't all that much better.

"Last year we saw everybody pull back," said Schuster, even when they could afford a new vehicle. After any economic down cycle, you tend to see luxury buyers come back to the market before others, Schuster said, and that's been the case this year.

As for the fat cats? According to Toprak, most luxury shoppers weren't affected in a way that would affect their ability to purchase the vehicle they want. "Mostly, it's been a psychological barrier, not a money issue."

link:

http://www.motorauthority.com/blog/1048967_luxury-sales-surge-are-the-fat-cats-not-feeling-the-recession

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