TBO.com - TBO is Tampa Bay Online

Downturn Even Has Affluent Buyers Feeling The Jitters

ADVERTISEMENT

By DEE-ANN DURBIN, The Associated Press

Published: February 8, 2008

Updated: 02/07/2008 10:12 pm

CHICAGO - Automakers are introducing plenty of luxury vehicles at this year's Chicago Auto Show, from the $78,000 Yes roadster to Porsche's performance-oriented Cayenne GTS.

But analysts and some automakers predict luxury sales will fall this year as the nation's economic woes put a pinch on high-end buyers.

"Typically in a declining market, you usually don't see luxury vehicles drop off. The drop-off in luxury sales is at a rate much slower than the overall market, and that is because of the wealth factor," said Joe Barker, senior manager of North American vehicle sales forecasting for CSM Worldwide.

"But in recent months it appears even the affluent car buyers are even pulling back a bit on auto purchases."

Peter Schwarzenbauer, president and chief executive of Porsche Cars North America, said Thursday that Porsche has seen a downturn in U.S. luxury sales, particularly in the past two to three months, and he thinks the segment will have a tough time compared with 2007. Porsche's U.S. sales edged up 1.4 percent in 2007, compared with a 3 percent decline industrywide.

"We are currently forecasting what we call internally a mild recession," he said at the Chicago Auto Show. "If it's a mild recession, we don't see a huge impact on our forecast. If we have something deeper, then we have to talk again."

Luxury buyers are often resilient in the face of wider economic concerns, and 2007 sales bore that out. U.S. luxury sales were flat in 2007 even as the industry fell as a whole.

But in January, sales of BMW, Ferrari, Lexus, Jaguar, Lincoln and Porsche vehicles dropped. Mercedes-Benz and Cadillac were among the few that bucked the trend, with those brands reporting sales increases of 7 percent thanks to new vehicles.

Although one month doesn't establish a trend, Jack Nerad, executive market analyst for Irvine, Calif.-based Kelley Blue Book, said it's likely recent stock market declines have given luxury car buyers the jitters. Downturns on Wall Street - in this case caused by recession fears - affect higher-income customers who buy luxury vehicles, Nerad said. In addition, many of those buyers have seen their home values drop, he said.

Nerad expects the luxury vehicle slump to continue until the stock market bounces back.

"It's not that these people don't necessarily have the money to buy. There is also the feeling that maybe this isn't the best day and I'll postpone my purchase for six months," Nerad said.

Paul Taylor, chief economist for the National Automobile Dealers Association, said a federal stimulus package could reverse the stock market, but as long as stocks are down and the real estate market is soft - particularly in large states such as California and Florida - luxury car sales will suffer.

Another headache for European luxury makers is the weak U.S. dollar, which forces them to either take a loss or raise prices for European-made vehicles.

Mark LaNeve, General Motors Corp.'s vice president for North American sales and marketing, said one reason Cadillac is doing well is that it's making cars in its home market, avoiding currency fluctuations. But he said GM's Saab brand is feeling the pinch.

A weak yen could work in favor of Japanese luxury makers. But Lexus spokesman Greg Thome said the brand is nevertheless expecting a tough year, particularly in the first six months. Thome said Lexus thinks sales will be flat or slightly up compared with 2007, when they were up 2 percent.

Some automakers think they can profit from the malaise. Hyundai Motor Co. introduced its first luxury sedan, the Genesis, in Detroit last month. The Genesis will sell for just shy of $40,000 when it arrives on the U.S. market in June.

John Krafcik, vice president of product development for Hyundai, said 3 in 10 consumers in a recent survey conducted for the automaker said they need a car this year and will choose a brand that's "value focused."

"It's one of the reasons we think we have an opportunity to grow this year in this market with cars like that one," Krafcik said at last month's Detroit auto show.

Still other luxury makers insist the economic downturn won't affect luxury sales at all.

"We are quite confident that at least the premium operations will be stable," Audi AG Chairman Rupert Stadler said last month in Detroit. "It could be different in the mass market."

Share this:

Loading Comments...

Email Print

ADVERTISEMENT