The Outlook for Lux

There are a couple of aspects of luxury car brands.

There are a couple of aspects of luxury car brands. One is that OEM executives like to have them in their lineup for a variety of reasons. Certainly there’s prestige involved. And arguably, there are better margins that can be made from the lux marques than from the mainstream brands.

Some customers like them because they provide leather-wrapped evidence that they’ve “made it.” But given the proliferation of vehicles in the lineup of many of the luxury brands, this “making it” is somewhat more diffuse than back in the day when only the prosperous could afford a Mercedes or a Cadillac.

This has turned into something of a virtuous cycle, as more people buy more luxury cars, which means that thanks to more luxury sales, the vehicle manufacturers turn our more models. And on and on it goes, and it all seems good.

So far.

A

Audi S8

As IHS Automotive recently pointed out, the “Big Three global premium car brands”—which they have as BMW, Mercedes-Benz, and Audi—all reported record sales, both for the month of September and year-to-date. In an analysis, Tim Urquhart of IHS Automotive wrote, “on the face of it there appears to be little to concern the three main premium OEMs in terms of their current sales progression.” The sentence after that starts with “However.”

In another passage, he writes, “as we have seen, the current sales data for the Big Three premium global players remains highly positive, and all three look likely to post sales record sales in 2011.” The sentence after that one starts with “However,” too.

Among the factors that could have negative effects on these companies:

· Eurozone debt crisis

· Continuing U.S. debt crisis

· Slowing Chinese market

When the last recession occurred, the premium brands were hit hard. But as Urquhart points out, the companies have made adjustments to their production capabilities to be more capable of withstanding another economic body blow.

He writes by way of conclusion, “Regarding purely brand sales we expect BMW’s sales to rise by 10% between 2011 and 2012 to a forecast figure of 1.37 million units. Audi’s will rise at a slower rate from 1.19 million units to 1.28 million units due to model cycle factors, while Mercedes-Benz brand passenger cars are predicted to increase by around 9% y/y to 1.29 million units.”

The sentence after that one begins with a “However.”

“However, these forecasts depend on a relatively stable global environment and little in the way of further macroeconomic shocks.”

However, indeed.