“The premium business model as we have seen it, of model proliferation and people paying more because of the social status of those cars, is probably reaching a peak.” —Philippe Houchois, Analyst, Jefferies Group
Premium auto sales are stumbling. Is this just a bump in the road or the canary in the coal mine? BMW reported a loss during the first quarter of 2019. Audi, Mercedes, and Jaguar Land Rover reported mixed results, but indications are that premium auto sales are plateauing and in some cases slowing significantly. (Featured image courtesy of Looney Tunes and Merrie Melodies)
In the following article by Automotive News, Nick Gibbs reports that premium auto sales may be facing long term structural headwinds. These industry challenges are being caused by a number of complex factors including competition from Tesla and growing shareholder pressure on CEO’s to increase margins and overall profitability in the face of massive spending on electrification and advanced autonomous initiatives.
May 24th, 2019
By Nick Gibbs
“The premium business model as we have seen it, of model proliferation and people paying more because of the social status of those cars, is probably reaching a peak,” Houchois told the Automotive News Europe Congress here on Wednesday.
“We think the German premium business model is at risk” of no longer continuing to grow, Houchois said.
Mercedes increased sales last year by 0.9 percent to 2.3 million cars globally, while BMW sales grew 1.8 percent to 2.1 million. Audi sales fell 3.5 percent to 1.8 million.
Premium automakers need to rethink their strategy, Houchois said. “If I’m right [that] premium demand has reached a peak, then there must be a reinvention of the premium business model,” he said.
Houchois praised Volvo for moving in that direction with an early push into electrification through plug-in hybrids, along with new subscription models. However, Houchois said, a stock market listing didn’t make sense for the Swedish automaker.
“There was an attempt to list Volvo last year, but the price didn’t make sense to investors, and conditions haven’t changed today,” he said.
The investment community has long feted premium automakers for successfully expanding their reach into segments traditionally dominated by mainstream automakers, such as small cars, and delivering big profits in the process. But the challenges of electrification and the additional cost of delivering vehicles that reduce carbon dioxide have damaged their business model.
The premium automakers also have been threatened by the growth of Tesla. At BMW’s recent annual shareholders meeting, CEO Kreuger was criticized for his caution when expanding BMW’s electric-car range.