DIRLETON, East Lothian, U.K. – Franz-Josef Paefgen, chairman and CEO of Bentley Motors Ltd., says the British auto maker approaches the world’s post-recession luxury-vehicle market carefully and optimistically these days, but also fully expecting to soon deliver the sort of profits that have made it a small treasure within parent Volkswagen Group.
“Optimistic, because there are signs of recovery. And careful, because we must be aware that we are still not at the end of the crisis,” Paefgen tells Ward’s during a recent interview here linked to the launch of the all-new Bentley Mulsanne sedan. “Nobody can actually say when this (downturn) is going to disappear.”
Bentley’s caution is understandable considering 2009 proved a nightmare, with the global economic crisis sending sales down to just 4,000 units and an operating loss of €194 million ($135.3 million), based on exchange rates at the close of the fiscal year.
Just two years earlier, the auto maker sold more than 10,000 cars and delivered Volkswagen AG a tidy profit of €155 million ($106.2 million).
That’s a cool €15,000 ($10,274) per unit. Even in 2008, when the wide-sweeping financial meltdown erased six months of its business, Bentley mustered a profit of €10 million ($7.2 million) on 7,000 deliveries.
Fortunately, Paefgen says, the VW brass back in Wolfsburg understands how a recession can wreak havoc on the ultra-luxury segment, just as it does at the lower end of the market.
“Someone is not sitting there waiting for financial figures to be delivered every quarter,” he says.
“We have declared our business model and agreed over what we want to reach long-term. And although a crisis is not very desirable, I think there is a full understanding this is a short-term problem. We’ll overcome that, and there will be a bright future.”
Bentley delivered its record 2007 earnings at the height of a product cadence, a rollout originating some 10 years prior as part of plan to reinvigorate the iconic brand. Today, the company exits the downturn relying on a Continental model range arguably spun out of variants.
But it also does so with a workforce 10% lighter, a productivity improvement of about 5% on the volume Continental line and fixed costs reduced 25%. The staff at Crewe took a temporary 10% wage cut last year, and the plant was idled briefly to draw down dealer inventories.
Bentley expects to deliver 5,250 units this year, which could put it back in the black.
“We have improved our break-even quite significantly, so we can now run the company at a lot lower volume and not make any losses, which is a big achievement,” Paefgen says confidently. “We think we can deliver substantial (profit) contributions in the future again.”
Much of Bentley’s future lies with the Mulsanne, a 3-year project aimed at building the best luxury sedan possible. Paefgen’s says its development taxed even a coachbuilder of Bentley’s rank.
“This is a milestone in the history of luxury cars – a flagship car for the company and something you do not do very often,” he says in the billiards room of a very Bentley-esque Archerfield Estates, a renovated mansion dating back to the 11th century and booked by the auto maker to support its weeks-long Mulsanne launch.
“You do something like (the Mulsanne) to show what can be done if everything is focused on a specific point. It’s not easy,” he adds. “Over the last year, everybody was suffering a lot under the pain to deliver. If you set yourself a target that is so high, you find out on your way that it is indeed quite a high target.”
Bentley anticipates the Mulsanne will comprise 10% of its annual volume, rising to 40% in the future. That means more derivatives, although Paefgen declines to elaborate too much on the future of the product line.
“We would not be good businessmen to stop at one Mulsanne,” he says coyly.
Ironically, the Mulsanne launches later this year under similar economic conditions as the last Big Bentley – the 1928 8L saloon. However, the 8L could not save Bentley from bankruptcy as the Great Depression hit Europe eight decades ago.
Paefgen recognizes the irony, but is quick to point out the auto maker did not enjoy the backing then of a massive player such as VW.
“To have a big parent company in the back is good,” he says, puffing on one of his trademark cigars. “As a small manufacturer, you have so many problems to survive.”
As such, Bentley taps technology within the broader group of VW brands and leverages the massive purchasing power of the world’s No.3 auto maker.
“We have access to suppliers that otherwise would not talk to us,” Paefgen says, noting the recession proves VW’s approach to covering each market segment is the correct strategy.
“Everybody (within the group) is operating in his specific market segment with his brand and considered to be a specialist. That makes it a very flexible and successful model.”
Looking at Bentley’s global markets, Paefgen believes the U.S. will hold onto its status as the No.1 buyer of the auto maker’s cars. But the economic boom in China could send the emerging market past traditional No.2 buyer the U.K as early as this year.
“The number of (Chinese) millionaires and the availability of money there is incredible,” he says. “And it’s so big. Whatever you do one month, you can double it the next.
“We are finding cities we never heard of with 10 million people and some very wealthy people running companies and wanting to spend their money. We need to help them,” Paefgen laughs.
That said, Bentley’s approach is not to target growth by regions; instead it follows the money. Put a black dot on the globe wherever a multi-millionaire resides, whether it is Miami, Shanghai, Tokyo or Moscow, and Bentley will seek him out. “So in that way, it is a very simple business,” he says.
Paefgen is entering his eighth year at the helm of Bentley, having held the position longer than any previous CEO at the auto maker, including founder W.O. Bentley. He also oversees Bugatti Automobiles S.A.S. and heads VW research and motorsports activity.
An engineer by training, with stops at Ford Motor Co., Audi AG and Automobili Lamborghini SpA, Paefgen patiently has overseen the Bentley renaissance. Despite rumors of a potential retirement, he appears quite content with guiding the brand into another decade.
“To work with Bentley is something special. It’s not like any other company,” says the avid skier, rower and runner. The 64-year-old executive also serves on the advisory boards of Audi, ThyssenKrupp Technologies AG and Eichstatt University.
“The problems are the same if you do a small car, a medium car or a big car,” Paefgen says. “It’s always about setting up a process and finding the right teams to solve problems and focusing on the essentials, but the product is different.
“It makes a huge difference when you get up in the morning and see a Bentley sitting in front of your house, rather than another car.”
