Panic in the Premium Car Segment

Most of us in auto retailing deal with the day-to-day challenges of market conditions, economy issues and inventory levels.

We dodge, weave and make adjustments. We sometimes shoot from the hip and retarget the next shot based on where the last one landed.

That’s most of us; mainstream dealers selling to mainstream customers.

But a radical shift is rapidly unfolding in the luxury-car market. In every speech, article and meeting with dealers I’ve repeated the same theme.

Suddenly, others are catching up. Their statistical research and information is verifying what I concluded based on intuition and ear-to-the-ground information from the dealers on the front lines: the luxury-car market faces a global crisis.

More than six months ago, the situation began to pop up on everyone’s radar screen that Mercedes-Benz and BMW were involved in a blood feud to claim bragging rights as the No.1 luxury brand in the world.

It was then that I started hearing from dealers and managers at high-line stores that they were getting calls from their manufacturer representatives telling them to “punch” cars that weren’t actually sold, such as demo vehicles. My Gawd, Maude, the Germans are stuffing the ballot box?

Dealers who were lured to buy cars on special deals were told: “Put them into demo service or sell them to yourself as loaners, even if only briefly. Then sell them as a certified pre-owned car, and we’ll give you $7,000 or $8,000 per unit pre-sold.” 

I wrote about it months ago. Now we’re hearing about it after these auto makers were “outed” in the mainstream press after the German press reported it.

It is not just in the U.S. The practice in Germany is rampant, with more than 30% of highline German luxury cars registered to dealers and the auto makers in a practice openly referred to as “self-registering.”

So on the surface it appears the luxury-car market is growing and sales are up. In fact, sales in Europe are down, and the practice of buying your own cars is not sustainable. Even in multilevel marketing, somebody eventually has to sell the soap.

And it’s not just the high-line auto makers: I’m hearing increasing complaints from Hyundai dealers that they are being pressured into reporting units sold that are still in inventory.

It’s been going on ever since I first walked into a dealership back in 1976. You might say, to some extent, everybody’s doing it or at least has done it at one time or another to inflate real numbers. But we’ve never seen it to the extent we’re seeing now. It’s getting out of control.

Is it a deception to the consumers and to the stockholders? I think so.

Well, the other shoe just dropped and it’s something else I’ve been saying for a long time now: The luxury-car market is shrinking as consumers move to more practical near-luxury brands.

This trend started a few years ago and now it is accelerating as the economy continues to drag and wealthier people don’t want to be as conspicuous in their consumption as consumers. It is part of the politically charged climate of persecuting “The Rich.”

There are many reasons why, but the market is retreating from high-line luxury.

The auto makers are offering increasingly incentivized leases and cash-on-the- hood programs. Of course, this runs the risk of devaluing residuals. Kelley Blue Book analysts say the resale value of cars in this segment has dropped 7% to 10% over the past year.

Kelley’s research concluded that more mainstream vehicles are offering more amenities and options previously available only in the high lines.

Consumers are more likely to buy a loaded Hyundai, Buick or Toyota than spring for premium-priced luxury car. 

The Germans, Japanese, Koreans and European auto makers are suffering in this global economy they were so quick to embrace just a few decades ago. Even China is realizing a slowing economy. The fiscal crisis in Europe is affecting every country.

What it all boils down to is, the U.S. economy is still the benchmark and we’re just limping along.

I’m enjoying a snifter of Louis XIII Remy-Martin cognac. If current trends in the luxury car segment continue, I might have to switch to a less-premium drink. Do they still make Boone’s Farm Strawberry Hill wine?

Jim Ziegler, president of Ziegler Supersystems, is a trainer, commentator and public speaker on dealership issues. He can be reached at [email protected].