Car Sales

Like many big ticket items, if it is more of a want than a need, it's not selling like it used to:

Luxury Cars Sit As Both Money, Mood Slip Away

By KATE LINEBAUGH

In past economic slumps, luxury-car makers have withstood the downturn better than their mass-market counterparts. Not so this year.

Sales for the U.S. luxury-car market, which includes everything from a Lexus to a Lamborghini, fell 30% last month from a year earlier -- on par with the 31.9% decline for the overall market, according to Autodata Corp., a market research firm.

Auto makers report November's figures on Tuesday and that picture doesn't look any prettier. Credit Suisse projects the overall car market will show a decline of 36% -- a "November slaughter," in the words of Credit Suisse analyst Christopher Ceras.

Among luxury cars, "we suspect that November was just as bad as October because people on Wall Street and in the banks are still losing their jobs," said Rebecca Lindland, an analyst with IHS Global Insight, a research firm in Lexington, Mass.

Researchers at Morgan Stanley expect the fall in demand for premium cars -- the higher end of the luxury market -- will get "significantly worse" in coming months.

J.D. Power estimates that BMW AG sales will show a decline of more than 20% for November and that sales for Daimler AG's Mercedes-Benz unit will fall more than 40%.

That trend spells bad news for auto makers who have been able to rely on the fat profit margins of luxury brands to offset plunging sales of mass-market vehicles with razor-thin margins.

On top of rising foreclosures, a plunging stock market and thousands of pink slips on Wall Street, luxury-car makers say their customers also don't want their subordinates to see them driving a new car.

"People don't want to look like they have money now," said Mark Templin, group vice president of Toyota Motor Corp.'s North American Lexus division.

Lexus sales have started to pick up in November, said Sean Lyons, a Northeastern regional manager for Lexus. But that is partly because Lexus started its annual December sale early, on Nov. 21.

He said the region from Portland, Maine, to Washington was running only 10 vehicles lower than last November.

October was especially hard for the top-end luxury vehicles. Porsche AG's sales fell by half last month from a year earlier, to 1,427 vehicles.

Bentley's sales fell 62% to 146, while Maserati's sales declined 29% to 157.

The weak luxury-car market isn't isolated to North America as economies from Japan to Germany are in or near recession. Stuart McCullough, board member for sales and marketing at Bentley Motors, says sales in the Middle East and China are stable but are sinking just about everywhere else.

"Even the oligarchs in Russia don't feel rich anymore," he said. "There aren't many bright spots in the world right now."

Sales rose 10-fold from 2004 to last year. But Bentley, the superluxury brand of Volkswagen AG, expects sales to drop to 5,000 vehicles next year from 10,000 this year.

In response, the company cut one of the two shifts at its plant in Crewe, England. That said, Bentley sold a $230,000 Continental Flying Spur sedan on the first press day of the Los Angeles auto show last week.

Incentive spending -- such as zero-percent financing and cash rebates -- is on the rise, more than doubling for vehicles priced over $60,000, according to Edmunds.com. The average incentive spending on a premium car last month was about $8,100, compared with $3,430 a year earlier.

But unlike past downturns, consumers aren't responding to traditional marketing devices like increased incentives, lease deals or beefed-up advertising, said BMW spokesman Tom Kowelski. "This is the most difficult period we've experienced in North America," Mr. Kowelski said. BMW's U.S. sales fell 14% last month to 20,203 vehicles.

—Neal Boudette contributed to this article.

Write to Kate Linebaugh at kate.linebaugh@wsj.com

Sphere: Related Content