Luxury Automotive Outlook

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2012 Special report: Luxury Automotive Outlook

Featuring the Forbes Insights Luxury Car Buzz Index Contents

Introduction...... 2

A Focus Group With Wine...... 3

Boosting Brands in a Sluggish Economy...... 4

The Regional Reality...... 4

The Forbes Insights Luxury Car Buzz Index...... 6

So What’s in a Name?...... 10

The BIG Picture...... 12

Democratizing Luxury...... 14

The Truth About Affluence...... 16

What’s Next for American Luxury?...... 17

Even More of an Underdog...... 19

A View From the Top...... 21

The New Contender...... 22

Conclusion...... 23

Appendix: Luxury Car Buzz Index Methodology...... 24 Introduction

Three years after a market cataclysm vaporized real estate and stock values, luxury automakers are still grappling with the consequences. In 2008, wealth plummeted $11.2 trillion compared with the year before—the biggest annual decline in household net worth since the Federal Reserve began keeping quarterly records in 1952.

With less wealth to go around, the def- marketers and general managers. Their commentary inition of luxury is changing, and by sketches out a roadmap for where brands are headed, while The Luxury Car Buzz extension, so must the companies that data from BIGinsight, a consumer insight resource based Index distills a sell high-end cars. The go-go days of in Worthington, Ohio, paints a detailed picture of how snapshot of luxury surpassing the Joneses are gone. These consumers regard them right now, as well as what those are sober times. And yet Baby Boomers, consumers intend to do—and buy—over the next six brand performance. who are nearing or transitioning to months. Together, the two give unparalleled insight into a retirement, still crave the trappings of market overcoming turmoil. wealth. Meanwhile, so do their chil- Using data from BIGinsight, Forbes Insights has dren. Generation Y was raised in heady times, when devised a Luxury Car Buzz Index to rank the leading lux- Viking ovens, Sub-Zero refrigerators and 50-inch flat ury automotive brands based on a composite score that screens were the norm. Bigger was better. More wasn’t measures customer satisfaction and loyalty, car owners’ enough. They grew up ensconced in a premium lifestyle propensity to recommend their brand to others, and the and now expect that for themselves. Yet they’re broke: effectiveness of marketing efforts in both traditional and Unemployment among Generation Y is more than 13% digital media, as well as the impact of digital word-of- by some estimates. mouth through social media and blogs. The Buzz Index Thus, the story of how luxury car companies are rein- distills all these factors into a snapshot of luxury brand venting themselves in the wake of this great recession has performance. (See Figure 2, page 6, for the full ranking become a tale of two generations—wooing the Boomers and Appendix, page 24, for the complete methodology.) and priming Gen Y’ers for future purchases. That’s why blue-blood brands like Mercedes-Benz are seeking a more youthful image and formerly conservative Lexus is jazz- ing up its cars like never before. Doing so appeals not only to Gen Y’ers, but also to Boomers, who are young at heart and would rather globetrot than retire to gated communities and games of shuffleboard. Audi, meanwhile, the up-and-coming alternative luxury brand, has shored up so much clout over the past five years that the average transaction price for one of its vehicles has jumped $5,000. The underdog is overachieving. In fact, in the midst of economic uncertainty and a painfully slow recovery, the auto industry has been bounc- ing back from the depths of 2009, and the thirst for luxury remains powerful. In 2011, Audi and Mercedes posted their highest sales ever. BMW had such a strong year that it knocked Lexus off the top spot to become the best-selling luxury brand in the U.S. What all of this shows is how topsy-turvy things are right now. The Forbes Insights Luxury Automotive Outlook Special Report takes an inside look at the struggles and triumphs of luxury automakers through the eyes of chief

2 | 2012 Special report: Luxury Automotive Outlook A Focus Group With Wine

One of Beth Tyler’s most memorable experiences involv- The dinners aren’t about selling cars or pitching the ing Lexus has more to do with spiced lamb than her brand. They’re a chance for Templin to get inside the beloved LS 460. heads of car buyers and learn things like the fact that The Japanese luxury automaker recently selected several people at the dinner, including Tyler’s husband, Tyler to host a dinner at her Annapolis, Md., home. think that signing the paperwork for a new car shouldn’t Professional chef Todd Gray, take more than 15 minutes. who owns Equinox restaurant “No one wants to sit at the in Washington, D.C., spent dealership for hours and get hours in her kitchen cook- up-sold,” Tyler says. ing a six-course meal for the Interesting opinions often gathering of 12. The dinners aren’t come to light at the dinner “The food was out-of- table. “The best comment this-world fabulous. One of about selling cars or we’ve had yet was from a the courses was chestnuts. I woman who bought a Land never had a chestnut in my pitching the brand. Rover,” Templin says. “She life,” says Tyler, a real estate said, ‘It’s like a bad boyfriend: agent at Long & Foster in They’re a chance He treats you terribly, but he Annapolis. looks so good,’” referring to Mark Templin, group to get inside the heads the SUV’s notorious reputa- vice president and general tion for being unreliable. manager of Lexus, joined of car buyers. The fact that Templin, a Tyler, her husband, and eight top Lexus executive, is tak- of their friends for the din- ing time to dine with random ner. Nancy Hubbell, Lexus luxury-car buyers is remark- prestige communications able on many levels. But what manager, also attended, tweeting the dinner conversation it perhaps shows most clearly is how car companies are as it unfolded to more than 250,000 Twitter followers. taking drastic measures to change their image and the way It was the sixth event of its kind for Lexus in a little they conduct business. over a year, all held in key luxury-car markets—Beverly Hills, Chicago, Miami, San Francisco, among others. “It’s a focus group, but it’s a focus group with wine,” Templin says.

Luxury isn’t what it used to be. People Poponi says. “It’s completely paradoxical: Everybody no longer flaunt wealth the way they thinks they have less money, they’re spending less money, “People need time given did before the market crash of 2008, says but all of a sudden they’re happier. Our hypothesis is, back to them. It’s really Vicki Poponi, assistant vice president of everybody got off this rat race of chasing the Joneses. It just the last luxury.” product planning for Honda and Acura. made people happier—you didn’t have the stress of look- Many simply can’t afford to any longer. ing at what somebody else had and you didn’t.” —Vicki Poponi But even those who can are refraining, The shift in sentiment plays to Acura’s strengths. The Assistant Vice President of out of respect for the many whose lives company embodies “smart luxury,” Poponi says, offering Product Planning for Honda are in turmoil. a good value relative to more expensive European luxury and Acura USA “We were wondering whether it was cars, and reliability that saves hassle by avoiding repairs. going to be a permanent change or not,” “People need time given back to them. It’s really sort of she says. “At Acura, we believe it is. We like the last luxury,” she says. believe there’s a significant value shift in the luxury buyer.” Acura buyers are more rational than emotional when The reason is simple: People are happier, according it comes to their car purchases. They have a longer list of to a 2009 wealth study by the Harrison Group. It tracked requirements than those who buy other brands, and they people’s attitudes after the market crash of 2008 and found are looking to get the most value for their money, Poponi that, even though times were harder and money was says. “They’re not cheap. They’re smart, savvy, maybe a tighter, many were actually more content with their lives. little smug, looking around at all the research, seeing that “Basically, the happiness quotient went up huge,” they’re the most informed in their product choices.”

The Regional Reality

When it comes to luxury car sales, there’s no such thing Figure 1: Planning to Buy/Lease: What make of vehicle as Anytown, U.S.A. Consumer data from BIGinsight reveals are you considering? First choice plus second choice: significant regional differences in the popularity of some luxury car brands. Figure 1 illustrates this with a few selected brands and markets, summing up the first and second choices being considered by consumers who plan to buy a vehicle in the next six months. (The table uses June and December data averaged together, both to eliminate any seasonal effects and to maximize the sample size.)

Audi, for instance, is more than twice as popular in New York as in Texas or Florida. Cadillac is more than twice as popular in New York as in Florida. BMW is roughly twice as popular in New York and California as in Texas, and Lexus is almost three times more popular in Texas than in New United States: York. Mercedes is almost twice as popular in California as n 5.6% Audi in Florida or Texas. n 10.2% BMW n 5.5% Cadillac n 4.0% Lexus n 3.6% Mercedes-Benz

Source: BIGinsight Media Behaviors & Influence™ (MBI™) Survey, June and December 2011

4 | 2012 Special report: Luxury Automotive Outlook Acura owners are also some of the strongest prosely- Media (the effectiveness of its marketing efforts in TV, tizers among luxury-car owners, according to data from print, etc., as well as the impact of reviews and articles BIGinsight. The Worthington, Ohio-based firm uses about cars); and Digital Media (marketing, as well as word- information from consumer surveys it conducts monthly of-mouth in social media, etc.). (See Figure 2, page 6, for to calculate a “Net Promoter Score1,” which indicates how the full ranking and Appendix, page 24, for the complete much owners of a particular brand recommend the vehicle methodology.) to others. Acura ranks third highest in this regard, behind Acura ranks fourth in Brand Satisfaction on the Buzz Lexus and Mercedes, over the 12 months of 2011. Index, behind Lexus, Volvo and BMW, and it comes in Using data from BIGinsight, Forbes Insights has devised fourth overall, outperforming most of its peers during 2011. a Luxury Car Buzz Index to rank the leading luxury auto- One area where the company falls short is in terms of motive brands based on a composite score that takes into prestige. “In the luxury market there is definitely a con- account Brand Satisfaction (how likely a current owner is tinuum of what each brand represents,” Poponi says. “So to remain loyal to a brand with his or her next purchase); sometimes we find people reject Acura because they don’t Personal Promotion (the impact of proselytizing, mea- think it’s a prestigious enough brand.” But those who make sured by combining the Net Promoter Score with the status a priority in their car purchase tend to be emotional effect of word-of-mouth on car-buying decisions); Brand buyers and aren’t the types of people the brand targets any- Momentum (whether a brand is seeing a net gain or loss way, she says. in the number of prospective car buyers considering the 1 vehicle, versus the number of current owners); Traditional Net Promoter, NPS and Net Promoter Score are trademarks of Satmetrix Systems, Inc., Bain & Co., and Fred Reichheld.

New York: n 10.2% Audi n 17.8% BMW n 9.6% Cadillac n 2.3% Lexus n 4.9% Mercedes-Benz

California: Illinois: n 8.2% Audi n 7.1% Audi n 14.8% BMW n 9.0% BMW n 6.1% Cadillac n 6.3% Cadillac n 4.9% Lexus n 3.6% Lexus n 6.3% Mercedes-Benz n 3.9% Mercedes-Benz

Texas: Florida: n 5.0% Audi n 5.0% Audi n 7.7% BMW n 10.1% BMW n 4.8% Cadillac n 4.1% Cadillac n 6.3% Lexus n 4.8% Lexus n 3.4% Mercedes-Benz n 3.4% Mercedes-Benz

The Forbes Insights Luxury Car Buzz Index uses exclusive, forward-

looking data on consumer intentions provided by BIGinsight to assess

the industry’s prospects for the next six months, with a special focus

on the luxury car segment. The data used to calculate the Index derives

from two extensive consumer surveys conducted on a regular basis.

BIGinsight’s monthly Consumer Survey, which has a 10-year history,

includes a total monthly sample of more than 8,000 respondents and

produces a uniquely powerful database, more highly predictive of

consumers’ actions than backward-looking data on past sales. The

Media Behaviors & Influence™ Study polls some 25,000-plus respon-

dents and is conducted twice a year, in June and December.

6 | 2012 Special report: Luxury Automotive Outlook • Luxury Car Buzz Index • a a m i Acura 41.69 0.27 11.50 i 5.89 7.72 67.1 on on i ore t i c c turer entu Med c m ot l Med l S m Audi fa 35.31 0.41 5.24 10.75 18.99 70.7 ta i ona l Pro g i tota l t Di i

Manufa BMW 44.77 0.26 6.71 10.21 21.74 83.7 ona Brand Mo rad s T is BrandSat Cadillac 35.58 0.87 Per 5.35 5.99 10.13 57.9

Infiniti 30.38 0.39 11.31 1.68 1.27 45.0

Jaguar 15.03 0.32 -1.74 -0.63 -0.37 12.6

Lexus 46.09 0.75 18.04 2.39 11.62 78.9

Lincoln 26.31 0.16 7.81 0.53 4.39 39.2

Mercedes-Benz 34.48 0.28 14.73 6.05 9.98 65.5

Volvo 45.83 -0.21 10.55 1.85 4.45 62.5

Source: Forbes Buzz Index developed from data selected from: Monthly Consumer Surveys from BIGinsight™, January - December 2011; Media Behaviors & Influence™ Study, June and December 2011

The Buzz Index comprises five factors—Brand Satisfac- strategy: BMW pointedly stands on the tion, Brand Momentum, Personal Promotion, Digital Media strength of its “ultimate driving machine,” and Traditional Media—in a proprietary formula created while Lexus focuses on the total owner- BMW emerges as the by Forbes Insights and used to rank 10 leading luxury car ship experience. clear overall winner of brands: Acura, Audi, BMW, Cadillac, Infiniti, Jaguar, Lexus, the Buzz Index, which Lincoln, Mercedes-Benz and Volvo. (For a full discussion Two factors stand out for Lexus. It wins of the methodology, see Appendix, page 24.) the Brand Satisfaction category, closely seems fitting in light of trailed by Volvo, BMW and Acura. And it the very good year the BMW emerges as the clear overall winner of the Buzz In- utterly dominates in Personal Promotion. company has had. dex, which seems fitting in light of the very good year the Lexus owners clearly love their cars and company has had. Perhaps more surprising is Lexus’s sec- will play them up to anyone who will lis- ond-place finish, given that much of BMW’s success has ten, regardless of how difficult it may be come at Lexus’s expense, capitalizing on the supply prob- to actually obtain one at the moment. lems that have troubled Lexus in the wake of last March’s earthquake and tsunami in Japan. The rivalry between This leads naturally to what seems a safe prediction: As these two brands showcases an intriguing divergence in Lexus’s supply problems recede into the rearview mirror,

Acura 5.3 9.1 6.6 2.6 5.89 ore ore ore ore ore c c c c c turer c e S d S a S a S i i

Audi og S 8.5 12.3 14.6 7.7 10.75 ic l B ev l Med l Med e D Manufa BMW 11.3 a 7.4 8.5 13.8 10.21 ta i ci bil g Internet A o So Di m Cadillac 3.5 9.7 6.9 4.0 5.99

Infiniti 1.1 1.2 0.0 4.5 1.68

Jaguar -.09 -1.1 -1.1 0.6 -0.63

Lexus -1.3 2.3 2.6 6.0 2.39

Lincoln -0.7 2.0 0.0 0.9 0.53

Mercedes-Benz 7.4 7.5 3.4 6.0 6.05

Volvo 1.8 1.1 3.0 1.6 1.85

Source: Forbes Buzz Index developed from data selected from: Media Behaviors & Influence™ Study, June and December 2011

it may well become a contender again for best-selling U.S. Traditional Media categories, with Audi leading in Digital luxury car. BMW, Mercedes, Audi and the rest will most and BMW winning Traditional. likely have a fight on their hands to hold onto their market share gains. A look at the subfactors in Digital Media shows that BMW exerts the most influence in both Blogs and Internet Ads, BMW and Audi seem to have the most effective marketing: with a comfortable lead over runner-up Audi. Audi takes They rule as numbers one and two in both the Digital and the prize in Social Media, with Cadillac coming in second.

8 | 2012 Special report: Luxury Automotive Outlook • Traditional Media Subfactors •

Acura 3.0 1.5 2.2 3.8 2.8 5.7 7.72 ore ore ore ore ore ore e TV c c c c c c turer bl c e S a S o S i i Ca er S Audi 11.8 ne S 10.1 4.8 5.5 5.8 8.6 18.99 i p t TV S icl a s rad a sp l Med art c Manufa BMW 13.7 10.0 8.0 6.7 8.1 6.9 21.74 Magaz ew N ona i t i Broad Cadillac 5.8 4.4 3.3 2.1 5.7 3.7 10.13 rad T

Infiniti 0.7 0.7 -0.8 2.2 0.4 0.0 1.27

Jaguar 0.8 0.1 -0.2 -1.3 0.3 -0.6 -0.37

Lexus 9.6 4.1 4.5 2.5 4.2 3.7 11.62

Lincoln 1.4 0.3 3.9 1.1 3.8 0.4 4.39

Mercedes-Benz 4.9 3.0 4.8 3.2 3.9 4.9 9.98

Volvo 4.2 1.8 0.9 0.7 2.1 1.3 4.45

Source: Forbes Buzz Index developed from data selected from: Media Behaviors & Influence™ Study, June and December 2011 *NOTE: Trad Media Score is weighted to reflect greater reach vs. Digital Media, per survey responses. For 2011 data, Trad Media equals average of subscores x 2.45.

Audi also wins the Mobile Device category, with BMW Some of these brands are tightly grouped in their overcoming in at number two. all scores, so rankings could shift within a few months. Acura, with its excellent Brand Satisfaction and solid Per- In Traditional Media, BMW wins four out of six subcategories: sonal Promotion, is jockeying for third place with Audi. Articles, Newspapers, Radio and Broadcast TV. Audi wins Mercedes, with its very strong Personal Promotion score, Cable TV and Magazines (with BMW a very close second). is nipping at Acura’s heels.

One brand that does command a lot of clout is Mercedes- Couple that with the fact that their kids—Generation Benz. Yet when looking at Brand Satisfaction, the German Y—will eventually be the next Mercedes-Benz buy- automaker scores seventh out of the 10 brands ranked in ers and it’s clear why the company has been creating cars the Buzz Index. with more dynamic and youthful designs in recent years. That’s because it has been working through some qual- In 2011, the company launched six new products, the ity issues, according to BIGinsight data. “As we look at most it has ever debuted in a single year. Half are what reasons that survey respon- Cannon calls “halo” cars— dents chose a car, in late like the SLS AMG Roadster 2009 and 2010, Mercedes and SLK convertible—which was experiencing some qual- sell in relatively small num- ity and style problems,” says “This sort of elitist kind bers but bolster the company’s Roger Saunders, manag- image with their high perfor- ing director, Prosper Group of luxury is really a mance and desirability. The of Companies at BIGinsight. other three are big sellers: the “They were capturing peo- notion that’s going all-new C-Class coupe, and a ple because of financing deals, redesigned C-Class sedan and old cars dying, high mileage. by the wayside.” M-Class crossover. Now they are capturing them To promote these new based on style, added features vehicles, Mercedes has been —Steve Cannon and quality. This quality issue running edgier ads. Cannon was driving people away from President and CEO, Mercedes-Benz USA is proud of them. He gets Mercedes in the later portion visibly excited showing of 2009. They appear to have a television spot, called turned the corner in the con- “Unchained,” on his iPad. sumers’ mind.” In it, a C-Class sedan with Mercedes’s Brand Satisfaction and Personal Promotion chains attached to its rear doors accelerates away; the scores have both been moving up over the past six months. chains are anchored to the ground and rip the rear doors U.S. sales in 2011 were up 17.5% over 2010 to a total of off to reveal the new C-Class coupe. 264,460 vehicles, an all-time record for the brand. “The C-Class is our entry price point,” Cannon says, Up until a few years ago, Mercedes was the automotive “so if we’re going to start building bridges with younger icon for the established wealthy elite. But that is chang- consumers as they start to move into our consideration set, ing, thanks to the Baby Boomers. “This sort of elitist kind that’s the right vehicle to do it. We wouldn’t be edgy and of luxury is really a notion that’s going by the wayside,” kind of push the needle with something like the S-Class, says Steve Cannon, who in January was appointed presi- because it’s our flagship.” dent and CEO of Mercedes-Benz USA. He was previously At the same time, Mercedes is also playing up its vice president of marketing. heritage in advertising. It celebrated 125 years in 2011 That’s because most wealth in the U.S. is generated by and has several TV spots that star classic Mercedes entrepreneurs. “It’s made wealth, not inherited wealth,” he vehicles. “Heritage plays really well with Gen Y’ers,” says, and these entrepreneurs “bring a middle-class men- Cannon says. tality to their wealth.” A spot that ran during the Super Bowl celebrating 125 Another sociological trend shifting Mercedes’s years shows dozens of Mercedes cars, old and new, flock- brand focus is the fact that Baby Boomers are not slow- ing of their own volition to an aircraft hangar where the ing down as they approach retirement. “Look at most of company’s new line of vehicles is on display. Janice Joplin’s them, they’re going to keel over in the gym somewhere, as song “Mercedes-Benz” plays on the stereo of a classic SL opposed to nursing homes,” Cannon says. “They’re rede- convertible. “It gives me chills,” Cannon says. “I watch it fining old age; that’s why we say things like 70 is the new whenever I need to get charged up.” 60. So they’re still youthful, they’re not going quietly into His job is a balancing act: planting seeds in the minds the night.” of future customers while still targeting existing ones.

10 | 2012 Special report: Luxury Automotive Outlook “Because those are who I’m going to get measured on: sales that we make this year, not bridges that I build for 10 Total Generation X Adults 1,835 years from now,” he says. Marketing efforts seem to be paying off. The fact that Total Generation y Adults 2,123 Mercedes—or any other automaker for that matter—can Total Boomer Adults 2,891 appeal to both Baby Boomers and Generation Y simulta- neously is serendipitous. There’s usually a generation gap getting in the way. “With Boomers and the Silent Generation, who were Figure 5: Which one of the following best describes your feelings about chances for a strong economy during the their parents, there was a lot of like, ‘I want to make next 6 months? the world a different place; I’m not listening to you; I’m doing something completely radical,’” Acura’s Poponi Very confident says. “Whereas Gen Y and the Boomers, they’re friends— 9.5 they’re much more simpatico.” 7.9 2.9 Boomers have made a point of being as connected to Confident their kids as they can be. “The Baby Boomers are involved parents that maybe their parents weren’t. They’re abso- 30.5 23.8 lutely hands-on,” Cannon says. “They’re often called 18.0 ‘helicopter parents’ because they kind of hover around Little confidence their kids and circle and make sure that they get every- 49.0 thing right and they’re given a trophy at the end.” 51.1 As much as Boomers and Gen Y’ers may get along 52.7 famously, BIGinsight’s December 2011 Consumer Survey No confidence does highlight some attitudinal differences among gen- 11.0 erations. For example, the younger the respondent, the 17.2 more likely he/she is to feel confident of a strong econ- 26.4 omy in the next six months (Figure 5). Forty percent of 0% 30% 60% Gen Y’ers said they were confident/very confident. In n Gen Y n Gen X n Boomers contrast, 31.7% of Generation X respondents expressed confident/very confident views, while only 20.9% of the Boomers were confident/very confident, about half as many as Gen Y. Younger respondents are also much more likely to Figure 6: Which statement best applies to your feelings agree with the statement “Live for today because tomorrow about fashion: is so uncertain,” and they are much more fashion-oriented Newest trends and styles are important to me than older consumers (Figure 6). 36.2 29.0 9.4 I prefer a traditional conservative look 27.1 32.8 37.9 Fashion is less important than value and comfort to me 36.7 38.2 52.7

0% 30% 60%

n Gen Y n Gen X n Boomers

Source: Monthly Consumer Survey from BIGinsight™, December 2011 Total Adult Respondents 18+ 8,402

Data from BIGinsight can provide per- steadily upward for the past three years. Given that the data spective on the outlook for the forest, looks ahead six months, that steady trend line bodes well for not just the trees. Figure 7 below graphs the industry. the percentage of affluent consumers (household income $100,000 or more) Figure 8 below underlines that rosy forecast: It graphs the who plan to purchase a vehicle in the percentage of those affluent prospective purchasers who next six months. One can readily see the intend to buy a car in the most expensive category (over big dips of 2009 and early 2010, as well $40,000). Once again, the trend line cuts through the as the drop in July/August 2011 amid the noisy clutter of month-to-month fluctuations, revealing a uncertainty of the debt ceiling debate and steady, continuing upward trend—encouraging news for the U.S. credit downgrade. Just as clear the next six months. is the overall trend line, which has moved

Figure 7: HH Income $100,000+ Figure 8: HH Income $100,000+

25% 40%

35% 20% 30%

25% 15%

20%

10% 15%

10% 5% 5%

0% 0% Dec ‘08 Jun ‘09 Dec ‘09 Jun ‘10 Dec ‘10 Jun ‘11 Dec ‘11 Dec ‘08 Jun ‘09 Dec ‘09 Jun ‘10 Dec ‘10 Jun ‘11 Dec ‘11

Yes (Planning to Buy Car/Truck) Over $40,000 (Price Range for a Car to Buy) Linear Trend Line Linear Trend Line

12 | 2012 Special report: Luxury Automotive Outlook Figure 9 below provides yet another way of looking at the And finally, stepping away from the luxury category for a mo- market: It shows aggregate luxury car demand throughout ment provides a look at prospects for the auto industry as a 2011 (demand for all 10 luxury brands ranked in the Buzz whole. Figure 10 graphs the percentage of the total popula- Index) by graphing the percentage of all prospective pur- tion with an intent to buy a vehicle over the next six months. chasers (all incomes) who said they were considering any of Although the starting and ending points on the chart are not these brands as either first or second choice. as high as with affluent consumers (Figure 7), and the trend line is not as steep, the overall direction remains relentlessly This trend line also shows a steady rise. The prediction of upward, predicting further growth for the next six months. growing luxury car sales implicit in the first half of this chart was borne out by events in the latter half of 2011. The second half of this chart signals strong results continuing through the first half of 2012.

Figure 9: Aggregate Luxury Demand (1st and 2nd Choice) Figure 10: Planning to Buy Car/Truck

20% 16%

14%

12%

10%

15% 8%

10% 0% Dec ‘08 Jun ‘09 Dec ‘09 Jun ‘10 Dec ‘10 Jun ‘11 Dec ‘11 Jan ‘11 Feb ‘11 Mar ‘11 Apr ‘11 May ‘11 Jun ‘11 Jul ‘11 Aug ‘11 Sep ‘11 Oct ‘11 Nov ‘11 Dec ‘11 All HH Income Levels Considering Luxury Brand All HH Income Levels Linear Trend Line Linear Trend Line

Source: Monthly Consumer Survey from BIGinsight™

Lexus’s Templin says he believes buyers are gravitating That’s a dramatic shift from a few years ago, when more toward luxury these days—not just for cars, but for the luxury automotive sector had its own version of the everything from clothing to household appliances. Big Three. He attributes this trend to “the democratization of “Everybody wants a piece of this growing mar- luxury.” ket,” Templin says. “So even though we will grow, and The father of three—ages 22, 20 and 15—says chil- Mercedes will grow, and BMW will grow, our shares dren like his grew up during probably won’t be as big an economic boom, and pre- as they were back in 2007, mium goods are the stuff because there were really only of ordinary life to them. “I three players in the entire think there’s a whole genera- market then.” tion that wants to have those “Everybody wants a piece Key to Lexus’s strategy things,” he says. is the ownership experience. He mentions the two Sub- of this growing market. While a brand like BMW Zero refrigerators and the focuses on positioning its restaurant-quality, six-burner So even though we will grow, cars as the “ultimate driv- stove in his kitchen, for exam- ing machines,” Lexus puts as ple. To the young Templins, and Mercedes will grow, and much emphasis on the expe- this is standard, because rience of owning its cars as it they’ve never known anything BMW will grow, our shares does the cars themselves. else. “They don’t want the It seems to be working. Sears Kenmore stuff I grew up probably won’t be as big as Lexus ranks highest among with,” Templin says. luxury brands in satisfaction He casts this desire to they were back in 2007, with the process of buying buy luxury as being practi- a new vehicle, according to cal, more so than splurging. because there were really the J.D. Power and Associates “In the old days, you’d buy 2011 Sales Satisfaction Index something that was less only three players in the Study. Cadillac and Mercedes- money, but you’d have to Benz rank second and third, buy it more frequently,” he entire market then.” respectively. says. “Over time, people Tyler, who hosted the have come to the realization —Mark Templin Lexus dinner in her home, they’d rather have a premium Group Vice President and says she had never thought brand and hold on to it lon- General Manager, Lexus USA about the actual experi- ger, versus replacing that GE ence of owning her “ruby or that Sears Kenmore.” red” LS 460 luxury sedan Still, he does not expect that “was sitting there spar- sales of luxury cars to go kling, calling my name” at gangbusters. He projects that Sheehy Lexus of Annapolis. luxury could rise from 11% of overall car sales to 13%. But sure enough, she thinks her experience with Lexus “It’ll probably not reach 15%, because there is a price fac- has been exceptional. tor,” he says. In fact, Tyler goes to the dealer once or twice a Competition in the luxury segment is heating up week to have her car washed for free— “well, you tell a along with demand. Because of this, Templin says, real estate agent ‘car wash,’ I’m there”—and sometimes sales will be fragmented among more manufacturers. brings a coworker to have lunch at the dealership’s cafe, So even though Lexus expects its own sales volume which makes a killer chicken salad sandwich. to increase, it most likely will have a smaller share of “If it weren’t a great experience, if everyone wasn’t so the market. nice, if the place wasn’t so clean and bright, I wouldn’t go

14 | 2012 Special report: Luxury Automotive Outlook to lunch there every week,” Tyler says. “I’d just slam in to get my car washed and leave; or maybe I’d go to the normal car wash. But it feels good.” The dinner she hosted in her home was no different—five-star all the way, from setup to service to the food and wine, she says. Tyler was chosen to host the dinner because she participates in a group called the Lexus Advisory Board, which answers online surveys the company conducts periodically. Lexus keeps in regular email contact with about 30,000 customers who participate on the advisory board. When it’s time to schedule a new dinner, they ask for volunteers and pick based on their location and the layout of their home, among other factors. The dinners operate under what Templin calls a “truth serum” theme. “I’m not trying to sell them a car—that’s not what it’s about,” he says. “We want open, candid conversation.” Tyler was instructed not to invite a bunch of Lexus owners. “They said, ‘Basically, we don’t want a Lexus love fest.’ So only one other person [at the dinner] owns a Lexus car, currently,” she says. “We had a diehard Cadillac couple. Two people have Mini Cooper convert- ibles, one couple is both Mercedes.” Mercedes uses online communities similar to Lexus’s Advisory Board to get feedback directly from consumers on the Web. One is called Mercedes-Benz Advisors and consists of typical Mercedes owners. Another group, called Gen Benzers, is younger. “They’re 20-somethings, they’re Gen Y’ers,” Cannon says. “Only about a quar- ter of them are actual Mercedes-Benz owners, the rest of them aren’t in our consuming demographic. But they are our Gen Y sounding board. There’s about 500 of them at any given time.” It was through their feedback that he discovered that imagery surrounding the company’s heritage and histori- cal footage would appeal to that age group. Last year was a tough one for Lexus, in terms of sales. It ended 2011 having sold 13.7% fewer cars in the U.S. than it did in 2010. As was the case with Acura, which saw annual sales decline 8%, the natural disasters that pounded Japan in 2011 had a huge impact on production capacity.

As both Lexus and Mercedes infuse their brands with Figure 11: HH Income $100,000+ youthful vibrance, Audi looks to mature. The automaker 7% has been steadily heading upmarket and will continue. Audi was a second-tier luxury brand not 10 years ago. The way it set about changing that has been methodi- 6% cal. One of the first big moves was poaching Scott Keogh from Mercedes to be chief marketing officer. 5% Having worked at Mercedes for more than a decade, he knew about clout and creating what he calls “purchase confirmation.” 4% “The truth about affluence is it’s all predicated on confirmation,” Keogh says. “This is why affluent people live in 3% the same zip codes, go to the same country clubs, go to the same restaurants, talk about the same schools. It’s all this concept of confirmation.” 2% Back when he started at Audi, the company was going for a sort of under-the-radar mystique, looking 1% to do “surgical marketing,” as Keogh calls it, to target only people in the know. The strategy he and his team have been implementing is different. It hinges on mak- 0% ing the brand and its cars memorable to everyone. “What Dec ‘08 Jun ‘09 Dec ‘09 Jun ‘10 Dec ‘10 Jun ‘11 Dec ‘11 I wanted to make sure we did is that when someone pur-

Audi (Make of Vehicle - First Choice) chased an Audi, they got that confirmation,” he says. “So Linear Trend Line you come roaring into your driveway in an R8 and little Tommy next door comes around and he’ll go, ‘That’s the Source: Monthly Consumer Survey from BIGinsight™ car for me,’ or ‘That’s the car from Iron Man,’ or ‘That’s the R8 from Audi.’ Bam.” After some racy Super Bowl spots—remember the R8 commercial that took a pot shot at old-school luxury with a spoof of the Godfather scene with the horse head in the bed?—and high-profile product placements “So you come roaring in the Iron Man movies, Audi put itself on the pop-culture map. into your driveway in The brand has gone from seventh place on consum- an R8 and little Tommy ers’ luxury-car shopping lists four years ago to second place next door comes around today, Keogh says. The company set a record sales year in 2011, with an increase of 15.7% over 2010 for a total of and he’ll go, ‘That’s the 117,561 units. Tight inventory shows healthy demand, and car from Iron Man.’ Bam.” average transaction prices are up by about $5,000 this year compared with 2010. (The trend line in Figure 11 shows a —Scott Keogh steady rise in Audi’s popularity among affluent consumers.) Chief Marketing Officer, The next step is to move further upmarket by focus- Audi of America ing on selling more midsize and large sedans, as opposed to compact models like the A4, on which it has relied heavily in the past.

16 | 2012 Special report: Luxury Automotive Outlook What’s Next for American Luxury?

Having successfully climbed its way up the luxury-car lad- the unenviable task of trying to beat BMW’s new 3 Series, der, Audi has created room for a new challenger: Cadillac. the leader in its segment. With General Motors’ bankruptcy fading from mem- Butler says these new Cadillacs aren’t for everyone. ory, Cadillac fills Audi’s spot as a key contender with “I’m not going for broad acceptance, I’m going for that top-tier brands and is wasting no time. deep meaningful connection with a few customers. And “Cadillac was, for the better part of the last century, if I get that deep meaningful connection with a few cus- the standard of the world,” says Don Butler, vice president tomers, then they will become ambassadors for the brand, of marketing at Cadillac. “That’s what we were known and they will find like-minded customers and bring them for. So we aspire to return to that.” along,” he says. The company is counting on an all-new large sedan The type of customer Cadillac targets is pretty specific: called the XTS, on sale in spring 2012, to help achieve “emotionally engaging, on the extroverted side, swag- that. It will have a new look, higher levels of craftsmanship ger without being annoying, and then kind of early in the and innovative technology. It will be the first model to know,” Butler says (see Figure 12). feature the company’s new CUE interface, which takes an That sort of describes Butler, who carries himself with iPad approach to stereo, climate and navigation controls. A good-natured exuberance. He was handpicked by GM smaller sedan, the ATS, set to go on sale summer 2012, has President Mark Reuss.

Figure 12: The December 2011 Survey from BIGinsight™ reveals that a consumer planning on purchasing a vehicle and considering a Cadillac as a first or second choice:

Planning to Buy/Lease in Next 6 Months, Total Adults Current Cadillac Planning to Buy/Lease Considering Buying Cadillac Population Drivers (1st or 2nd Choice)

Is likely younger 45.3 years 53.0 years 37.6 years

Is more likely to be business owner or 24.2% 22.5% 39.6% professional/managerial

Tends to have higher HH Income $55,807 $65,518 $75,406

Is more likely to make purchases or 19.7% 21.8% 54.6% influence purchases at their company

Is more fashion oriented 19.0% 26.4% 63.0%

Is more likely to say they “Live for to- 31.8% 38.6% 72.4% day because tomorrow is so uncertain” Is more confident in a strong economy 27.0% 27.4% 50.5% in the next six months

Is more likely to be employed full time 33.6% 24.0% 46.7%

Is more likely to invest in the stock market (said they probably/definitely 31.2% 39.8% 64.4% would invest)

. . . than current Cadillac drivers, and total population.

Copyright © 2012 Forbes Insights | 17 Butler had left GM’s OnStar division at the end of 2009 “The surprise and the shock when they see that we are to work at Inrix, a navigation and traffic services provider better than a BMW M5—it’s just kind of like, ‘Whoa,’” based in Kirkland, Wash. He ran into Reuss, who had just Butler says. been named president that December, at the Detroit Metro On a broader scale, the company is improving its deal- airport. A couple phone calls erships. Facilities are being and a few months later, Butler upgraded to a new high-end was heading up Cadillac look, but more importantly, marketing. Cadillac has partnered He was ecstatic. “It’s the with Ritz-Carlton to train tip of the spear for GM,” “We build the world’s employees on how to create a Butler says. “Definitely it’s five-star experience. It’s a lot been tarnished, but we’re pol- fastest production sedan? of change, but dealers seem ishing it up, we’re making it to be on board. In the most brighter. So literally it’s this Let’s tell people about it. recent National Automobile job that brought me back to Dealers Association annual the company.” Let’s show that—guess ranking of what dealer bod- Getting to work with ies think of manufacturers, Reuss was key to persuad- what—in this area, we are Cadillac came in ninth out ing Butler to jump back to of 33, compared with 24th in GM after being gone only the standard of the world.” 2009. a few months. “The biggest “There’s a huge amount of factor was Mark [Reuss] him- —Don Butler respect for Cadillac,” Butler self,” he says, “just knowing says. “But for a lot of people, Vice President of Marketing, Cadillac him, knowing what he was that respect is analogous to, I about, knowing the way he respect and I love my grand- approached things—kind of dad, but I don’t want to hang no nonsense, no politics, no out with him all the time. So b.s.” the challenge that I have is, Thanks to Reuss, the corporate culture at Cadillac is how do I take that residual positive sentiment and make it much more streamlined now, Butler says. He has enough relevant for today’s buyer?” autonomy to push through important ideas quickly, like Overall sales for the brand were up 3.7% in 2011. featuring the company’s high-performance V-series vehi- Factor out fleet sales to rental and limo companies, and the cles prominently in advertising for the first time ever. sales increase more than triples to 10.5% over the previous Niche models like the CTS-V were kept out of the mix year. The Cadillac SRX crossover was particularly hot in previously because Cadillac sells only about 6,000 a year in 2011, with double-digit sales increases. North America. “Typically, the practice is, don’t advertise against them, we don’t want to burden them with ad dollars because we sell so few,” Butler says. “And for me, I was like, ‘Are you kidding me? We build the world’s fastest production sedan? Let’s tell people about it.’ Let’s show that—guess what—in this area, we are the standard of the world.” That’s how a 30-second television spot titled “Bellissimo” came about. It shows a bright red Ferrari 458 chasing a Cadillac CTS-V coupe. The upshot is that Ferrari borrowed Magnetic Ride Control suspension technology from the Cadillac. The company is also conducting “V Labs” at five different racetracks around the country to put people behind the wheel of a CTS-V—particularly those who drive competing Audi, BMW or Mercedes AMG cars.

18 | 2012 Special report: Luxury Automotive Outlook Even More of an Underdog

Another company facing a similar challenge to Cadillac They see us as being much more relevant, much more is Lincoln. contemporary.” “Most consumers we talk to today in research have Lincoln will launch seven all-new or significantly warm-to-fond feelings toward the Lincoln brand, redesigned products in the next few years. An updated and they very much want us to succeed,” says C.J. MKS sedan and MKT crossover, on sale in spring 2012, O’Donnell, group marketing manager for Lincoln. are the first to get new styling that will carry over to the “There’s an openness in the marketplace for us. And the entire lineup. Improving craftsmanship and performance surprise in that is that many of us thought there would are key points. Eventually, the brand will push beyond be negative feelings or perceptions around the brand, its overriding focus on value and seek a more affluent and that hasn’t been the case.” buyer, while still holding onto the current customer base, The problem is that people’s perceptions of the brand O’Donnell says. aren’t flattering. It’s viewed as antiquated, perhaps a bit He sees the larger sedan and coupe categories stale. “The words ‘Town Car’ and ‘Continental’ fre- becoming obsolete. “The important new battleground quently rise up in conversation,” O’Donnell says. “That’s is in midsize and smaller luxury cars, and the same the general perception. Those that have contact with for crossover utility vehicles. I believe that every our MK product range take a somewhat different view. manufacturer is focused on this sort of trend toward

Figure 13: The December 2011 Survey from BIGinsight™ shows that a consumer planning on purchasing a vehicle and considering a Lincoln as a first or second choice:

Planning to Buy/Lease in Next 6 Months, Total Adults Current Lincoln Planning to Buy/Lease Considering Buying Lincoln Population Drivers (1st or 2nd Choice)

Is likely younger 45.3 years 60.4 years 44.0 years

Is more likely to work in sales 4.2% 1.0% 25.4%

Is more likely to make purchases or 19.7% 10.3% 25.6% influence purchases at their company

Is more fashion oriented 19.0% 12.7% 55.9%

Is more likely to say they “Live for to- 31.8% 28.1% 47.4% day because tomorrow is so uncertain” Is more confident in a strong economy 27.0% 20.7% 38.3% in the next six months

Is more likely to be employed full time 33.6% 12.1% 39.9%

Is more likely to invest in the stock market (said they probably/definitely 31.2% 32.4% 55.7% would invest)

. . . than current Lincoln drivers, and total population.

Copyright © 2012 Forbes Insights | 19 downsizing and getting their mid- to really special. They joined up because they knew the small-package vehicles in a position work would be hard, they knew the payoff would be “The important new where they’re seen as true luxury years out, and they come in every day and give me the battleground is in midsize products,” he says. energy to push on because they’re just so gassed by the and smaller luxury cars, O’Donnell is optimistic about the concept of revitalizing Lincoln,” O’Donnell says. future for the company and is confi- At the dealership level, things are already looking up. and the same for cross- dent of the team that has been built up Lincoln is the most improved luxury brand in terms of its over utility vehicles. at Lincoln over the past 20 months. He dealership experience, according to the J.D. Power and Every manufacturer is left Jaguar in May 2010 to join Lincoln. Associates 2011 U.S. Sales Satisfaction Index, jumping to It has been a long, tough slog, he says. sixth place from ninth in 2010. focused on getting their “We’ve put some hard hours in over U.S. sales for the brand have been holding steady mid- to small-package this past year, and even though we’ve this year—down by only 0.7% through November. But vehicles seen as true added to the team, we’re moving for- O’Donnell says Lincoln is up more than 20% in key lux- ward faster, but the workload hasn’t ury markets. “The top 10 metro areas make up almost half luxury products.” seemed to decrease.” of all the luxury sales in the country, and it’s in markets But there is a sense of a higher call- like that—like L.A., New York and Miami—where we’re —C.J. O’Donnell ing that keeps the team invigorated. making some really significant gains.” Group Marketing Manager, Lincoln “The fun part is that there’s a group of people here that feel part of something

20 | 2012 Special report: Luxury Automotive Outlook A View From the Top

One company at the opposite end of the spectrum from anything to do with the technology of the powertrain, it’s Lincoln in terms of brand power is BMW. It scored the simply the characteristics of the car itself.” highest in the overall Buzz Index. Part of that is because He also points out that efficiency and sustainabil- the company focuses so keenly on conveying that its cars ity have long been a priority in other markets, where the are “The Ultimate Driving Machine,” and actually backs company already offers smaller diesel engines, for exam- it up with vehicles that truly ple. Plus, focusing on these are fun to drive. attributes is critical if the Although 2011 turned brand is to remain relevant to out to be BMW’s second-best Generation Y. sales year in the U.S.—with “We’re moving that way,” 305,418 vehicles sold, for an “I have to say frankly, and Willisch says. “Still having in increase of 14.9% over 2010— mind that BMW will always it still beat every other luxury I’ve been around quite a bit, stay the ultimate driving automaker. machine, but proving pretty Ludwig Willisch, pres- I’ve not encountered any soon that even with electro- ident and CEO of BMW mobility, even with hybrid North America, took over market that is as competitive technology, you will be able BMW NA in October from to provide the ultimate driv- Jim O’Donnell, who is retir- as the U.S. market.” ing machine.” ing. He spent the first several months getting his bear- –LuDwig Willisch ings. He’s new to the North American market, hav- President and CEO, BMW North America ing most recently headed up BMW Group’s European sales region. The biggest surprise so far has been finding out exactly how tough the competition is. “I have to say frankly, and I’ve been around quite a bit, I’ve not encountered any market that is as competitive as the U.S. market,” he says. Willisch speaks of this not with concern, but with the same unflappable calm he brings to everything he does. Colleagues say it is one of his defining qualities. Another is the fact that he genuinely loves cars—so much so that part of him misses being president of BMW’s high-performance M division, which he was before becoming head of European sales in 2009. “I am a car guy, I really am. So I thought that was really the place to be and to stay,” he says. Amid many new products, including the company’s most popular models, the 3 Series and 5 Series, next-generation alternative propulsion has become a key priority, as previewed in two concept vehicles, the i3 electric car and i8 hybrid. To play up fuel efficiency this prominently might seem incongruous for a brand so focused on high performance, but Willisch insists it’s not. “Fun-to-drive doesn’t have

As if the competition weren’t fierce was a kind of arms race to see who could have the best enough for BMW and other luxury cappuccino machines and the most amount of marble “We’re going to take brands, a new contender has eyes on their and granite in their dealerships,” Shannon says. “But for the dealership out of the territory: Hyundai Motor America. It Hyundai, we’re going to take the dealership even out of would seem unlikely that a 47-year-old the equation. So if you want a test drive, we’ll bring you equation. So if you want Korean manufacturer of budget-priced the car; if you want to buy one and get it serviced, we’ll a test drive, we’ll bring cars could compete with true luxury come and get it for you. So that’s kind of a way of saying, you the car; if you want brands, but as we’ve already established, ‘Okay, we may not be able to outdo Mercedes and Lexus these are strange times. selling $115,000 cars, so let’s come up with some really to buy one and get it “I think maybe it was being lucky, innovative ideas that help satisfy that luxury customer in serviced, we’ll come maybe it was being brilliant,” says Steve a unique way.’” and get it for you.” Shannon, Hyundai Motor America’s The further downmarket from the Equus you go, vice president of marketing. He’s talking the better the story gets for Hyundai. Sales of its mid- —Steve Shannon about the company’s decision to push into size Genesis premium sedan—with a starting price of Vice President of Marketing, the premium segment in the U.S. “Lucky $34,200—saw record sales in 2011, up 13% compared with Hyundai Motor America in terms of being just when the market 2010 for a total of 32,998. Its Elantra compact sedan, rede- kind of took a dip a couple of years ago signed for 2011, won the 2012 North American Car of the when the Equus was coming out.” Year from an independent panel of 50 automotive journal- The Equus is Hyundai’s priciest car ists. Last and far from least, total sales for the company hit by far. The full-size sedan is loaded up a record high of 645,691 units for 2011, up 20% from the with a powerful V-8 and every conceivable luxury. It has year before. a suggested starting price of $59,000—stratospheric for a So it’s clear that Hyundai has positive momentum. company that has built its business on economy cars cost- The question is: How well can it parlay that into suc- ing less than $20,000. cess within the luxury-car market? On the one hand, the Most of the 3,193 Equus sedans the company sold time seems right, with even affluent buyers looking to be in 2011 were bought by people who already owned a more sensible and less showy. There’s also the trend toward Hyundai. In terms of luxury car trade-ins, the Lexus LS democratizing luxury, as Lexus’s Templin called it, which was the most frequent among Equus buyers, Shannon plays to Hyundai’s strengths, too. says. “No surprise, the character of the cars is similar. But If anything, Hyundai’s efforts are just another exam- what’s been exciting to see is a handful of BMW 7 Series, ple of how jumbled things are in the luxury market—so S-Class and Audi A8s, some E-Class” being traded for much so that even savvy customers like Tyler, the Lexus the Equus. LS owner who hosted the dinner in her home, are con- The Hyundai Equus was the highest-ranked large founded. “You know, I’m not real sure what a luxury premium sedan in J.D. Power and Associates’ “2011 car is anymore when you can buy a $60,000 Hyundai,” Automotive Performance, Execution and Layout Study,” she says. which surveys owners and asks them to rank their vehicles on design, content and performance. In terms of resale value, Automotive Lease Guides rates the Equus the same three out of five stars as the BMW 5 Series, Lexus LS and Mercedes E-Class. Still, with only 3,193 sales in 2011, Hyundai lags in brand clout. What it lacks in that regard, the company is trying to make up for in other ways. For instance, it offered a free iPad with the Equus sedan when it launched the 2011 Equus in December of 2010. Hyundai gave away 2,842 iPads in total and is no longer offering them. A more lasting strategy falls in line with Acura’s focus on time as the ultimate luxury. “In the luxury space, there

22 | 2012 Special report: Luxury Automotive Outlook Conclusion

Barring some cataclysmic event in the next several months, it seems wise to take consumers at their word as far as their purchase plans. The data is signaling that the first half of 2012 will continue to be quite positive for the auto market overall in the U.S., and especially rosy for the luxury sector.

The percentage of affluent consumers who say they The U.S. luxury auto market is volatile and intensely intend to buy or lease a vehicle in the next six months competitive. With American brands busy reinventing continues to climb. Furthermore, the price range of the themselves, and even newcomers like Hyundai edging vehicle they plan to purchase is also rising on a steady into the luxury space, the overall shape of this sector by upward trend. 2013 can barely be glimpsed through a (tinted) wind- As the Japanese automakers recover from their sup- shield darkly. ply problems, they may well win some market share back, But overall, through midyear 2012 at least, the good especially Lexus, thanks largely to loyal customers. But times should continue to roll. BMW and Audi now dominate the marketing wars, and Mercedes seems to be on an upswing.

To keep up with the latest consumer automotive trends and data, visit BIGinsight’s Automotive InsightCenter™

www.autoinsightcenter.com/autoinfo/

The data used to calculate the Forbes Insights Luxury Car The monthly survey provides the Net Promoter Score Buzz Index derives from some 150,000 consumer inter- (NPS): Respondents were asked to rate, on a scale from views conducted in 2011 by BIGinsight. BIGinsight’s 0 (not at all likely) to 10 (extremely likely), the probabil- monthly Consumer Survey, which has a 10-year his- ity they would recommend the make/model of the vehicle tory, includes a total monthly sample of more than 8,500 they currently drive to a friend or colleague. Ten and 9 respondents. The Media Behaviors & Influence™ Study responses indicate Promoters, 8 and 7 responses are Passives, polls some 25,000 respondents and is conducted twice a and 0 through 6 are Detractors. NPS is calculated by sub- year, in June and December. tracting the percentage of Detractors from the percentage The numbers from the monthly survey used to deter- of Promoters. In the Media Behaviors & Influence™ data, mine the Buzz Index are year-to-date through December the Personal Promotion factor looks at those within the tar- 2011. The data extracted from the Media Behaviors & get demographic (household income of $100,000 or more) Influence™ Study is from June and December 2011. who are in the market for a vehicle to determine the per- U.S. Census data is used to statistically weight the sur- centage among them who say word of mouth is a significant veys. A proprietary mathematical formula is then employed influence on their car-buying decision. NPS multiplied by to further weight and balance the samples to the consumers this percentage yields the Personal Promotion score. Again, within the database. This weighting and balancing creates a scores for the 12 months of 2011 were averaged to reach an highly reliable forecast with great predictive power, even for overall Personal Promotion score for each brand. relatively small subsamples within the surveys. Both Digital and Traditional Media are derived from The Buzz Index comprises five factors—Brand the Media Behaviors & Influence™ data. The Digital Media Satisfaction, Brand Momentum, Personal Promotion, term comprises four subfactors: Blogs, Social Media, Mobile Digital Media and Traditional Media—used to rank 10 Devices and Internet Ads. Each of these subfactors looks at leading luxury car brands: Acura, Audi, BMW, Cadillac, prospective vehicle purchasers—planning to buy within Infiniti, Jaguar, Lexus, Lincoln, Mercedes-Benz and the next six months—with $100,000 or more in household Volvo. Certain brands, such as Porsche, Land Rover and income. Then, for example, the Blogs subfactor focuses on Ferrari, constituted too small a sample within the surveys those among that group who say blogs are a significant influ- to include in this report. ence on their car-buying decision. In the case of Acura, for Brand Satisfaction is derived from the monthly survey. instance, the formula takes the percentage of that group who It examines those consumers who already drive one of the are considering the car (as either first or second choice) and 10 luxury brands in question—say, Acura, for the sake of subtracts the percentage of that same blog-influenced group illustration—and who say they intend to buy a car/truck in who already drive an Acura. (This is to differentiate those the next six months. The percentage of that group who say drawn to the car by marketing—or digital word of mouth— Acura is their first choice for their next car, plus the per- from those whose opinion of the car is based on their personal centage of that group who say Acura is their second choice experience with it.) Each of the four subfactors is calculated (accorded a lower weighting) equals the Brand Satisfaction the same way. Results from the June and December surveys score for that month. The 12 months of 2011 have been are averaged together, and the four subfactors are averaged to averaged to yield the overall 2011 Brand Satisfaction score. yield a Digital Media score for each brand. Brand Momentum is simply the 2011 average of Traditional Media includes six subfactors: Reading an monthly share point gains and losses in the monthly sur- Article (about the car), Magazines, Newspapers, Broadcast vey. Positive values mean more vehicle purchasers are TV, Cable TV and Radio. Each of these subfactors is calcu- considering the vehicle compared with the number of lated the same way as the subfactors for Digital Media, then those who currently own the vehicle. Negative values averaged together. The Traditional Media term is weighted mean fewer people are considering the vehicle compared versus Digital Media to account for traditional media’s greater with the number of those who currently own the vehicle. reach, as reported by the survey respondents themselves. Personal Promotion is a hybrid factor derived from both The sum of the five main factors equals the overall the monthly and Media Behaviors & Influence™ surveys. Luxury Car Buzz Index score for each brand.

24 | 2012 Special report: Luxury Automotive Outlook About Forbes Insights

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