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 communi- ties and games of shuffleboard. Audi, meanwhile, the up-and-coming alternative lux- ury brand, has shored up so much clout over the past five years that the average transaction price for one of its vehi- cles 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. COPYrigHT © 2012 FORBES INSIGHTS | 3 boosting brAnds in A sLuggish Economy 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