Wednesday, December 9, 2009

Wither the LUXURY CAR?

What is a Luxury Car anymore? And why do people buy them?

Historically, and by that I mean the dawn of the automotive age, automobiles were largely hand-built affairs, reserved for the very rich.

Cars were built to last, and often custom-built to the owner's specifications. A chassis would be purchased and then custom coachwork made to order. Owners were known to change coachwork on the car, sometimes seasonably ("Jeeves, put the roadster body on the Silver Ghost for the season!").

That all changed with the likes of Henry Ford and the assembly line, and the introduction of the disposable car. The Model T was not a bad car for its era. The genius of it lay in the fact that it could be bought, driven for a number of years, and then junked, all at a price that was affordable to the consumer.

Rather that pay mechanics high prices for repairs, the owners simply bought new cars. Cars can be assembled far more cheaply at the factory, on the assembly line, than they can be hand re-assembled in a mechanic's shop.

Initially, the luxury car market was not affected. If anything the profusion of cheap cars enhanced the luxury car market further. A rich person could still distinguish themselves from the unwashed masses by the sheer size, cost, and quality of their ride. Pierce Arrows, Duesenbergs, Packards, Rolls Royces, and the like were quality "investment" automobiles that were built for the ages.

But a funny thing happened. The automobile market changed and technology advanced. Driving a five or ten year old car did not convey much status, even if it was a high-end hand-built luxury car.

And as luxury car owners discovered, the unwashed masses were enjoying modern conveniences and also high reliability with their mass-market cars. A pedestrian Chevrolet was a far more reliable ride than a hand-built Rolls, and required a lot less maintenance. When the Chevy got worn and tired, you just junked it and bought a new one. And for the price of the Rolls, you could buy 10 Chevys. And moreover, you could own such a car and not have to worry or fuss over it.

Luxury car makers started to go out of business or merge with the mass-market makers. Today, only a few of the ultra-high-end makers survive as niche producers - and many of those cars use the pedestrian underpinnings of more mass-market vehicles. Depending on the era, a Rolls Royce might have Chevrolet or BMW parts in it, which is not a bad thing, as they can be very reliable parts - moreso than something hand-made in limited quantities.

So what is a luxury car today? In the 1950's and 1960's, makers such as Cadillac tried to distinguish their vehicles from the more pedestrian Chevies and Pontiacs and Buicks (which often shared the same chassis and major components) by adding more options and features. things like air conditioning, power windows and door locks were considered "high end" options that were usually standard on a Cadillac, but rarely found on the more basic makes.

Of course, that started to change as these features found their way into more mainstream cars. Like the heater, radio, and electric starter, which were once considered state-of-the art high-tech features, the power window, door lock, and air conditioning have become de facto standard features on all but the most basic of automobiles. Power seats, once a feature only of high-end cars, have made their way into basic transportation.

Makers like Cadillac tried to go to ever increasing extremes with gadgets and gimmicks. Twilight sentinal light sensors and outside temperature sensors. Most of these things were poorly made and broke easily. But today even such esoteric (and arguably less useful) features have been incorporated into basic cars. The cost of electronics is such that they are not difficult to install or add.

For the last three decades, overseas makers such as BMW and Mercedes have positioned themselves as "luxury" car makers in the US, often charging more for their cars here than they do in their home countries, where the cars are viewed less as exotic luxury marques than as everyday forms of transportation - even police cars or taxi cabs.

This trend started in the late 1970's. Until that time, in America, there were American cars, and "the imports". Companies like GM tried to sell their cars in graduated increments, "a car for every purse and person". You would start with a Chevrolet and work your way up through Buick and eventually, Cadillac. Or that was the theory, anyway.

Imports were largely grouped into one lump. Most were sold after the war to generate needed hard cash. By the 1970's however, the market had striated into two groups - the Japanese, who sold cars based on reliability and price (often accused of "dumping" to boost market share) and the Europeans, who struggled on both counts. By the early 1980's, most European makers were pushing "luxury" and status, or sporting ability over price and quality, as they could not compete with the Japanese on those levels.

So the Jaguar went from sports car to luxury car. And BMW went from "Sports Sedan" to "Yuppie-mobile". Even Fiat tried to trim their cars in leather and push the vehicle upmarket (with prices higher than a Cadillac for their tiny two-seat roadster!) - and failed. The French and Italians could not compete on the low end with the Japanese and in the high end with the Germans, and left the market entirely.

Those who did not move up-market got creamed. Volkswagen tried to compete with Japan with its "People's Car" Rabbit, only to see margins drop. The company acquired one of the worst quality reputations of any maker when they opened a plant in Pennsylvania (to try to trim shipping costs). It took them decades to recover, and when they did, they found that pushing the upscale Audi brand was a better move than competing on the low end. And even the low-end VW brand started selling larger and larger vehicles.

Quality became the new luxury. People started to complain about spending tens of thousands of dollars on upscale cars, only to see them incur thousands more in repairs. Meanwhile, their "poor" neighbors drove mile after mile in trouble-free Japanese cars that cost little to buy.

Thus, the Japanese jumped on the luxury bandwagon in the 1990's by offering "Luxury" versions of their products - some of which were merely thinly re-badged versions of existing cars. You can buy a Camry from Toyota, or the same car from Lexus, for thousands more.

Even the Koreans are getting into the act. Hyundai, once viewed as the ultimate purveyor of junk - warmed over Mitsubishis - has introduced a line of cars that should give BMW pause. As it turns out, there is no mystique to "German Engineering" and often Asian products are more reliable.

Even the most basic car these days has power everything and is available with alloy wheels and a leather interior.

So what is the point of the "Luxury Car" anymore? It begs the question. Spending $50,000 or $75,000 or even $100,000 on a car which has little in the way to distinguish it from a car costing half as much seems like a pointless waste.

But of course, that is part of the attraction. Many folks spend that kind of money simply to show that they can spend that kind of money (and imply, wrongly, that they have that kind of money to spend). It is a way of validating one's self-worth by trying to impress people you don't even know.

The German car makers are headed for trouble down the road, I think. One problem is that resale value on their cars is dropping rapidly, as the general public, while appreciating these vehicles, does not place a high premium on their value. As older cars, they can be staggeringly expensive for the average person to repair. As resale values drop, it becomes harder to get people into the new cars with attractive lease agreements.

And as our population ages, people will place less value on status and more emphasis on reliability. One neighbor of mine already has done this, trading in his BMW for a Toyota. He felt that at his age, the last thing he wanted to be doing is screwing around with esoteric car repairs. And I think he may be onto something.

Electronic gadgets may be fun to play with, but their attraction wanes rather quickly. And what was "state of the art" in electronics, ages rapidly. Trying to repair a 10-year-old built-in Nav system is an expensive nightmare. Meanwhile, the local big box store sells them as add-on units for $250. So what's the point of having all these electronic toys built-in to your car? Getting back to simplicity and reliability might be the trend of the next decade.

So, perhaps it is time to sell the BMW stock. The world's most profitable car company may be headed for some hard times ahead.

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