Cars like Packard once ruled the luxury world but are now only a memory. Could today's high-end autos suffer the same fate?
Since the invention of the automobile, there have been many companies that have thought building luxury cars would be their ticket to lasting success. Yet today once-luminous marques such as Packard, Cord, Hispano-Suiza, and Delahaye now only seem like so many rolling Ozymandiases, their achievements noted only in the history books and classic-car auctions, their original creators and customers deader than spats, silent movies, and the Hapsburg Empire.
What was the reason? To many, the cars produced from before WWI to just before the beginning of WWII are considered to be the finest examples of locomotive beauty, products of a time when craftsmen still built by hand and automobiles were still rare outside big cities. To get a sense of how well-respected, luxury marques failed, one can only look back at what happened to the once-famous "Three Ps" of the automotive world: Packard, Pierce-Arrow, and Peerless.
During the two decades that preceded the stock market crash of 1929 these three rivals built some of the most expensive, highest quality machines in the world. They came into prominence because they were status symbols of the wealthy, but ultimately died off for the same reason.
Packard Motor Car Company was founded in 1899 by brothers James and William Packard in Warren, Ohio, but soon moved to a state-of-the-art plant in Detroit. Buffalo (N.Y.)-based Pierce-Arrow began in 1865 as a household-product manufacturer but shifted into autos under the direction of George Pierce in 1901. Peerless Motor Company was founded in Cleveland in 1900.
Each of the Three Ps controlled less than 5% of the U.S. market yet still thrived for some time. While Henry Ford introduced his Model T in 1908 at about $400, top-of-the-line Packards sold for over $5,000 (that translates to about $109,473 today, measured against relative consumer price index levels). Like Pierce-Arrow and Peerless, every part of a Packard except the chassis was custom made. And their ostentatious appointments, like lambs' wool rugs and gold-plated door handles, far surpassed any amenities found on today's ultra-luxury cars.
After Black Thursday the era of prolific automobile entrepreneurship came to a screeching halt both in the U.S. and Europe. Countless small companies that manufactured lower-priced cars were almost immediately driven off the road. For a brief period it appeared that more luxury-oriented makers would survive because their upscale consumers were cushioned from the economic recession. But the unforeseen economic impact of the Great Depression changed public perception of big, showy cars like Packards, Pierce-Arrows, and Peerless.
"People were ashamed to own these cars because they were seen as a stigma," says Tracy Powell, managing editor of Automobile Quarterly. "They kept them parked in their garages, painted them black…even banged dents in them." Not only were the cars a social taboo, but a security risk—owners were afraid of theft and vandalism.
Unlike Cadillac, which suffered a near-catastrophic loss of sales but managed to weather the Great Depression through the continued support of parent General Motors (GM), independents Peerless and Pierce-Arrow were unable to survive the harsh economic climate.
Packard didn't have corporate backing to absorb its losses, but it managed to survive the early 1930s because its single production line cut costs dramatically. By 1930, it began launching economy models, including the sub-$1,000 Packard 120, to drive sales. By the 1940s, however, these lower-priced car models had tarnished the carmaker's image as a premier luxury brand, and it could no longer compete with high-end brands like Cadillac. A 1954 merger with Studebaker ensured its demise.
Are today's luxury marques as exposed? Small, independent makers such as Spyker or Saleen could be hurt in a major recession, but they produce cars in such low volume it would be barely a blip on the economic radar if they folded. Aston Martin, the venerable British brand that's now owned by Ford, could be in jeopardy because its owner is struggling and looking for ways to stop bleeding cash. But it's unlikely the marque would be allowed to just disappear. The value of the brand is such that even if Ford were to jettison it, whoever bought it—whether another car maker or a private equity group—would be unlikely to let it go dormant.
Then there are brands such as Mercedes-Benz and Lexus, which barring a truly global economic meltdown of epic proportions would all be likely to survive given their enormous market share and profitability for parent companies DaimlerChrysler (DCX) and Toyota (TM), respectively.
In fact, older luxury marques such as Rolls-Royce, Maserati, and Bentley have survived only because after years of hemorrhaging money they were swallowed up by deep-pocketed corporations. "I wouldn't go so far as to say that they would prosper from a recession, but luxury cars would certainly sell better than lower-priced cars because their consumers would be less affected," says Erich Merkle, analyst for Grand Rapids (Mich.)-based automotive-industry forecaster IRN.
Still, the current volume enjoyed by luxury makers cannot continue at the same pace. Merkle believes Toyota, for example, has factored a reduction in sales of its Lexus line into its long-term plans. Luxury profits from the baby-boomer generation are currently compensating for their losses on lower-priced Toyota models like the Scion, he says. But as this generation moves off its peak period in spending, the company's model will shift toward attracting the dollars of their children, Merkle predicts.
To see a roundup of forgotten luxury cars, click here for the slide show.