Behind the Wheel with Ford's Lord of Luxury
Wolfgang Reitzle, formerly a top exec at Germany's BMW, likes the high end. As the head of Ford's Premier Automotive Group (PAG), he's now charged with firing up the company's luxury-car sales. PAG includes not just Lincoln but a portfolio of distinctive European brands: Jaguar, Volvo, Land Rover, and Aston Martin.
The group's sales are up, with Jaguar in particular soaring because of better quality and new models coming out. Volvo is also launching a less expensive, entry-level model, and more refinements in all three brands' product lines are on the way. On Jan. 8, Reitzle discussed his plans with Joann Muller, Business Week's acting Detroit bureau chief; Bob McNatt, a New York-based editor; and Thane Peterson, Business Week Online contributing editor. Here are edited excerpts of their talk:
Q: How's the luxury-car business doing, given that there appears to be an economic slowdown and weaker car sales? A:
Q: How's the luxury-car business doing, given that there appears to be an economic slowdown and weaker car sales?
A:When there's a downturn, the premium-car business isn't affected that much.... There are a few [cases] at the entry level of the premium-car business where young people are stretching their budgets to reach for such a car. But overall, we don't see that.
Overall, this business is more stable and robust. The trend is that the premium business is growing because there's more disposable income for cars worldwide. The buying decision for a [luxury] car now often does not compete with another specific premium product. It competes with a luxury holiday or something like that.
So, we're in a different world [from the rest of the car business].... The market once belonged to the rich. Now, more and more people are gaining a purchasing power where they can afford the stuff, and the premium companies are expanding their product range and addressing new [lower-priced] segments. This allows us to compensate for a slowdown.
Jaguar is the best example. Jaguar in 1998 sold 45,000 units. In 1999, it sold 75,000. Why? Because we added the S Type. Last year, we made 90,000. Now, this year, we're adding the X Type, the so-called Baby Jag. It will give us additional growth by definition. When you have such an emotional brand [added], giving the image to a lower-priced segment, it automatically attracts people to spend money for a Jaguar.
Q: But the wealth effect seems to be fading. Consumer confidence is down. Do you see a loss of the wealth effect in your clientele? A:
Q: But the wealth effect seems to be fading. Consumer confidence is down. Do you see a loss of the wealth effect in your clientele?
A:We don't know. But I think the impact on our brands will not be that big. I'm very relaxed.
Q: The new models often have lower prices. Are they as profitable as the traditional luxury cars? A:
Q: The new models often have lower prices. Are they as profitable as the traditional luxury cars?
A:By definition, if you're running your business well, [profits] will be lower in absolute terms but close [to traditional luxury cars] in relative terms. Of course, the higher the price, and when the product is convincing and attractive, there's more profit possibility in a high-priced product than in a lower-priced one. But it's still more than a comparable mainstream product.
Q: Some of the fiercest competition is in the entry segment of the luxury-car market. How much pricing pressure is that going to create, and is it going to vary by product? A:
Q: Some of the fiercest competition is in the entry segment of the luxury-car market. How much pricing pressure is that going to create, and is it going to vary by product?
A:It's the most competitive premium segment. It's the BMW 3 Series, the Mercedes C Class, the Audi A4, the Lexus 300, the Volvo S60, which is new, and the new Jaguar X Type. Yes, there are new entrants, and that will increase the pressure. That's just how it is.
Q: How do you see things developing worldwide? A:
Q: How do you see things developing worldwide?
A:No other company is growing as fast as Jaguar.... Whatever happens in the [car] industry, Jaguar will sell 110,000 units in 2001 at retail, which will give us another [20%-plus year of] growth. We will quadruple sales in five years. From 45,000 in 1998, it should be possible to go to 180,000. We will demonstrate that we are the fastest growing car company. It's almost inevitable. I'm very confident because the brand is so strong.
In two or three years, we will think about [introducing] another [type of] Jaguar, depending on how well the brand is established. And we have the chance to offer diesel [engines], which will allow us to address markets we can't address in the beginning. In Italy, for example, 70% to 80% of BMW's sales are diesel. I see that as a huge opportunity.... You will be amazed by what super diesel engines we are developing, which will then be [offered by] Land Rover and Jaguar. Neither brand is operating at the limits of its brand potential.
Volvo will grow, too. Volvo has a huge opportunity to cover the market segments Jaguar should never cover. For example, for young customers at the entry point to the premium category, where Mercedes has an A Class, and BMW will soon have a 2 Series, and Audi has an A2, we will have a very attractive and exciting model for young people. It will be trendy and safe. It has to fly.
We are now on a 10-year journey. We need to do all new products for all brands, reestablish and restructure our dealer network worldwide. You will see, year by year by year, that we will make solid improvement in the underlying structure. Look at 1998, the last full calendar year before PAG was founded. For the brands now under PAG -- we didn't actually have Land Rover and Volvo back then, but just to give an idea -- the unit sales of the group were 670,000 in 1998 and 880,000 units in 2000. Is that so bad?
Edited by Douglas Harbrecht