The Luxury Car Phenomenon

Hybrids are hip but increasingly auto makers are focusing on the booming luxury car sector

The recently concluded Los Angeles Auto Show, the second of the year, premiered, revealed and/or presented upwards of 30 different vehicles. That's a lot of new sheet metal in just two days of media previews, but a trend did emerge: luxury cars, luxury cars and more luxury cars!

And there could not be a better state than, as governor Schwarzenegger calls it, Caliiiiifornia in which luxury, lush and lavish have redefined essential transportation to introduce so many new luxury vehicles.

But beyond the obvious is the "celebrity cars craze," which had its origins in Los Angeles many, many decades ago. Motion picture celebrities from these long gone eras drove exotic and expensive vehicles and established a perception that everyone ought to own a luxurious automobile too. Let's not forget, this is the state that created the phrase, "your are what your drive!" The good time cars are rolling.

What's Happening Today?

Why are luxury vehicles expanding in the industry? What is behind this automotive phenomenon?

Luxury vehicles -- once defined (and taxed until 2003) as vehicles costing over $34,000 and recognized as gas guzzlers -- have become a booming, robust marketplace not just in California but throughout the nation, despite a little fall-off-blip over the last couple of months.

The Top Selling Luxury Cars in 2006

What is luxury? Following are a few definitions -- pick the one you like best.

Luxury is…

• An indulgence rather than a necessity

• Possessions that are excessively expensive

• Sumptuous, extravagant living

• Inessential but conducive to pleasure and comfort

• Expensive and/or hard to obtain

In the automotive sense, however, luxury has six categories as defined and detailed by Autodata Corp. -- Lower, Middle, Upper, Super, Specialty and Sport. The segmentation is based primarily on the suggested price of the vehicle and there are an amazingly large number of vehicles from which to select, 81 different models to be exact.

The Top Selling Luxury Trucks

To many the term "luxury trucks" is an oxymoron, something akin to "jumbo shrimp," but to thousands of Americans a luxurious truck is an essential mode of transportation. And for automakers it is an important segment of luxury vehicles.

And the Number 1 Luxury Brand Is...

It's still too early to tell, but based on global sales through November many predict BMW is poised to be the world's biggest premium brand of motor vehicles. Through November in the U.S., Autodata reported BMW with a lead of almost 24,000 units over its long-time rival, Mercedes-Benz.

Who Is Buying All These Luxury Vehicles?

The demographics and psychographics of luxury car buyers can best be summed up in two words -- rich people. But now the problem becomes what defines rich? It's all about money and wealth. Aren't they the same?

Not according to Nobel Prize Laureate economists -- they define money as variable income. But wealth is a financial foundation of net worth, translated into understandable terms it means if you're earning several hundred-thousand or several-million a year in wages, salary and/or commissions you can afford almost anything. But if you loose your job, do something illegal, suffer a major accident or similar catastrophic career and salary ending disaster, the income is going to end. You may not be broke, but the standard of living may drop depending on your investments, insurance and net worth.

Wealth or net worth is the sum of assets minus debts. As detailed by the IRS (and they should know) assets include personal residence, other real estate, closely held stock, publicly traded stock, government bonds and other tangibles which can be, if necessary, sold. It means you don't need a salary or an income to survive.

This is big money! As in eight figure good gene pool inheritances, investments, trust funds -- wealth that will keep the fortunate sustained in grand style now and for at least a few generations.

And more significant are the extraordinarily large number of individuals with more wealth than ever in the nation's economic history.

Millionaires and multimillionaires' are literally the under-privileged rich. To be included in Forbes 400 List this year required wealth amounting to over $1 billion. The collective net worth of the nation's wealthiest individuals climbed $120 billion to $1.25 trillion. Ten years ago, all it took was a measly few hundred million.

Today in America there are more people earning more money than ever from wages and salaries, some nine figure bonuses are not unheard of in the investment industry. According to the Census Bureau, there are (in round numbers) 115 million households in the U.S. today; 14 percent or 16.1 million of them have incomes of $100,000 or more. And in just four more years, that number is projected to reach 20 percent or 24 million people will have incomes of six figures or higher.

Earlier this year Northern Trust Company released its Wealth in America Study complied by the Phoenix Affluent Marketing Service detailing some interesting demographics and psychographics about wealthy individuals with mega bucks to invest. This study used individuals with $1,000,000 or more of investable assets, which constituted almost 5 million households at midyear 2005.

Some Highlights

Average Age: 55

Average Investable assets: $3,375,000

Average Net Worth: $4,646,000

Average total assets: $5,584,000

Average household income: $209,000

Employed full-time: 45 percent

Retired: 34 percent

Own Business: 24 percent

Own professional practice: 13 percent

Where do the rich live?

Not surprisingly, over half of the 500 wealthiest/richest U.S. zip codes are in cities in California, according to Forbes ranking of zip codes which is based on median price of a house. Next, is New York which takes 20 percent of the pie. The balance of upscale houses rest in the states of Massachusetts, Connecticut, Arizona, Maryland and Florida with some of Texas which are usually in the suburbs of urban power or industrial cities.

Click here to see how your personal zip code fares in the income and wealth.

What Cars Are The Rich Going to Buy Next Year?

Obviously, I am not Nostradamus, but it is probably a safe guess that even with many new luxury models down the pipe next year the top sellers in all six categories will not be replaced, perhaps augmented with updates and improvements, but not replaced.

But based on the following reveals, some heavy competition is going to take place in America's affluent areas when these hot new models introduced in Los Angeles arrive at dealer showrooms and the onslaught of advertising and promotional programs begins. Here's just a few of those models:

• 2008 Aston Martin -- 1008 V8 convertible -- 0 to 60 in 5-seconds

• 2006 Lamborghini Murcielago LP640 -- 0 to 60 in 3.4 seconds

• 2007 Ferrari 599 GTB Fiorano -- 0 to 60 in 3.5 seconds

• 2006 Callaway C16 -- 0 to 60 in 3.3 seconds

• Cadillac DTS -- a limo for those who can afford it -- not fast

• Land Rover -- entry level but with a prestigious name plate

• Porsche 911 -- 5 different variations …

• Audi TT -- the new soft top from the growing luxury brand

A Contrary Opinion About the Rich

In a blog early this month for Media Post, an advertising-marketing industry publication, Athena Kokas noted, contrary to popular beliefs, "Luxury is no longer something we buy for external reasons, to look good to other people. It's something we buy to feel good about ourselves. It appeals to the highest human need, and that is to become the person we are inside. Luxury is no long a lifestyle, but a means to a lifestyle."

Cache, caviar and cash

Driving a luxury car -- no matter the category -- is a personal statement, an expression of financial strength or the need for vehicular (peer) recognition. But it is, of course, based on the income, wealth and bank accounts of the owner or lessee.

Many Americans attempt to keep up with the Jones' while others are the Jones' everyone is trying to keep up with. Where you fit is totally up to you.

But if supple leather, finely detailed wood, personal amenities too numerous to mention, powerful engines, quiet rides, cup holders that warm or cool, super-duper headlights, astounding entertainment options, stand-out design and personal pleasure, satisfaction and happiness are on your wish list … not to mention the smiles of the parking valet expecting the over-average tip -- enjoy the ride.

Before it's here, it's on the Bloomberg Terminal.