Bankers Slow Down on Buying Fast Cars
For the past several years January has been Christmas for many luxury car dealers. That's when investment bankers, flush, with their hefty bonuses, used to begin prowling through their local Mercedes and Maserati dealerships.
But not this year. Sales of all cars and trucks have been falling off a cliff since the stock and credit markets began their collapse last fall and accelerated in January. And while luxury cars typically hold up better in a recession than Fords (F), Chevys, and Toyotas (TM), the pain is being felt in every category this time.
Luxury brand vehicles were off 36% in 2008, compared with the year before. If there is any good news for executives in charge of sales for Mercedes-Benz (DAI), Cadillac, and Lexus, it's that luxury brands overall took a bigger share of the overall market in January, 6.7%, than a year earlier, when it was 6.2%.
Why? In part, it is because there has been a high percentage of leasing in luxury cars sales the past few years. Around 60% of BMW (BMWG) and Mercedes sales have been leases. That forces customers back to the dealerships, though executives and dealers report that there is a surge in customers either looking to buy the car they have been leasing as a certified used car, or trading down a bit to get a lower monthly payment—say from a Mercedes S-Class to an E-Class, or from an E-Class to a C-Class.
While leasing represented 12% of all new-car revenues in January, it ran much higher for luxury brands. BMW sold 47% of its cars as leases in January, while Mercedes' leasing level was 29%, according to Edmunds.com. Bentley's overall sales were down 75% in January.
In recent years several automakers have broadened their luxury lines to include more "entry level," models, a strategy that is looking smarter all the time. "Once people drive a luxury brand, they have a hard time giving it up, so companies that have a wide bandwidth of products under a single brand should do well in this downturn," says Jesse Toprak, executive director of industry analysis for Edmunds.
Meanwhile, as the traditional customers for some of the leading luxury vehicles—i-bankers, bond traders, hedge funders, and other former masters of the universe feel the pinch or get the boot all together, some of the hottest road candy of the last five years is looking more like vehicular wall flowers at a dance with way too few suitors.
To see a round-up of cars that bankers can't afford to buy any more, click here