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Automotive Consumer
AUTOS: Luxury Buyers Buck Recessionary Trends
Clunkers effect, leasing deals boost sales rates for high-end vehicles compared with last year.
Bengt Halvorson  | http://thecarconnection.com  |  Posted September 05, 2010   Portland, OR
Sales of high-end luxury cars, such as the Mercedes-Benz CL550, have bounced back compared with last August and the Cash for Clunkers downturn. (Photo: Mercedes-Benz)
Are luxury-car shoppers feeling the recession in the same way everyone else is? Take a look at the boarded-up store fronts on Main Street, then check out the country-club parking lots, political contribution coffers and luxury dealerships and you might see two different economic realities.

There's a distinct division going on between the Miracle Mile auto malls and boutique showrooms: sales of luxury vehicles, and in some cases larger discretionary vehicles, are going strong while mass-market sales continue to slump.

Audi was up 14 percent, Mercedes-Benz up 15 percent, Porsche was up 33 percent and Jaguar sales were up 62 percent, all versus August 2009.

Meanwhile, mainstream brands are all down. In some cases, way down. Nissan, Mazda, Toyota, and Honda were all down more than 25 percent while Mitsubishi was down 37 percent and Suzuki sales were 68 percent lower than August of last year.

Before going any further with this, there's one simple explanation: Cash for Clunkers. Last August, U.S. auto consumers were in a frenzy looking to buy some of the most economical vehicles that might qualify for a federal rebate of up to $4,500 against their old trade-ins. It cleared lots of smaller, affordably priced cars while not generating much traffic at luxury dealerships.

Competitive leasing deals have made such upscale rides as Cadillac Escalade more attractive to wealthy drivers. (Photo: Cadillac)
So the numbers for those brands that benefited most from Clunkers with sales of fuel-efficient cars are now showing declines compared to that booming month. And this year, those small-car shoppers are not buying because they already have their new vehicles.

Before thinking that the fat cats are now spending big, it's worth considering that the latest sales results are all compared to a month when luxury sales all but ground to a halt. "It stopped, effectively, all traffic at dealerships," said Jesse Toprak, VP for industry trends at the pricing intelligence firm TrueCar. "Some Mercedes-Benz and BMW dealerships had parties when it (Cash for Clunkers) was all over."

But there also are several other reasons why luxury sales have surged. One of them is that leasing has become much more attractive. While general-market shoppers might intend to keep their vehicles five or six years or more, luxury owners tend to get a new car every three or four years, and the majority of those rapid-turnover customers lease their luxury cars.

Over the past year or so, leasing has recovered to nearly 21 percent today from 11 percent of the market at its low point up. Leasing rates for some luxury brands, including Audi, BMW and Mercedes-Benz, approach or exceed 50 percent.

"Leasing has rebounded very strong over the past few months," said Jeffrey Schuster, director of global forecasting at J.D. Power and Associates. "That's having a lot to do with it (luxury-car gains)."

While more available credit played a role, the more significant factor that's made leases more attractive and helped boost sales is improved resale value. In turn, that improvement didn't happen overnight; it's the result of better inventory management for luxury models, particularly larger SUVs, as sales have fallen. "Lower supply leads to higher prices down the line, and they'll all become used cars," Toprak commented, adding that luxury brands have understood the importance of making extreme production cuts.

But the economics of it might only be part of the explanation. "Luxury buyers are different," said Toprak, adding that image is a major part of a new-car purchase. Earlier last year, many wealthier consumers may have seen a new luxury vehicle as an inappropriate message to send to economically battered clients or employees.

"We're seeing some improved confidence versus last year among luxury shoppers," said Toprak, who said that these types of luxury shoppers, along with high-end family-vehicle shoppers, will only wait so long even if the economic climate isn't all that much better.

"Last year, we saw everybody pull back," said Schuster. After any economic down cycle, you tend to see luxury buyers come back to the market before others, Schuster said, and that's been the case this year.

As for the fat cats? According to Toprak, most luxury shoppers weren't affected in a way that would affect their ability to purchase the vehicle they want. "Mostly, it's been a psychological barrier, not a money issue," he said.

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