Recession fears have luxury automakers remembering 2009
Automakers would like to forget the economic bloodbath of 2009. But with talk of a global recession accelerating in recent weeks, auto executives are preparing for the worst — while also trying to stay optimistic.
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“The economy is probably the biggest challenge Rolls-Royce is facing this year,” Torsten Muller-Ovtos, CEO of Rolls-Royce Motor Cars, the 110-year-old storied British automaker, told ABC News.
Rolls-Royce has seen sales grow 40% this year versus 2018 thanks, in part, to the successful launch of the company’s Cullinan sport-utility vehicle, according to Muller-Ovtos. The company ramped up production at its facility in Goodwood, England, to meet demand for the SUV but there’s still an eight-month waiting list for one. Customers are also spending more on bespoke options, which can significantly raise the price of the company’s six-figure vehicles.
“Without bespoke, Rolls-Royce would not exist,” Muller-Ovtos acknowledged. “The bespoke business is growing like hell.”
Yet Muller-Ovtos, who joined Rolls-Royce a decade ago, follows the markets just as closely as many of the company’s customers.
“We are not immune against any recessionary tendencies and for that reason we are watching carefully what’s going on in the world,” he said. “That’s our on mind basically daily.”
Stephan Winkelmann, president of Bugatti Automobiles S.A.S., would not say whether an economic slowdown would force the company to put its plan to build a second model in neutral. Bugattis, which are hand-built in France and start at $3 million, are sought after when stocks are booming. But there are limits even for high-net worth individuals who can afford these 1,500-horsepower sports cars.
“I learned it the hard way back in 2009 and 2010 when I was at Lamborghini,” Winkelmann told ABC News. “A decade ago it was really hard. For sure [a recession] affects a brand like Bugatti. High investments, low volume is a big risk for a company like ours.”
Simon Middleton, who monitors the automotive industry at consulting firm McKinsey, said luxury car sales will decline if the dire economic predictions become reality.
“All luxury automakers suffered in the last recession,” he told ABC News from London. “Luxury cars are discretionary purchases. They’re the first things people stop buying. No one needs one.”
Auto executives are asking themselves how long — and how bad — a recession could be, he added. To weather these economic storms, companies need to “hedge their portfolios by launching new products and refreshing the current product lineup,” he noted.
Jessica Caldwell, an executive director at Edmunds, said some luxury automakers have already been suffering since the beginning of the year. Sales at Alfa Romeo, Audi, Infiniti and Mercedes-Benz have declined in the first half of the year versus the same period in 2018. Sales at Acura, Lincoln, Lexus and BMW are flat to moderately higher. The entire luxury segment this year is down nearly 2% compared to 2018.
“We will see more generous discounts if there is a recession,” Caldwell told ABC News. “Production does not slow down. Carmakers will need to discount inventory to get vehicles off dealer lots.”
Economic concerns could derail the return of British sports car maker Lotus, which has been ramping up efforts to sell more cars in the U.S., the No. 1 sports car market in the world, after falling off the grid in recent years. The company has positioned its new car, the Evora GT, as a strong competitor to the Porsche 911 and earlier this month showcased its all-electric, $1.9 million Evija hypercar of which only 130 will be manufactured.
Lotus CEO Phil Popham said the company, now owned by Chinese automaker Geely, has invested hundreds of millions of dollars in its future, including a new factory in Hethel, England.
“You have to hedge against risk by having revenue and costs in different economies, different geographical regions, different currencies,” he told ABC News. “At some point there will be instability — political, economic, fiscal. If you’re significant in different parts of the world, you naturally offset that risk.”
Bentley, the luxury British automaker that’s celebrating its centennial this year, was expecting 2019 to be a far better year for the company. Last year was marked with plummeting sales, product delays, revenue losses and a restructuring of its workforce. Now, a recession could halt a much-needed recovery.
“We can see economic bumps coming,” Christophe Georges, president of Bentley Motors in the Americas, told ABC News. “As a company we’re not going to change anything. We will continue to satisfy our customers.”
He added, “When it’s going to happen, nobody knows. It’s a cycle and we cannot change it.”