Analysis: German luxury car dominance tested by volume race

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br AUTOS-PREMIUMS-_0824_11 Reuters A Range Rover on show in Berlin. The Jaguar Land Rover brand is pitching its Evoque SUV to grab market share from the German premium leaders, BMW, Audi and Mercedes-Benz. Photo: Reuters

Laurence Frost and Andreas Cremer Paris and Berlin

BERLIN public relations executive Herbert Franz should be a soft target for German luxury car makers – his last car was a BMW X3 – but he cannot wait to leave them behind.

“This car is hip,” said Franz, at the city’s biggest Jaguar Land Rover (JLR) showroom, while eyeing up a British-built Evoque SUV that he fully intended to purchase.

Decked out in a red blazer and yellow trousers, Franz may not be the typical customer in Germany’s conservative premium market. But his shifting taste in cars foreshadows less comfortable times ahead for global leader BMW, as well as Audi and Mercedes-Benz.

The German premium makers have been on a roll, producing an export-driven sales explosion and huge returns while mass car makers struggled through Europe’s crisis.

But in a headlong sales race, second-placed Audi and runner-up Mercedes have vowed to depose BMW, giving rise to heavy discounting, which sullies luxury brands and creates opportunities for the growing competition, observers say.

Now a host of younger or revived premium marques are poised to follow JLR by pitching dozens of new models against the big three, whose very ubiquity is taking the shine off their prestige.

“The German premiums have sacrificed some of their exclusivity by entering smaller-volume segments like compacts,” automotive consultant Bernd Hoennighausen said.

“They’ve pushed volume with fleet discounts of around 20 percent,” he said. “This may open the door to newer players like Jaguar, who are starting to offer fleet-relevant products.”

Others waging or planning new offensives are Fiat-owned Maserati and Alfa Romeo, Nissan’s Infiniti, and Volvo, a unit of China-based Geely.

“There’s room for something visibly different that is styled in a more provocative manner,” said senior Nissan executive Andy Palmer, who has been tasked with achieving a breakthrough for the 25-year-old Infiniti brand.

“It’s particularly true for China. Chinese consumers will cross-shop – and Audi only has the market to lose because they’ve been so dominant.”

For now, the Germans remain on top. Their combined sales amounted to 4.7 million cars last year, 60 percent of the global luxury car market, according to IHS Automotive.

That represents a 38 percent gain since 2007, the eve of the financial crisis, when the big three claimed just over half of the market. Global car sales grew 21 percent overall, while European demand shrank by a quarter over the period.

Superior scale brings cost advantages, from research to production and marketing, that are not going away. BMW has led the charge into new niches, launching dozens of models including SUVs in every size category, with Audi close behind.

Nonetheless, some analysts believe the tide is beginning to turn against the Germans.

UBS expects the same group of challengers, plus Tesla’s zippy electric cars and PSA Peugeot Citroën’s DS models, to grab 30 percent of global premium sales growth from 2014 to 2018, raising their current 12.5 percent market share.

Pressured by the increasing competition, the Germans’ return on invested capital will continue falling away from historic peaks of 30 percent in 2010 to 2012, the bank predicts.

Tata-owned JLR recorded 19 percent sales growth last year, thanks to the compact Range Rover Evoque coveted by Franz, and plans to follow up with the imminent Jaguar XE sports sedan and a later SUV.

“Land Rover has proved the Germans can be challenged,” said Eric Neubauer, the joint chief executive of France’s Neubauer Group. – Reuters


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