Luxury car makers taking strain

Spokeswoman Annelise van der Laan says the car maker is trying to improve cost efficiencies and keep inventory low.

“We believe our flexible approach in our production planning will turn out the necessary results,” Van der Laan says.

Mercedes-Benz SA is not alone as other premium car rivals face similar difficulties. In the year to date, domestic premium car sales have plummeted 39,2%, according to Econometrix. Sales of entry-level passenger cars, by contrast, fell 27,4%, while popular cars have fared a little better, dropping 25,8%.

Econometrix says premium car sales in the domestic market have crumbled significantly faster during the first quarter than their already hard-pressed entry-level and popular counterparts.

The premium market — which includes Cadillac, Ferrari, Audi and Alfa Romeo — underscores mounting stress confronting consumers.

Standard Bank economist Danelee van Dyk says additional sources of income, which in normal circumstances help with the purchase of luxury items, have dried up. Van Dyk says share and property prices underpin these extra sources of income. She says demand for premium cars has a relatively strong correlation with returns on the stock market. Since peaking at about 33 200 in May last year, the all share index has plunged to about 20 500.

Van Dyk says lower property prices have limited the ability of consumers to tap into their home equity, as they routinely used to do during the good times. Uncertainty about the stream of additional income encourages consumers to spend conservatively. Van Dyk says job-shedding has not only affected unskilled workers, it has affected semiskilled and skilled workers too. This has hurt purchasing power.

There is another troubling trend. Land Rover SA says consumers are still buying premium cars, but often these purchases are from the second hand market.

BMW SA spokesman Benedict Maaga says the company is dealing with the volatile global market, making volume predictions extremely difficult.

“We are forced to review the situation continuously,” says Maaga of the group that exports to the US and Japan, whose passenger car markets have declined substantially.

Maaga says BMW SA has had an innovative work-time account for some years now, in terms of which employees' pay is smoothed by the banking and drawing of hours worked. “Employees will continue to be paid currently and this will be recovered from future overtime hours,” Maaga says.

Maaga expects the premium market to remain extremely volatile and so does Bill Stephens, the spokesman for Volkswagen SA. Stephens says the company expects the premium car segment to decline about 21% this year. Sales in this segment fell 20% from 71 836 in 2007 to 57 240 last year. Total passenger car sales declined 24% last year.

Car makers pin their hopes on interest rate cuts. Maaga says the company hopes lower interest rates will stimulate the premium market in the medium term. Van der Laan shares this sentiment, saying the recent interest rates cuts have yet to affect the vehicle retail business.

Source: Business Day

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