German Luxury Brands Are Putting On The Blitz

October 10th, 2009

The global economy is giving mixed signals at this time. On the thumbs down side, unemployment numbers and unstable equity markets seesaw. On the head, creating jobs, the return of capital, and gradually increasing GDP (at least in most parts of the world). In the automotive industry, GM and Chrysler continue to recover from their losses in the past two years, but over the pond, German luxury car makers which will continue in the black, thanks in no small part of Greece and its unfortunate economic missteps .

It will take a week or so before we see the final second quarter stats on Audi, BMW and Mercedes-Benz, but preliminary data are promising. BMW sales are about 13% higher than last year, Mercedes’ parent company Daimler, the expectations of analysts reports an estimated 2.5 billion U.S. dollars in pre-tax income for Q2. Not too shabby.

There are a number of factors at work here, some of which also boosted automakers in the U.S.:

1. Accumulated question: After one year of life sober, shoppers are ready to spend again (in mind that “sober” for luxury car buyers does not mean what it would be for the rest of us). Thus, portfolios have started climbing back into positive territory, upper-tier shoppers started the treatment. This part is not rocket science, but an essential part of the consumer in this culture still prosperous period in human history.

2. China: As we reported last week, China’s economy will not grow as fast as last year, and this is especially true in the automotive market, where the 2009’s generous government subsidies for the purchase of vehicles, have all but disappeared. Another challenge: highly competitive market of China. The country currently has about 100 automakers compete for customers, and that makes the road to profitability more challenging. But despite all that, China’s economy grows, and nearly one third of Chinese directors plans to purchase a vehicle in the next 12 months. Larger, well-known Western brands such as Mercedes-Benz have a much easier go of it in China, given their better brand cachet and a letter of intent. (This has contributed to more mainstream brands, just like Buick.)

3. Greece: Greece For credit crunch brought Europe to the brink of financial collapse, the euro was very, very strong. German automakers were in a situation just like their counterparts in Japan where the yen is equally strong: despite the strong performance in showrooms around the world, sales were far less impressive converted back to euros. Now, however, the euro was slightly weaker, which means that German automakers (and their colleagues in other parts of Europe) more euros in their bank account. It also allows the manufacture of such vehicles cheaper and can lead to sticker prices in foreign markets. Which only goes to prove what your mother always said: there is usually a silver lining if you look hard enough.

We hope for a broader look at global markets where Q2 figures fall in the next few weeks to provide.

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