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The $100,000 Family Car

Discussion in 'Other Off Topic Forum' started by ghost, Mar 12, 2004.

  1. ghost

    ghost F1 Veteran
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    Dec 10, 2003
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    Singapore
    Article in today's WSJ.

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    The $100,000 Family Car

    By Jonathan Welsh
    12 March 2004
    The Wall Street Journal
    (Copyright (c) 2004, Dow Jones & Company, Inc.)

    Facing new competition, car makers are rolling out mass-market sedans at Ferrari prices. Jonathan Welsh on why the industry thinks you'll buy one -- and what you get for all those zeros.

    MITCHELL LEIT thought his silvery green Bentley coupe would be the envy of the neighborhood, with its hand-buffed walnut interior, muscular 12-cylinder engine and $150,000 price tag. But looming large in the rear-view mirror is a crowd of mass-market rivals, including Audis and BMWs for $120,000 -- and even a $140,000 Ford. "Suddenly," says the 60-year-old Los Angeles real-estate broker, "the Bentley is a mid-priced car."

    The auto industry has just put a new sticker price on luxury: $100,000. After a period of rolling out ever-cheaper entry-level models -- Mercedes' new Smart SUV will cost around $20,000 -- many mainstream car makers are pushing models at prices unheard of even a few years ago. For 2004, the number of models selling for $100,000 to $200,000 in the U.S. zoomed to 17 from nine last year. Audi just rolled out its first car in the price range, BMW is working on its second, and Mercedes now has eight models in the segment, up from three in 2002. A few months ago Volkswagen crossed the barrier with its $102,000 420-horsepower Phaeton sedan.

    The six-figure drive is being fueled by everything from the weak dollar, which has inflated U.S. prices of some European-made cars, to modern production methods that allow multiple models based on one design. Auto makers also believe the market is shaped like an hourglass, with the fastest growth coming at the top and bottom ends of the price spectrum. And as for the snob factor, five figures just doesn't cut it anymore, with some domestic SUVs selling for as much as $70,000.

    So what do you get for a hundred grand? The $123,000 Mercedes S600 has a powerful 493-horsepower engine, but it looks very similar to a model that costs $75,000. Other models share parts with downmarket cousins: Bentley's $150,000 Continental GT shares chassis parts with an Audi A8 that costs about half as much. The Volkswagen Phaeton has a self-closing trunk and massaging back seats, but its hood ornament looks like the one on a VW Bug. In most cases, these cars are production-line models designed for everyday use, not handmade "supercar" collectibles that can cost a quarter of a million dollars and can even appreciate in value.

    The biggest selling point for these cars is power. Though they may look like family sedans, most have engines with 400 horsepower or more. That's about double the level of most passenger cars, and it translates to faster acceleration and higher top speeds (assuming anyone would want to drag-race a four-door, five-passenger Audi A8 L 6.0). Perks include heated steering wheels, adjustable cabin humidity and a "tunnel mode" that closes all the windows and vents at the press of a button to protect the owner's sensitive nose. On top BMWs, the rear seats can heat up, cool down and be adjusted 10 ways. An air-conditioned cubby hole in the armrest can keep a candy bar from melting on a hot day.

    It's unclear whether these cars will find buyers. About 9,000 cars sold for $100,000 or more last year, according to data from auto manufacturers and industry-tracker Global Insight. But the car companies plan to make about 17,000 of the new models by next year. "It looks like a massive oversupply," says Jeremy Anwyl, president of auto-industry researcher Edmunds.com. "It's possible we could wind up with price wars."

    Manufacturers say the risks are low. Willing consumers are out there, makers and analysts say, including "serial buyers" who may purchase two or three $100,000 cars a year. Economists estimate it takes an annual household income of $300,000 or more to buy even the cheapest six-figure car, and there are 1.5 million such households in the U.S., estimates Howard Waddell, executive director of American Affluence Research Center in Pinecrest, Fla. Car makers say the number of people who can afford these models is growing. "We've studied the demographics," says Len Hunt, who oversees the U.S. operation of Volkswagen. "There's a large group of baby boomers moving though society, and they have the necessary wealth."

    The auto makers may be able to take advantage of the recent U.S. economic recovery. It takes years to develop new models, and many of these designs, including high-powered models from BMW and Mercedes, were conceived during the boom years of the late '90s. Had they been released during the subsequent recession, their prospects might have been worse.

    Car companies are also hoping the six-figure models will lure buyers into the showroom. Much like luxury-goods companies that play up haute-couture dresses so they can sell $300 handbags, auto makers say a few superexpensive models draw attention to their cheaper cars. Globalization makes this even more critical. As auto makers from Europe to Korea aim more models at the lucrative U.S. market, competition has driven inflation-adjusted prices for automobiles overall down by about 1% or more annually over the past several years, according to the National Automobile Dealers Association. With margins squeezed at the bottom tier -- where the competition is most intense -- companies are even more motivated to defend their top brands by buffing their image.

    Some dealers say they aren't worried that the premium cars don't always appear dramatically different from cheaper luxury models. "Believe it or not, there are still drivers out there who don't want to flaunt the fact they have an expensive car," says Ash Tisdelle, owner of Ash Tisdelle Volkswagen in Orange Park, Fla. Six figures, he adds, "isn't a conversation-starter anymore."

    So far, the strategy seems to be working. Even as U.S. auto sales have declined about 4% from their peak in 2000, they've soared over the same period for luxury makers such as Audi (up 17%) and BMW (up 46%). Some of the most surprising growth has come at the most rarefied prices: Sales in the $80,000-to-$90,000 range more than tripled over the past five years, according to J.D. Power & Associates. (The company only recently began tracking cars that cost more than $100,000.)

    Volkswagen says it was emboldened to enter the six-figure tier after sales of the company's big, $70,000 Audi A8 soared after a redesign last year. It also was watching big rival BMW, which had upped the ante with a $120,000 version of its 7-Series sedan. "We said `Hey, you know, we can do this, too,' " says Volkswagen's Mr. Hunt, who ran Audi's U.S. operation at the time. The Audi A8 L 6.0, with a more powerful 12-cylinder engine, is expected to cost around $115,000 when it comes out later this year.

    Toyota Motor Corp., meanwhile, wants to make sure that its Lexus brand isn't left behind in the status race. Lexus, the No. 1 selling luxury-vehicle brand in the U.S., is considering an expansion into higher-end offerings, says Denny Clements, vice president in charge of Lexus in the U.S. "Mercedes has 12 cars over $70,000. We have none. We are looking at a high-line car," he says. "It's time for us to begin to stretch our brand to more premium products."

    It's the first time in auto history that so many cars have broken the six-figure barrier. Even adjusting for inflation, the most expensive mass-market luxury cars of the past sold for well under $100,000. Mercedes was one of the first mainstream makers to flirt with these prices: Its 500SEC cost $55,000 in 1984, or an inflation-adjusted $98,000. Now, the Mercedes lineup features a half-dozen models costing more than $100,000, plus a $400,000 SLR coupe coming out this summer.

    Gary Bosstick says he considered buying a top-of-the-line Mercedes in the late '70s but he couldn't justify spending nearly $40,000 on it. But with all the expensive cars on sale now, the $175,000 Mercedes convertible he's getting this year doesn't seem so excessive. Plus, says the 59-year-old real-estate developer in Rancho Santa Fe, Calif., it's even a bargain: Its 600-horsepower engine gives it as much power as a Ferrari that costs about three times as much. "Times have changed," he says.

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  3. ross

    ross Three Time F1 World Champ
    Silver Subscribed Owner

    Mar 25, 2002
    33,459
    houston/geneva
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    Ross
    i love it! this is great news for cheap bastards like me that wait in the tall grass for these automotive gems to slip down the price curve and then pounce on them once they've lost 50pct of their value and have only about 20k miles on them - barely broken in with the hi-tech engineering involved.

    a big thx to all of you who buy new and take the depreciation hit for the team!
     
  4. Tyler

    Tyler F1 Rookie

    Dec 19, 2001
    4,274
    dusty old farm town
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    Tyler
    I second that! :)
     
  5. ralfabco

    ralfabco Two Time F1 World Champ
    Lifetime Rossa

    Mar 1, 2002
    24,531
    banana republic of america
    Full Name:
    Israel Beiteinu

    LOL Ross. You will not be too upset; if you can get the same deal with
    10,000 less miles ? Hey: It is not going to be difficult to locate one with
    low miles. Yeah and the fool is going to think it is going to be a collectible with a production of at least 4,500 vehicles. Who cares when it goes like
    a bat out of H*ll ! A bargain supercar with a price of 70-75K with low
    miles four years after introduction.
     
  6. Mitch Alsup

    Mitch Alsup F1 Veteran

    Nov 4, 2003
    8,010
    Who would have thought that Ferrari would have over 11% of the $100K+ market
     
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  8. warrenn

    warrenn Formula Junior

    Mar 12, 2004
    376
    LA for now,NJ really
    tooooooo many choices out there. bmw 6 series, Audi S series, Lambo gallardo, ford gt (actually this car will probably go for over 200, not a choice for me)....

    it's overwhelming
     
  9. ghost

    ghost F1 Veteran
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    Dec 10, 2003
    9,868
    Singapore
    It's about time. The next couple of years are going to be fun ones.
     
  10. sjb509

    sjb509 Guest

    There was a thread about this a couple of days ago on what the bottom for 355 prices would eventually be. Ferrari better power up its lineup (or at least the 360) unless it wants to be viewed as underpowered. There are so many different cars coming out in the next 12-18 months that will fight over those high-income buyers. It used to be that the quantity of high-priced exotic sportscars were the limiting factor: soon the cars will be plentiful and the number of buyers that can buy them will be what is in limited supply, IMO.

    I wonder if it will be a repeat of history from 12-16 years ago. Speculators and the exotic car marketplace pushed prices through the roof, seemingly overnight. Several automakers produced these "hyper-exotics" (McLaren F1 & XJ220, for example). A few small carmakers were created during this time to satisfy what was thought to be a neverending escalation in collector car prices (Bugatti, Cizeta (sp?), etc).

    Turns out that in between the go-ahead to produce these cars and their actual placement on the showroom floor an unfortunate thing happened: the market for these cars came back down to Earth. With the exception of the F1, all of these were basically dismal failures with "marketplace changes" often sited as the reason why. Often the recession of the early 90's is also cited, but I personally discount this, those with the means to purchase a Bugatti in '90 more than likely also had it (and plenty more) to buy one in '93. The market had changed and was saturated.

    IMO, several automakers have decided to move upscale (I guess Bentley moved down) all at the same time to compete for a small group of potential buyers. The margins on these cars must be incredible for the automakers to risk the kind of development money it would take to produce these models.

    Ferrari, as well as Porsche, are kind of a unique case, and will probably always do well. Most people who are not "car people" have heard of F or P, even if they can't identify what one looks like. Most other brands don't have that name recognition. Aston Martin will never sell 2000 cars a year in the US, for example, I would guess only a tiny portion of the population outside of car nuts even knows that AM is a car.

    My predictions:
    Some if not most of these cars will not sell in the US anywhere near the quantities their execs anticipate, especially at MSRP.

    2004 W12 VW Phaetons will depreciate at an incredible rate ($60k used by 12/05?)

    Ferrari will continue to sell out each year, Maserati however will continue to struggle to reach their target volume.

    A $150k Lexus better have Carrera GT-like performance, otherwise people will continue to buy the "real thing" instead of a Japanese knock-off. Just look at NSX sales volume after the first year.

    In 5-10 years, there will be some incredible performance bargains on the used car market.
     
  11. Artherd

    Artherd F1 Veteran

    Jun 19, 2002
    6,588
    Bay Area, CA
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    Ben Cannon
    It's going to pop, and used prices are going to take a huge nosedive.

    On the bright side, I'm looking forward to picking up a slightly used SL65AMG for $50grand! ;)
     
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  13. bobafett

    bobafett F1 Veteran

    Sep 28, 2002
    9,193

    55, Benny Boy, 55. You find me a 65 for 50k, I'll find you a hamster-powered Benz.

    --Dan
     
  14. darth550

    darth550 Five Time F1 World Champ
    Lifetime Rossa

    Jul 14, 2003
    59,237
    In front of you
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    BCHC
    Good trade!

    DL
     
  15. PSk

    PSk F1 World Champ

    Nov 20, 2002
    17,673
    Tauranga, NZ
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    Pete
    Hmmm, and then you have to pay for those bloody expensive services :( ... ouch!!!

    Pete
     
  16. mbmike

    mbmike Formula Junior

    Oct 31, 2003
    749
    I'm not so sure that the Lexus would have to hvae staggering performance. If they could make it look exotic, and pull out performance comparable to say a 360, I think they'd sell a lot. Lexus is known for being one of the most reliable car brands out there. I think a lot of people that could afford a high end sports car don't look at them because the general public has the impression that they are incredibly unreliable. I think Lexus' biggest challenge will to make it not look like some standard Japanese ricer car. If Lexus had Pinninfarina design the car, it would be a serious contender. Italian flair + Lexus luxury + Toyota reliability = $$$

    Considering what it is, a Japanese sports car that hasn't been redesigned in 10 years, I don't think the NSX is doing too poorly. I seem to see at least one per day, so they havn't been a failure.
     
  17. WFO_Racer

    WFO_Racer Karting

    Nov 5, 2003
    98
    Newport Beach Ca
    I feel sorry for anybody who buys my cars. I drive them all like rentals or like I stole them . Get a great detail job, replace the rubber on the pedals to mask all the abuse I gave them. If pinching pennies is how some people drive nice cars more power to them but I'll bet there are plenty of WFO's out there who treat their car just like me.



    WFO , who practices his WRC driving on his cars then sells them like their cream puffs just driven to church.
     
  18. Tyler

    Tyler F1 Rookie

    Dec 19, 2001
    4,274
    dusty old farm town
    Full Name:
    Tyler

    You're right, there are a lot of owners like you out there. I think that's great! I insure I don't inherit previous owner use by purchasing from people I know. There are a lot of families out there who flip dozens cars a year and don't use them hard. :)
     
  19. Artherd

    Artherd F1 Veteran

    Jun 19, 2002
    6,588
    Bay Area, CA
    Full Name:
    Ben Cannon
    Heh, wondered if anyone was going to catch that. Ok, still may have to pony up some buckoos for the 65.

    Respectable engineering and all that, Somehow I just can't get excited about the 8-cyl SL with the 12 out there. I know it still hauls major tail, but it just dosen't seem, well, right.

    On the bright side, I could probally sell all the stability-enhancing feel-numbing electrono-goodads for close to what I pay for the car. Give me a 6-sp manual and that chassis with ajustable blisteen coilovers, (and nothing else, no traction control, no nothin) and I'll be happy.
     

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