Coming out of a major recession, one might think that luxury automakers would still be smarting. But the lesson of BMW and Volkswagen is that luxury still makes money, and the makers of low-priced cars will face a tough market for several more years.
Think of it like this: Low-priced cars always come with lower profit margins than luxury vehicles, so they have to sell in volume to be successful. Meanwhile, BMW must sell only a fraction of 7 Series vehicles (which it has) to reap a substantial profit. The 7 Series saw a 36% surge in sales in 2009 to become one of the German automaker’s most profitable vehicles.
BMW finished strong in 2009, returning to profitability in the fourth quarter and generating a net profit of $286 million — well beyond analysts’ predictions.
Volkswagen didn’t have quite as good a year, but its luxury brand Audi was responsible for almost all of the company’s operating profit in 2009. All of Volkswagen’s volume brands had to fight to break even.
This is bad news for companies based primarily around volume brands. Luxury brands will now try to gain a foothold in emerging markets such as China and Brazil, jockeying to sell expensive cars to upwardly mobile customers.
