Premium is the future for local sales

There are, apparently, two types of recession in this world. There's the standard 'two consecutive quarters of negative growth' type that everyone knows, and then there's the 'Aussie recession' – unrelenting growth of the economy at two per cent or better, despite/because of the population at large whinging about how tough times are.

As if to prove that the Aussie recession is a phantom menace, buyers of prestige/premium cars have lifted sales in those sectors of the local market by around 14 per cent this year, according to Phil Horton, Managing Director of BMW Australia. The high-end cars being purchased by seemingly everyone earning the median wage or better have lifted the overall market by something like three per cent, all told.

"In Australia, the market surprised us by how strong it's been," Horton told journalists attending last week's launch of the updated Z4 sports car. "In actual fact, at the end of July... passenger cars and SUVs together... what I call the car market overall is up 3.4 per cent."

But if the signs for the market as a whole are encouraging, three per cent is as nothing compared with the surge in demand for premium cars.

"That segment of the market is up over 14 per cent, year to date... Much stronger than the overall market," Horton observed.

"I think that's been driven by a number of things; it's certainly been driven by Mercedes in particular – being very aggressive with the positioning of the A-Class, and putting quite a lot of support in different ways behind B-Class and C-Class..."

According to the BMW exec, Mercedes-Benz may have been too aggressive with the launch pricing and specification for the A-Class – particularly in light of the three-pointed star's alleged order bank for the new car extending out to February next year.

"I think they've possibly been more aggressive than they needed to be – I think the car looks good... it's a pretty good car. But they've stuffed it full of kit, so it's a very interesting proposition, and now of course they can't provide all those cars.

"When we do our spec-adjust [analysis]... that car was actually positioned below a Golf when it came in. Clearly, from that point of view, [Mercedes-Benz has engaged in] a very single-minded attempt to push into areas where that brand hadn't been before. And clearly – to an extent – they've succeeded with that."

BMW doesn't intend to leave that section of the market for Benz alone however. The company has at least two A/B-Class rivals in the works – which will merely serve to expand the premium market even further and faster.

"It's no secret that BMW... will, in the future, introduce cars, for instance, to compete with B-Class head-on. We're going front-wheel drive, smaller engines, with some of our newer cars coming. I'm not talking about next week or next month, but certainly those cars are very much on the relatively near horizon now."

The rapid growth in the premium sector has resulted in the representation by premium cars in the total market reaching over eight per cent – but there's yet more potential for sales growth, says Horton.

"I still believe that there's a lot more growth in the premium segment, moving forward – for the whole segment, and hopefully BMW as well. One of the things that leads me to say that is that the premium segment in Australia... year to date – July – accounts for 8.4 per cent of the total market.

"For a mature market like Australia that's actually quite low. I think there's an opportunity for that to at least go up by another 50 per cent... to get to 12 per cent, maybe as high as 15 per cent – over a period of time."

The present danger for prestige brands like BMW is the bette noir of currency exchange rate fluctuations. In recent months the Australian dollar has lost as much as 15 per cent against the greenback – and nearly as much against other major currencies, including the Euro.

"It remains to be seen how long that lasts..." says Horton, "whether it actually goes further south, which personally I think it may do. So clearly that is going to put a lot of pressure on quite a lot of companies, who have put a lot more equipment into the car, banking really on a very strong Australian dollar to see them through from a profitability point of view. A 10 or 15 per cent drop... that's a big drop. That's a big hit on anybody.

"Now it may go back up again – personally I don't think it will. I think it might actually go weaker. And clearly that was something we tried to plan for when we were doing our own response."

BMW's recent tactic of adding features at no extra cost – satellite navigation in 3 Series, as one example – has been implemented in a sustainable and affordable way. Currency exchange rates may force some importers back to the drawing board, but that's unlikely to halt the rapid growth of premium sales in the local market.

In the longer term, Horton suggests, the end of local manufacturing would contribute to that. It's not inconceivable that the cessation of Holden's Caprice, or up-spec Ford Territory would leave the way open for imported vehicles priced above the LCT threshold to take a larger share of the pie.

"All importers would obviously benefit, let's put it like that – to a greater or lesser extent," Horton said. "Because there are other factors going on in the premium segment, we potentially stand to benefit – all of us – maybe a bit more."

By implication too, Horton believes the complexion of government will play a part in larger sales of premium cars. Consumer confidence and business sentiment are likely to improve after the federal election, irrespective of which political party gains/retains power. But there seems little doubt that one major party is likely to raise morale within the industry more than the other.

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