Like soldiers crawling out of foxholes once the shooting has stopped, Nevada’s various industries are, one by one and in their own time, getting to their feet, dusting themselves off and resuming the march ahead.
Inevitably, some business sectors are coming back faster than others.
For Nevada’s luxury car industry, for instance, the prognosis for a full recovery is good. Pent-up demand, easier credit, societal shifts, more eco-sensitive design and a seemingly unquenchable thirst for living large point to a steady recovery through 2012 and beyond.
“You know, it’s good,” says Tyler Corder, Chief Financial Officer of the Findlay Automotive Group in Henderson. “It’s improving, 2011 was much better than 2010, and this year has started off much better than 2011, so it’s all good unless you compare it back with pre-recession. It’s probably not completely recovered, but we’re very pleased with specifically what we consider the luxury stores that we have: the Land Rover store, a couple of Audi stores… and a Cadillac store. All of those sales are up year over year.”
Fueling the growth, Corder believes, is first and foremost the greater availability of credit. “There was a period there where it was very, very difficult to get auto loans approved, so it took a number of people out of the market who could afford luxury vehicles. Credit is much more available now, lenders are making loans, so I think that’s helping to drive the business.”
Corder sees the entire auto industry benefitting from pent-up demand. Many Americans, have stayed out of the market for the past couple of years, he notes. “Now their cars are aged a little more and they’re back in the market. so we’re seeing significantly improved traffic in our showrooms.”
Gary Ackerman, Chairman of the Gaudin Automotive Group in Las Vegas, agrees the luxury auto segment is recovering, “but slowly” together with that of the community’s overall economy “which has started to bounce off the bottom. We see that trend not only in our luxury brands but also in our Ford brand. The industry as a whole for 2011 was up for the first time in seven years.”
The most recent market intelligence tells Ackerman that his luxury brands, Porsche and Jaguar, are up for the first time in about seven years, as well. “I assume the others are, too, and it’s not a large increase. The industry’s increase last year was about 8% at retail; it does not include fleet.”
Also clearly helping to move the needle is pent-up demand, “not only in the luxury segment,” Ackerman points out, “but all across the board. People were waiting because of the economy. As a result, there are cars out there in the marketplace that are far older, with far more miles, than is normally the case.”
The health of the segment is “excellent,” says Shane O’Hanrahan, General Manager of Desert BMW. “I think there is some pent-up demand based on the economy over the last couple of years.” Manufacturers, he adds, have also done a good job of increasing and improving their incentives to adapt to the market. “For example, the lease specials are extremely competitive now — and that doesn’t just go for BMW, it goes for all brands. They all have that common goal: they have to sell cars, so they’re going to do what they need to do.”
Desert BMW had seen new car sales drop between 40% and 45% during the worst of the recession, O’Hanrahan says. Fortunately, consumer optimism has come back along with the segment.
“Every industry has kind of bounced back except, obviously, the real estate industry, and there are pockets of that that are actually doing well. Construction and real estate are the big ones.”
That said, he adds, hotels have come back, as have big banks, “which is really, really good for us. The entrepreneurs are starting to a do a little bit better. Doctors probably stayed the same all the way through; attorneys realistically probably had some of their best years.”
What’s in a Name?
Exactly how are we defining luxury autos? O’Hanrahan says the label refers to those models selling for $35,000 to $150,000.
“I don’t know that there is necessarily a definition,” suggests Corder. “We look at it kind of how the manufacturers view themselves, as being premium brands. Cadillac, Land Rover and Audi certainly, although there are a lot of luxury brands in other model lines. Even Hyundai is coming out with its Genesis product, which would be a competitor to some of that.”
People that he consider to be executives, “high-end people, are certainly looking at the Audi product,” Corder relates, “and certainly the competitors there are BMW and Mercedes and Lexus. But I think the hot product now, at least from what we can see, is Audi.”
On a less economic and more visceral level, Ackerman says, change is being fueled by societal evolution “as our needs shift as a culture, driven mainly by higher gasoline prices.” Within the luxury segment there may be a permanent shift in what people perceive their responsibilities are.
“It used to be that, especially in our city, the biggest, the loudest, the glitziest was what people wanted,” Ackerman explains. “Now we’re seeing people who have plenty of income making the proactive decision to move from, say, a full-size four-door sedan luxury car like an S Class Mercedes or an XJ Jaguar to the middle class. Maybe they just don’t want to be excessive.”
There are, however, far more of those models in those segments available today than there were seven or eight years ago. Some luxury car manufacturers are moving upscale, Ackerman says. “Hyundai, Volkswagen, and other ones that I can’t think of off the top of my head are entering the – I hate to call it the bottom end of the luxury market, but that’s really what it is.”
Luxury car manufacturers are, of course, aware of the shift moving downstream, he adds. “Look at BMW as a good example. They have the 3 Series BMW, and now it is no longer the entry level to their segment. They have very small SUVs, much smaller sedans, and less expensive ones. They’re protecting the lower end of their segment from being attacked by regular car manufacturers who are now pushing up, following their customers upstream so that they don’t lose them.”
Car makers’ response to environmental concerns is also causing current and potential luxury buyers to take notice.
“Absolutely,” says Corder. “If you look at the Cadillac Escalade there is a hybrid model of that.” Overall, he says, the effect of the green movement on luxury cars has been negligible. “I don’t see a real impact there. We see that the market is pretty fickle. If gas prices keep their climb and get up to $4.50 or $5 I think you’ll see that all of a sudden Priuses will be pretty hot again. But when gas prices drop people forget that pretty quickly, and get back into less fuel-efficient cars.”
Ackerman believes Nevada’s uniqueness is probably not just confined to the luxury segment. “I think our economy still is one of the weakest in the country, and I think it’s going to stay that way for a while.” As proof, he points to the state’s housing statistics. “Yes, the casino industry is the engine that drives our economy for the most part. But we now are a big enough community where the construction industry dramatically affects people who are not linked to the casino industry. We’re not going to see any huge new home developments until these 80,000 vacant homes are disposed of. I think that will have a dramatic effect on what happens within the luxury car segment.”
Ackerman, like others, also believes that ecological sensitivities, both mandated by federal and governments’ policies and pushed by Americans’ sensitivity to the issue, will start to drive more new entries. This “will actually run counter to the economy because these are entries that weren’t available five years ago. Our new Fisker brand is a perfect example of that: the car is only available as a plug-in hybrid. It is the first and, for a while, the only full-size luxury sedan. We’re getting quite a bit of traction, even in this economy, for this brand new car because there is nowhere else where people have a mindset to turn right now. I think you’ll see that change quite dramatically in the next 24 to 36 months.”
Las Vegas “in particular is a very ‘show me’ city,” says O’Hanrahan. “People will sacrifice even where they live to have a nice car. They would rather have a larger percentage of their income go to a car than the address they live at. We see a lot of that.”
Beyond that, Las Vegas is a town in which a lot of money changes hands, he continues. “The casinos are a money business. There are a lot of really well-paying jobs that do very well. There are probably not a lot of other markets that would see that. They’re more geared to the professional or, if you’re in northern California, the dot.com guys. I think the service business in Las Vegas is like no other.”
“I don’t know if there’s anything too unique other than the fact that we had further of a drop than other states had when the recession hit,” Corder suggests. “A lot of our luxury market was driven by the housing industry. There were a lot of people in all the areas related to construction and home buying – realtors, title companies and mortgage companies – and a lot of (them) were the luxury market.” While the housing industry hasn’t come back as strongly as many have hoped, Corder adds, he admits to being “a little surprised at how well the luxury market has rebounded here.”
The Road Ahead
Bumps in the road ahead, if there are any, should be minimal.
Ackerman predicts the growth in luxury auto sales will continue — “slowly, but I think steadily. January was a better month than I think everybody expected, not only in Las Vegas but looking at the national reports. There are new facilities that have been built and opened in the last 24 to 36 months. There is a second Audi store, and the second Lexus store.” His own company is now in the design phase of a brand new Porsche facility.
“We will sell more cars when we get that building open because they will give us more cars,” Ackerman suggests. “We’ll also hire about 70 to 100 new employees when we open that showroom, and that should happen some time next calendar year.”
Ackerman thinks the state of Nevada will see “steady growth driven by pent-up demand, market shifts and the new availability of more eco-sensitive luxury products on the marketplace” in 2012 and beyond.
While he sees no new dealerships opening — “Fiat opened up, but I wouldn’t consider that a luxury store” — O’Hanrahan does believe that those already open for business “are getting healthier financially, so hopefully we’re starting to see some growth. The market definitely compressed during the downturn; (it) is at a healthy level right now.”
And it should stay there.