Nevada’s luxury car business dipped during the recession but rebounded fairly quickly, coming back strong. After all, given the demographics of luxury car buyers, the customer base has a bit more resilience and disposable income than other car buying populations.
“Business is good and demand is high,” said Don Hamrick, general manager, Chapman Las Vegas Dodge Chrysler Jeep and Ram. “That’s driven by a combination of things, partially our product and the interest rate climate, which is very conducive to business.” Low finance rates equal low payments and sales.
Overall, the car market is up approximately 7 percent over 2013 in total sales volume. The luxury vehicle market is up approximately 10 percent, exceeding the overall organization, according to Tyler Corder, chief financial officer, Findlay Automotive Group. Land Rover and Audi are doing so well there is disparity between supply and demand.
Same story for Mercedes-Benz Reno. “For us, what determines the strength of the market tends to be availability of inventory,” said Eric Lackshin, general manager. “Our biggest issues right now is we don’t have enough cars. Getting the right cars to sell to our customers is our biggest obstacle to growth. It’s a great problem to have, but it’s still a problem.”
The Mercedes-Benz market is experiencing significant growth worldwide, with several markets in addition to the U.S. growing, said Lackshin. China’s fast growing luxury car market means a significant portion of SUV products built in an Alabama plant are shipped to China. The two most popular models are a mid-size called the ML and a full-size called the GL. The plant only just went into production, and there currently isn’t enough supply to fulfill demand.
Carolyn Towbin, chairman, Towbin Motorcars, said their aftermarket dealership on West Sahara in Las Vegas is up 77 percent in new vehicle sales since 2010, with 2013 a record year that they expect to be even better with this year’s numbers.
At Chapman, Hamrick said all luxury products are selling well, especially Jeep Grand Cherokee, Chrysler 300 and Chrysler 200, high performance luxury cars, and the Challenger and Charger high performance vehicles.
The Economics of Luxury
Even the luxury car business was affected by the economic downturn. During the bleak years, Corder said, the car market took a deep spiral through 2008 and 2009 and has now seen a very slow and steady improvement. “Today I’d say we’re almost back to pre-recession sales levels.” He added that the luxury market didn’t react much differently than the overall car market.
Corder explained that, “everybody went down and everybody has come back, all the various brands. I think the luxury market has come back the same as the rest of the market.”
In Northern Nevada, Mercedes-Benz of Reno has seen significant growth in both new and previously-owned vehicle sales over the past three years, a trend Lackshin expects to continue.
Towbin’s business felt the crunch of the recession like everyone else, but the effects are leveling off and the company’s now doing better than it was in pre-recession. The increase in business may be a consumer reaction to the downturn itself, said Towbin. During the recession, many of her customers, even if they’d been considering purchasing a luxury vehicle, held off for appearances’ sake.
“People got more conservative during the downturn,” Towbin said. ”They didn’t want to overdo it so people got a little more conservative, even if they didn’t have to.” Others had no choice but to postpone such purchases. Now that things are looking up on the economic front, many customers who postponed purchases are buying the car they really want.
“We lost a lot of dealers and dealerships in Las Vegas,” said Hamrick. “There were a number of closures, we probably lost eight or 10 dealerships during [the recession].”
Customers weren’t necessarily in buying mode during the economic crisis. It was more about “need” buyers than “want” buyers, said Hamrick. “It was somebody whose vehicle had just given up on them or the cost of repairing the vehicle exceeded the value and so they needed to get a new vehicle.”
The situation changed as the economy recovered. “Now we’re seeing those buyers who decided they would like to reward themselves,” said Hamrick. “They’ve been taking care of things for themselves for the last few years, they’ve saved their money, they’re in a good position credit-wise to reward themselves with a nicer, newer car.” The result is increased vehicle sales, both high-end and standard, both new and pre-owned.
To some extent, the upswing in popularity of luxury cars can be attributed to product – the new models rolling off the assembly line and the new technologies luxury brands offer. Significantly lower gas prices combined with low interest rates and the availability of credit has led to a strong couple of years for luxury car sales.
Current conditions may have even led some people to buy a luxury product who might otherwise have chosen their car purchases more conservatively. The vast majority of people, even in the luxury segment of the car market, are payment buyers, said Corder. Those who are tempted by luxury will probably move up in their choices as long as they can afford the monthly payment.
Leather and Lace, Design and Details
There’s no hard line separating the luxury car market from the overall car market. Some manufacturers produce a “near luxury” product, like Acura or Infiniti, but there’s some question as to whether dealers consider those brands luxury.
So, what catapults a car into luxury status? A combination of technology and refinement, design and performance. “Any time you get over $45,000 to $55,000, that qualifies a vehicle to be considered a luxury car,” said Hamrick. “I think the appointments the car has and the technology contributes to that.”
It’s not just cars. There are luxury trucks weighing in at $55,000, and demand for them is high.
Towbin Motorcars sells Bentley, Rolls-Royce and Aston Martin, and according to Carolyn Towbin, the pricing and styling of such beautiful classic cars sets them apart. These cars have a long history in the luxury world, and can be customized by owners, from names on seats, special metals, leathers or woods, or anything else the customer’s heart desires.
New product also drives the luxury car market. Rolls-Royce sales are up 20 to 25 percent in North America with the bulk of the growth in new product, like the Ghost series and the V12 Wraith, a Rolls-Royce sports car.
Northern Nevada is an all-wheel drive market, Lackshin said, and that’s all Mercedes-Benz Reno stocks aside from their sports cars. All of the SUV models are strong sellers in the northern end of the state.
But it’s more than just product, price and perks that separates the luxury car from other cars on the market. For one thing, the perks keep evolving. What was exceptional a couple years ago is commonplace today. XM radio, backup cameras and the ability to connect iPods and phones are all fairly new developments, and already expected in today’s new cars.
Fuel economy isn’t as important to today’s buyer as it has been with gas prices down to a price point not seen in many years, Hamrick noted. “A lot of people say they really like economical cars and sure, they do, but sometimes it feels like they’re giving up too much. So they’re rewarding themselves with nicer, newer, more luxurious cars, but maybe they’re getting the fuel economy of an economy car. During that tough time from 2010 to 2013, Chrysler developed a lot of new technology and offers several vehicles with eight and nine speed transmissions.”
In order to find comparative transmissions, buyers would have to look at BMW or Mercedes-Benz. The new transmissions create the best of both worlds, mixing fuel economy with performance.
“All of the vehicles that we offer, from our entry-level Dodge Dart up to our $60-, $70- and $80,000 cars include Bluetooth,” said Hamrick. The upshot is you can use the car radio for phone conversations, playing multi-media, accessing Pandora stations and the music library on your phone. New cars feature high resolution speakers and microphones in the mirror or sun visor that pick up speech and block out exterior noise.
So what’s on the horizon? Cars that park themselves, perhaps. “Everything is technology driven and I think even more so on the luxury end where people want to have whatever the latest inventions are that make life a little easier,” said Corder. Technology is moving beyond heated and cooled seats and steering wheels, the latter of which is pretty popular in Southern Nevada during the summer.
Bentley will be coming out with a high-end luxury SUV in 2016, and the Rolls-Royce Wraith convertible will be coming off the line.
Nevada’s luxury car industry mirrors that of the nation. According to Towbin, the western region is up about 15 percent in sales of ultra luxury cars in the past year, putting Nevada on par with national numbers.
“Obviously Nevada was hurt harder than other parts of the country during the recession,” said Lackshin. “We tend to lag a bit and I believe Nevada actually took its dive after other parts of the country did, primarily California and the East Coast. Our recovery has also lagged a bit. That said, our growth here in Reno from new Mercedes-Benz sales has certainly trended right in line with the rest of the country.”
Even as the industry gets back on its feet, it positively affects the Nevada economy. Findlay Automotive Group employs 1,600 people and has 28 dealerships. Towbin Motorcars expanded post-recession, creating construction jobs as they built a new facility. In 2013, Bentley had its best year for sales in 95 years, and Rolls-Royce celebrated their fourth consecutive record-breaking year, events that add up to sales tax pouring into Nevada’s coffers. In 2014, Mercedes-Benz Reno will generate over $50 million in sales.
The perception, from an economic standpoint, may be that a dealership isn’t going to employ hundreds of people and may not have the same economic impact in the state as higher profile businesses like Tesla Motors. But with sales and service generating millions of dollars in sales tax, car dealerships have significant influence on the state’s economy.
“The impact is dramatic,” said Hamrick. “The single largest purveyor of sales tax into the state coffers is automobiles. With this resurgence there’s been a tremendous improvement in the overall health of our state because of those tax revenues. Add in fuel sales, service, tax on tires, the jobs created in the automotive industry, and the effect is significant.
And, based on growing new luxury car sales, the economy may be performing better than a casual glance reveals.
“I believe the perception of the economy lags behind the reality of the economy,” said Lackshin. Citing, among other indicators, difficulty finding candidates to hire at Mercedes-Benz Reno, Lackshin added, “I think the economy is doing better than people realize, certainly proven by the strength of the sales we see and the strength of the other luxury dealers in town – they’re doing very, very well.”
Hamrick expects 2015 to be a good year for sales. “It’s going to start to soften based on our projections in the second quarter of 2016, but we anticipate another 18 months of this upswing in front of us.”
People who could afford to purchase luxury vehicles weren’t as affected by the economic downturn; if they chose to buy a luxury car, they could. But conditions were tougher, and the luxury and the overall car markets both have room to improve over the next 15 to 18 months or so, said Hamrick.
“Everything that I see leads us to believe that, for at least the next two years, we’ll still see continuing improvement. It kind of feels like a shaky recovery, like any little thing could potentially derail it, some foreign event or terrorist action or if gas prices go way up, plenty of things that could derail it. But, assuming everything stays the way it is, I think we’ll see, at least in the next couple of years, a continued improvement in the new car market,” said Corder.