No. 765,
September 17, 2014

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A Hard Rain's Gonna Fall...

Wow. I've been thinking the exact same thing about luxury brands "democratizing" their goods to us mere groundlings for, I don't know, maybe seven years. I kept thinking to myself, "Jeezers, a nicely equipped Taurus has essentially the same hardware as a Lincoln MKS. So who's buying the MKS?" As it turns out, not many people. Now Mercedes is selling a CLA250 that nearly duplicates a VW GTI/GLI for at least 10 grand more. Yes it's working for them now, because VW couldn't market Eskimo pies in the desert. The reason Lexus keeps selling ES350's as opposed to the very nice Avalon at the Toyota ship is due to their primo customer experience. But as more people start adding two and two (it equals NOT GOOD for the luxury car makers) the bell curve will start asserting its inevitable power.  I wonder how long it will take Caddy XTS buyers to look across the showroom and mumble, "Hmmm. That Impala is NICE. It's got all the stuff I want, it's serviced by the same technicians, and it's $15 grand less, to boot."

Jim Jones
Bugtussle, Missouri


Through it all, the product remains King.

Let me proffer a disclaimer: with two beloved kidspawn under my wing fed by an income that’s been stagnant for 7 years and counting - on top of special brand of keenly honed, been-there-sold-that, found-the-bits-in-the-junkyard-ten-years-later cynicism re: “luxury branding” - I’m neither currently nor likely to find myself in the traditional “luxury” demographic.  
 
Please note that doesn't mean I don’t have expensive tastes, and don’t appreciate the finer things.   I’ve strolled my share of concours, enjoyed a few fine meals, and savored the exquisite craftsmanship of many categories of goods, both vintage and modern.

But we now live in a society where economy of scale dictates production and ultimate availability.   It is a fool indeed who doesn't realize his Lexus is really a Toyota, or her Cadillac penned alongside a Chevy, or his AMG was built on the dreams of the plebeian C class.   And so it goes.    Yes, there are ways to properly differentiate and tune and style and tweak corporate siblings to fit a purpose and price point.   But this is not luxury - this is merely finding a purpose and fitting a name.   A name which was likely, at some point, etched into the brick lane winding to the altar of the quick buck.   Every automaker has made that mistake and not all survived to explain the sacrifice.

Outside the scale. now as ever true luxury is bespoke: tailored clothing, coach-built automobiles, custom sound systems, finely crafted furniture.   At the very least, luxury is an appreciation for the honest workaday pride that creates the best possible product of the means available, via personal attention and craft.  The alternative to either case, is the snide exercise that slaps a “luxury” name -  perhaps with some bauble of “exclusivity” - on the same crap made on the same line touched by the same hands in the same Chinese factory.   Witness the Apple way, vis-a-vis their ability to turn Foxconn and other commodity components into gold.   The faithful line up but a phone’s a lot cheaper than a car; a fashion statement like the watches they now seek to replace.

At the end of the day, capitalism has democratized the former “luxury” of personal transportation, just as it has private air conditioning, personal computing, and your fully-equipped household kitchen.  As people come to expect or demand more, the set of irreducible minimums expands.   And yet there’s only so much “stuff” you can ask for.   To the average commuter - in other words probably 90% of the public that wouldn't know an engaging road until it bites their text-happy face in the ass - Cars may be more efficient and powerful than ever, but styling is always subjective and very little - aside from the tech content death cram - is truly "new" even if it is "improved".

The Bentleys, the McLarens, the Koenigseggs - in other words, the boutique(ish) automotive craft houses - are the modern totems of luxury.   They are what the original automobiles used to be:  rolling monuments of the absolute state of the art.   Now as then, only the most well-heeled can afford them while the rest of us "settle" for a Merc or Lexus or Caddy.

Everything else is a commodity only as good as its name in vogue.    Sometimes, a commodity shines in spite of itself; as you have said time and time again, “the product is and will always be king”.   

On the flipside, on my desk I have a “Cartier timepiece” out of a 70’s Lincoln, made with the same parts as the mere FoMoCo dash clock from the contemporary Thunderbird.   All of that says more about the haughty pretense of luxury and the cynical march of progress than anything else I could write.

I don’t envy the automakers: profitability is a tough game to play, balancing pricing and volumes vs. the competition and a fickle market with the attention span of a pickle.   So if the mirage of today’s definition of luxury gets them a few more pennies, so be it.

But there’s a reason Porsche became an SUV company that makes some damn fine sports cars.

And what are you lamenting about Ferrari, again…?

It’s not luxury in either case.   It’s product, plain and simple.

Tony Lucio
Frankfort, Kentucky

 

Sixteen tons.

For both Marx and Keynes, the endgame of capital accumulation was insufficient demand, stagnation and the "financialization of accumulation" whereby the accumulation of debt appears as an accumulation of capital. Think of real capital as the hull of a ship and this hull must float a huge superstructure of fictitious capital. In 2008, the ship capsized and almost sank.

This evolution of capitalism produced a hybrid entity. Companies viewed as producers of real capital also deal heavily in fictitious capital. This was the case of the old General Motors. Long before it succumbed to bankruptcy, I would tell anyone who would listen that GM didn't produce cars to sell, but produced them to finance. Their manufacturing operations operated at a loss racking up tax credits that were used to offset the profits from their finance operations.

Talk to any educator today and they will tell you how extremely careerist students are. It's all about getting an education that will get a job. Employers want students educated to be producers and consumers. Finance wants you to produce an income stream so that they can attach loans to it. These loans are then used to pay for your education and buy a house, cars and other forms of consumer detritus. These debt instruments created out of your income stream are then bundled and packaged and sold to investors. Finance cuts out the real capital in Marx's M-C-M' and goes strictly to M-M'. Money making more money on the backs of the new class of indentured servants.

News stories about the current level of vehicle sales would lead you to believe they are "smokin".  I have serious reservations based on everything said above and other comments previously posted. Current sales are not built on a solid foundation. Long loan terms and high rates of leasing are the two most important signs. My first job out of college was with the leasing subsidiary of the largest local bank. My view of leasing was that it allowed people who couldn't afford to buy a car to project the appearance that they could. That view holds today. I've read that two thirds of the "sales" of luxury cars are leases in which case the lessee does not own the car. It is owned by the lessor which is usually the financial subsidiary of the manufacturer. So the lessee is paying the lessor for the use of the car plus interest on the sale price of the car. This brings in the concept of depreciation. How many times have you heard the line that as soon as a new car is driven off the lot it depreciates. Depreciation is a non cash expenditure that is not incurred until the asset is sold. if you bought a car and sold it after one year you would take a big hit on depreciation. But if you kept that car ten years the depreciation expense would be quite low if amortized over ten years. The payments made during the term of a lease is turning the depreciation into a current realized cash expenditure based on what the lessor believes is its loss of value. The lessee is paying the lessor for the period of time when a vehicle depreciates the most plus interest. But wait -  there's more, usually these cars come with free maintenance so that at the end of the lease when the vehicle is returned it can be sold as Certified Pre-Owned and generate more revenue.

The auto manufacturers produce a capital asset that they then financialize. This creates debt instruments of value for credit markets and sold to investors for a profit. The old dichotomy was there were the "haves" and the "have nots". It is no longer a dichotomy because added to them is a third category, "those who don't own what they have". I'm fond of saying "that which you own, owns you. I need to revise that to "that which you owe, owns you".

Now start snapping your finger and sing along with Tennessee Ernie Ford.

You load sixteen tons, what do you get?
Another day older and deeper in debt.
St. Peter don't you call me, 'cause I can't go.
I owe my soul to the company store.

Tom Bartkiewicz (AE's long time Economics correspondent)
Baton Rouge, Louisiana

 

It has to happen.

The democratization of luxury is a trend that has to happen. The market for Mercedes, Lexus and other caterers to those at the top is expanding because they recognize that their target demographic is not the 1% but the 10%. The people who are seeing their incomes rise and wealth increase want to differentiate themselves from the 90% who are experiencing financial stagnation or decline. And that includes young people who expect to do well but can't currently afford the top of the line. Hence the proliferation of CLA's and A3's in Silicon Valley, which is lousy with young professionals. They wear designer fashion, shades and watches too, just like mom and dad. But not the really good stuff. No just yet.

GW
San Francisco, California

 
Leasing to oblivion?


Interesting.  I'm watching the CLA take over in my area... must lease cheap.  The problem here is that the unique selling points are getting fewer.  A Cam-Cord is a decent car....not great, but decent for most folks.  It has bluetooth and ABS and DSC.

The same things in the BMW/MB are options.  Streaming Bluetooth, a triviality for most in car electronics packages, is part of a $2k satnav package for BMW.  What ?  My rental Kias and Focus had it too.

There are now only two major groups of car buyers.  The leasers, who will churn on a 3-4 year basis, and the "till it drops" group.  Cars like CLA go for the leasers-recall what happened to SAAB and Volvo during the 2008 slump...they died because no one BOUGHT the cars, they just leased them, and when the banks shut down, no leases...no sales... no company (SAAB).  

Leasers will go for the Q7 or as high as they can on the aspirational scale.  If the vehicle isn't up to expectations, then the next lease will be elsewhere.  The long term brand damage, however, is permanent.  I see the leasers on the school run every day.  That big SUV is going away in a few years... that isn't a long term buyer.

Casey Raskob, Esq
Croton on Hudson, New York


Something's gotta give.


Cadillac can't stay with its competitors and sell down market. If it does, it will help destroy Buick. If it doesn't, it may end up destroying itself.   If sales of Cadillac continue to decline, as predicted by its new General Sales manager,  GM may have to decide which brand it wants to keep, and how it can best take it and Chevrolet to market. Maybe this is part of the tough times you envision.

Mike D.
Flushing, Michigan


Why?

Why do you have someone from West LA posting columns in your website that doesn't even own a car? How can I take seriously the automotive opinions of someone who does not have a passion for cars.

TonyE
Irvine, California  

Editor-in-Chief's Note:
Why? Well, let's see, Tom is smart, funny, offers an interesting perspective and make no mistake, he truly loves cars. - PMD


Credit where credit is due.


I appreciated that you corrected your mistakes made about the Viper program. To your credit, you owned up to the error. If only other media outlets would do the same. Marchionne is doing a lot wrong -- taking over Ferrari is just the latest and worst move -- but this one is on Ralph Gilles. He has ownership of the SRT and Viper programs, he screwed it up and he deserves the blame.

Patrick Engel
Eau Claire, Wisconsin


Real luxury.

It's sad really. The Daimler-Chrysler merger COULD have worked and spared us all this. Imagine the CLA as the replacement for the Sebring/200. The 300/Charger could have downsized to a stretched C-Class. As for luxury, nobody who's REALLY rich thinks about monthly payments. If I had a (insert value here) dollars, I wouldn't want JUST another McClaren, I'd go the Jay Leno route and have a 1981 Corvette body hand carved over a 2010 ZR1. Or a 280ZX built to concourse standards. Maybe a 318ti with M3 parts? Or how about modern SHOGUN made from a Fiesta and an Ecoboost 6?

Real luxury never comes "off the rack".

Infosaur
Sinking Spring, Pennsylvania


The inside scoop.

Thanks for the clarification about the Viper program.  I was inclined to believe that Sergio mishandled it, but it is good to know the rest of the story from the insiders.

John Belbas
Houston, Texas

 

From the "Can't We All Just Get Along" File.

Reading the comments today really hit on something for me.  We all like cars and are interested in the car business.  But what struck me lately (especially here, but also on other sites recently), is that there's a whole lot of judging going on.  Sure, there are people who really can't afford the cars they lease, or buy, and yes, I suppose there are other consequences, perhaps to us all, but if someone wants to lease a CLA and cars like it for the next 30 years, who are we to judge?  We may not like the CLA, or maybe we think it's a stupid choice, or think Mercedes is making the wrong moves, but the apparent disdain for people who choose to lease or put 22 inch wheels on their cars has just really struck a chord with me.  

We all like our shit, and have our vices.  I haven't bought a Porsche yet because I have other priorities, like some much needed home renovations.  But you know what?  I'd rather have the Porsche and the shitty kitchen.  My wife would just do both, but it's up to me to be the sensible one.  Life is short - if someone wants a new CLA every 3 years instead of an Accord, it's their choice.

SM
New York, New York


Yeah, who gives a fuck?

Why all the disdain over leasing? It’s just another form of putting a car inside the garage. Those people who insist they “have to own their car” don’t get it. Miss 3 payments in a row on a finance contract and the bank will demonstrate to you very quickly who really owns the car. The average Joe will be inside a showroom within days after receiving the title to their vehicle to trade it in for a new car. And they will repeat the process in another 48-60 months. I happen to agree that extended terms are harmful to the overall health of the industry. However, leasing is beneficial because it throws the consumer back into the market in a much shorter term –look at the fine print in a lease ad. Most of the terms are for 36 months or less. So the replacement cycle is accelerated. Putting the factories to work and putting late model vehicles into the CPO realm.  Giving dealers product to sell. Cash for clunkers hurt the industry by eliminating a whole sector of used vehicles. Win-win.

The least expensive way to own a vehicle is to pay cash and run it into the ground. How many of us out here in webville can stroke a check for $25-30k for a new ride?  And the cars Peter has been critiquing are usually twice that sticker. So who gives a fuck if the lessee is driving over their pay grade?

Jack J.
Santa Fe, New Mexico

 

The Heart of the Matter.

The whole "democratization of luxury" discussion goes to the heart of the debate on our consumerist society. I deeply believe that someone else's choices (good or bad) are none of my business. However, I also believe that an economy (and culture) based on the acquisition of more and more stuff in a world of finite resources and growing population is not ultimately sustainable.

How does one resolve this incongruity? You can let the resources run out and the market will sort it out (possibly painfully). You can outlaw certain consumer goods that most people consider excessive (Bugatti Veyrons for example). Or you can just change the rules to make silly choices less attractive (vehicle mileage requirements, gas taxes, or minimum equity requirements for cars, etc.) Governments spend millions on anti-tobacco advertising and education but the most effective measure is raising the cigarette tax.

Obviously what is silly to you may not be silly to me (I do own a Lotus!) but that is the purpose of our messy political process. Unfortunately, politicians have the same good and bad incentives as the rest of us.

G.A.S.
Atlanta, Georgia