Discounts may decide race for luxury crown
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Retailers are preparing for a luxury-brand slugfest to end the year.
Many leading luxury-brand manufacturers, particularly BMW, have been short on supply this year, crimping sales. But leaders of some of the biggest dealership groups say the inventory pipeline was chock-full by late October, and that should lead to bigger incentives and more intense competition than usual during November and December.
"You've got to believe it's going to be a real dogfight the last quarter for leadership in luxury," AutoNation COO Michael Maroone told Automotive News. "The segment itself, which is always strong in the fourth quarter, should be even stronger."
The only wild card: How will damage from Hurricane Sandy affect inventory numbers? As of late last week there was no clear answer.
Through October, Mercedes led BMW in the sales race by 2,755 units. BMW won the crown in 2011, ending Lexus's 11-year run as the top-selling U.S. luxury brand.
After months of tight supply for BMW and Mercedes, AutoNation dealerships are just starting to get an influx of new vehicles.
With the turmoil in Europe and slowdown in China, a lot of product has been diverted to the United States, Maroone said. He expects AutoNation's luxury-vehicle supply to jump from its recent level of 40-45 days to 50-55 days.
Incentive surge
Jeff Dyke, executive vice president of operations for Sonic Automotive, said he expects luxury-brand incentives to heat up soon.
Sonic has been especially short on BMWs for most of this year. At the end of July, Sonic's BMW supplies bottomed out at 34 days and stood at 20-some days for its dealerships in the South. Some stores even ran out of the 3 series, Dyke said.
With BMW inventory back up -- supplies are now around 50 days in total and in the low- to mid-40s in the South -- Dyke eagerly awaits the coming sales push.
"It's going to be really neat to watch all these guys battle," Dyke said. "When those luxury brands battle, it doesn't always mean big massive margin erosion like you see when the mass-market brands fight it out."
Group 1 Automotive CEO Earl Hesterberg also anticipates that competition. Group 1's BMW stocks in particular have recovered to their strongest levels across all model lines in a couple of years. Hesterberg also noted that Lexus, which missed out on much of 2011's year-end push because of tsunami-depleted inventory, has good supply this year and is also poised to compete.
"That sort of dynamic sort of sucks everybody in the segment to a heightened level of competitiveness," Hesterberg told Automotive News.
No games
Mercedes-Benz USA CEO Steve Cannon said Mercedes is headed for a record year in the United States. But it won't "play games" to ensure it wins the race for the luxury sales crown.
"I am not even worried about No. 1," Cannon said. "We have nice product availability and a nice marketing plan for the fourth quarter."
Retailers are readying their operations to capitalize on the likely surge in demand from the expected marketing push.
Said AutoNation's Maroone: "We are gearing up in every aspect of our business, both in marketing spend and staffing, etc., to make sure we can serve customers if that segment turns on the way we believe it has the opportunity to do."
Diana T. Kurylko contributed to this report
You can reach Amy Wilson at awilson@crain.com.
