Abc Growth

THE GLOBAL AUTOMOBILE INDUSTRY: FROM GOOD LIFE TO BLOODBATH AT THE TOP* Plagued with overcapacity, the automobile industry is intensely competitive. However, life is not equally stressful for companies in the three broad segment within the industry: mass market, luxury, and ultraluxury. The number of mass market players, such as Chrysler, Ford, General Motors (GM), Honda, Hyundai, Nissan, Renault, Toyota, and Volkswagen (VW), is numerous, and competition is intense. For example, it takes an average of $3,400 of incentives per vehicle for the American Big Three to move their cars. This is not the worst: Saab broke a record by spending $6,200 on incentives per vehicle sold in 2007. These incentives crush industry wide profit margins, which on average stand at a low 5%. The luxury market has fewer players, such as Audi, BMW, Lexus, Mercedes, and Porsche. They use fewer gimmicks such as fat rebates or 0% financing, and their margins are at a relatively hea1thy 10%. Life in the ultra-luxury market seems to be most tranquil. Competition is more "gentlemanly," and changes come at a glacial pace. The handful of players such as Ferrari, Lamborghini, and Rolls-Royce, produce a small number of cars each year for the world's most discriminating customers: approximately 10,000 a year for cars produced above $150,000. Profits per car may exceed $20,000. This is a world apart from the mass market profits, which sometimes can be as low as $150 per car thanks to incentives. Overall in the ultra-luxury group, margins are comfortable, indicating a good life at the top. However, such a good life may be a thing of the past. It seems that every self- respecting carmaker is rushing to invade the lucrative ultra-luxury market, thus prompting a high- take drama never seen before. In 2003, three German carmakers launched three new entrants for the ultra-luxury market. Mercedes offered a $320,000 Maybach, which traces it roots to the gull-winged legendary 1952 SLR model. BMW, which took over