Pandemic creates ‘postwar boom’ for luxury carmakers

Famously reticent to disclose how many cars they sell or at what amount of profit, luxury automakers are finding it difficult lately to avoid crowing-just a little bit-about how well they did in 2020.

“Let’s just say we began 2020 with the strongest order bank since 2003-and we started this January with 50 per cent more orders than last January,” Bentley’s Adrian Hallmark said on a videoconference call with journalists on March 23. The British company delivered 11,206 vehicles in 2020, up 1.8 per cent year-over-year-and the highest output in its 101-year history.

“Our sales right now are some 30 per cent above last year, even bearing in mind last year was a record,” Hallmark continued. “It would take an even bigger asteroid than the Covid one to knock us off track again.”

Indeed, any 2020 sales divots have hardly seemed to register to the highly optimistic chief executive officers of the world’s most prestigious automotive brands. They are already looking to capitalize in the next decade on the “lost year” that gave them their strongest positioning ever.

On a videoconference call on March 15, Bugatti’s Stephen Winkelmann was downright upbeat as admitted he was “surprised” at how well the 112-year-old French brand had weathered the pandemic. “Bugatti did incredibly well,” he said. The brand traditionally does not disclose specific sales results, but Winkelmann characterized 2020 as the company’s “third record-breaking year in a row.”

Even the normally taciturn Germans couldn’t resist a little glow, with Porsche boss Oliver Blume calling Porsche’s results a “fantastic accomplishment” at the end of “an exceptional year” during a March 18 reporter roundtable. Revenue at the 90-year-old brand reached an all-time high of 28.7 billion euros ($34 billion) in 2020, surpassing 2019 by more than 100 million euros.

Meanwhile, annual global profits at Lamborghini, over which Winkelmann also presides, were higher in 2020 than in any previous year. And while sales at most luxury brands dipped from 2019-down 11 per cent at Lamborghini; down 3 per cent at Porsche; down 10 per cent at Ferrari-the drops came from weeks-long forced production and showroom shutdowns during the coronavirus pandemic, factors well out of executive control. Bentley, an outlier, shut down for seven weeks at the cost of $10 million lost per week and still recovered to deliver more vehicles than ever before, Hallmark said.

“We are not seeing recessionary behavior. We are seeing postwar boom,” he said.

While millions of people are facing economic loss with the help of stimulus checks, the rich have been minting money as never before. It’s a post-covid, K-shaped recovery that favors luxury goods, including cars.

As far back as July 2020, analysts at Technavio predicted that the U.S. luxury car market would grow by 6.7 million units from 2020 to 2024. In its 2021 annual report, Statista projected U.S. revenue in the segment to reach $6.9 billion this year alone. It helps that the pandemic is making the overall car market healthier, thanks to streamlined buying processes, reduced redundancies, and executives forced to get flexible (and more practical) about future strategies.

“History suggests demand for super-luxury sports cars will remain robust, despite a covid-19-related global recession,” said Michael Dean, head of automotive analysis for Bloomberg Intelligence in a March 16 analysis. Results such as Ferrari’s 27 per cent share-price gain in 2020 and Lamborghini’s already full order book for the first nine months of 2021 testify to that strength.

Lamborghini performed so well last year, in fact, that close observers such as Dean and others have suggested that parent company Volkswagen may be positioning it for an initial public offering alongside favored-son Porsche, which Bloom recently called an “interesting” option. An emphasis on “limited special series” models, which with multimillion-dollar price tags are highly profitable, mimics the strategy set by Ferrari. The 81-year-old Italian brand went went public with great success in 2015.

Even Aston Martin, which suffered a disappointing IPO in 2018 followed by disruptive executive upheaval, seems to have set itself up for a brighter future. A 1.3 billion pound ($1.79 billion) refinancing in December and recent alliance with Mercedes, combined with the release of the DBX SUV, have set the company up to become free-cash flow positive by 2023, Dean said. “Aston Martin is no longer on the critical list,” he wrote in March.

A positive pipeline of limited editions such as the Valkyrie and Valhalla will also be key in 2021 to improving Aston’s margin trajectory, he said: “Only a few brands are capable of selling high-margin, $1 million-plus-priced limited-edition supercars, and that club includes Aston Martin, Ferrari, Lamborghini and Porsche. The contribution from a single Valkyrie supercar, priced at 2.4 million pounds, is equivalent to selling 19 Vantage V8s, whose disappointing sales in 2019 were a key reason for volumes down.”

Rolls-Royce, meanwhile, may be an exception to the luxury car bonanza, delivering approximately 3,750 automobiles in 2020, down far more than its peers year-over-year at 26 per cent. The decline came in part from unfortunate timing, said Martin Fritsches, Rolls-Royce Motor Cars Americas president and CEO, in an email, blaming the transition from the first-generation Ghost (discontinued in 2019) to the second-generation sedan for the bulk of the loss.

“We were gearing up for new Ghost in the midst of Covid shutdowns, however we continued to see strong demand for new Rolls-Royces and ended the year with the highest level of future orders ever for the brand,” said Fritsches. “Orders for commissions today extend well into the third quarter.”

One factor bolstering such success during what for many felt like a global meltdown has been wild growth in China. Bentley sales in China doubled in 2020, according to Hallmark; China will become Lamborghini’s second-biggest market by the end of 2021, Winkelmann said.

General market concentration (Aston Martin partnering with Mercedes, say, or Porsche and Rimac working together) can only help more.

Worldwide, “a significant growth of tangible luxury offerings in vehicles, shifting consumer preferences from sedans to SUVs, and increasing disposable incomes of consumers have been propelling the demand for luxury cars” since the Covid-19 pandemic, Mordor Intelligence wrote in its annual report.

Stock market volatility has also had investors running for hard assets-even the classic car market burgeoned during lockdowns, with auction houses and websites that specialize in collectable cars like the McLaren Senna and Bugatti Chiron Pur Sport seeing peak visitors and rare Italian mid-century exotics selling like gangbusters.

Purveyors of such elite engineering who were curious enough to ask their clients why they’re buying such expensive cars during a pandemic have received a relatively simple and unexpectedly identical explanation-down to the very wording. Call it the covid-19 carpe diem effect.

“I was asking my clients why,” Winkelmann said. “They told me: ‘We had more time to think about our future and what is happening next, we were deciding where to put our money, and-well, why not?’ “

Hallmark said each person who bought the $2 million Bentley Bacalar told him something similar: “After all of this, life is going to get back to some kind of normal, and I’d rather be in the car than not in that car,” Hallmark relayed.

“So, they said, ‘Why not?’ “