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FULL ARTICLE | EDITORIAL 
Keeping up appearances - Premium Profits 
Peter Schmidt | Editor

Published: Fri, 21st April 2017 12:23:05 GMT
 

Audi Merceds BMW Munich 2016


Open quote signProfitability wars. Just last week Daimler was compelled to issue an ad hoc investor relations release sparked by higher than expected Q1 profits. But only yesterday - hot on its heels – BMW followed suit with its own release sparked also by Q1 pre-tax profits beating earlier market expectations. Making it three-out-three, previously tarred and feathered Volkswagen joined in the fun this Tuesday saying its Q1 operating profits also topped market expectations. 

Sustainable profits, it now seems, count more than almost anything else in today’s global automotive business. It particularly applies to today’s prestige carmakers. 

With leadership status, there are certain obligations.

Leading the tiny pack of sector leading prestige carmakers, as Mercedes is doing right now, brings with it certain expectations. 

Standards befitting the leader of the pack have to be kept up. 

Foremost among them, in today’s world where image probably means more than ever, prestige sector leadership also calls for top-notch profitability. 

Daimler, in keeping with the part, just last week issued a rare interim investor relations release to announce with fanfare not one, but a whole sackful of better than expected profits for its entire arsenal of divisions. 

Buoyed by exceptional financial gains – echoed by aristocratic club member BMW - its flagship Mercedes-Benz Car offshoot posted a 9.8 per cent pre-tax margin for this year’s first quarter. 

It comfortably tops last year’s 7 per cent Q1 margin. If that weren’t enough, Daimler’s release contained similar pole-vault jumps from vans, trucks and buses. 

Not to be outdone, yesterday BMW posted notable profit gains from automotive, motorcycles and Financial services. In all, its Q1 automotive margin hit 9 per cent. 

That follows a 12.4 per cent jump in Q1 group revenue. 

Even by the high standards of keen global prestige sector observers, this lavish Q1 manna from heaven beat expectations by some margin. 

China, for long the most profitable turf of Germany’s prestige sector elite, just keeps growing. 

Against expectations, in China Mercedes streaked into pole position and currently outsells not only BMW, but also China’s long-running prestige sector leader Audi. 

So, is that as good as it gets? 

Judged on past performance trends, whether in Europe, the US or China, there is little sign that image-conscious motorists are losing their appetite for the ego-boosting prestige sector cars from Mercedes, BMW, Audi, Porsche, and increasingly Jaguar Land Rover. 

Yes, in all likelihood the segment will continue to grow. 

At the same time though, the already fierce competition among Germany’s Big-Three prestige carmakers could derail entirely their future opportunity to retain today’s high profit margins, right? 

Wrong!

In a status-driven car world, where luxury vehicles can boost their drivers’ fragile egos, a high price can paradoxically make a premium car seem more desirable. 

So, despite stiff competition and an intensifying battle for the coveted sector leadership, the likes of Zetsche, Krüger and Stadler know full well that notable price cuts are tantamount to a notable loss of status and prestige. 

In all likelihood, therefore, a prestige sector price war that could hurt profit margins across the sector can be comfortably dismissed
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