Social Responsibility Bad News For Auto Margins

Automakers are cutting back production and design of opulent luxury cars, not just for the near-term, but with an eye towards the longer-term as well. It’s more evidence that conspicuous consumption is no longer fashionable. Even Cadillac will be rolling out a compact car.

WSJ: Car-industry executives say even some buyers who remain well off appear to be turning away from the large sedans and SUVs that have been the backbone of the luxury business — and the source of outsize profits — and moving toward smaller, more fuel-efficient models.

The luxury share of the overall car market rose sharply from 1990, when it was about 13.5%, to 2005, when it peaked at about 21%, according to Autodata Corp. Through July of this year, the luxury-car share is down to 15.6%.

A shift-down to lower ticket prices has implications for profitability since margins on non-luxury cars are far lower. This can be in the range of $10,000 for a $50,000 car versus just a few hundred dollars for a $20,000 vehicle. If the shift away from luxury has legs, then economies of scale are likely to be more important than ever.

Luxury Car Sales

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