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Old 11-16-2006, 10:06 AM   #1
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Default Luxury dealerships soup themselves up

Luxury dealerships soup themselves up


NEWPORT BEACH, Calif. — At Fletcher Jones Motorcars, customers stroll through a gallery of Mercedes-Benzes, linger at the cappuccino bar, tap balls on the putting green or go for a pedicure.
A couple of blocks away, Newport Lexus boasts marble fireplaces, Oakley and Tommy Bahama beachwear boutiques — and a flat-screen television, tuned to ESPN, of course, mounted above the urinal in the men's room.

The two dealerships are pouring on the fancy fixtures and service extras as they vie for a larger share of one of the nation's most prosperous luxury-car markets, coastal Orange County. But even far from "The O.C.," auto industry officials see the sprucing up of luxury-car dealers as a sign that the high-end market could finally be brightening.

"Premium luxury is going to grow faster than mass market in the next few years," predicts Mike Jackson, CEO of Fort Lauderdale-based AutoNation (AN), the nation's largest dealer chain, which has been snapping up luxury-car dealerships.

It's about time. After three strong years, luxury-car sales have slumped. They are down 4.1% through October compared with the same period last year. By comparison, sales of all cars show a slight increase this year, MotorIntelligence figures show. The most obvious culprit in the luxury market is the softening in real estate that is leading the well-heeled to feel poorer and retrench.

But experts say a resurgent stock market — the Dow Jones industrial average (DJIA) was up 14% so far this year at Tuesday's close — and baby boomers entering their top earning years will spark a comeback.

The boost would be welcomed by the auto industry. A successful luxury vehicle adds prestige to a lineup. Brands benefit from having buyers who aren't as sensitive to economic downturns as average purchasers. And more important, the vehicles themselves make more money for automakers and dealers. They carry higher profit markups than lower-priced stock.

So outlooks that see an increase in luxury sales are welcomed by automakers. Consultant CSM Worldwide says overall luxury sales, about 13% of the total vehicle market today, will increase to 15% by 2009. Then they will ratchet up again to 17% by 2012.

Audi, Volkswagen's upscale brand, expects the luxury-car market will grow 21% over the next five years, compared with 4.8% for the overall car market. "We think customers are more and more going to recognize that it's nice to be seen in a good car," says Johan de Nysschen, executive vice president of Audi's U.S. unit.

Automakers are ready to pounce on a growing market. They plan to roll out 129 new or refreshed luxury models this year through 2012, compared with 98 from 1999 to 2005, says CSM Worldwide.

Even Hyundai, the South Korean automaker seeking to forever dash memories of quality problems two decades ago, is considering creating a luxury division, confirms Steve Wilhite, Hyundai Motor America's new chief operating officer.

The luxury-car market already is showing signs of improvement. In October, luxury cars were sitting on dealer lots an average of 53 days, compared with 76 days for non-luxury brands, says Paul Taylor, economist for the National Automobile Dealers Association.

And while spending on luxury goods overall was relatively flat last year, spending on luxury autos was up 20% over the previous year, says Mark McNabb, vice president of Mercedes' U.S. unit.

AutoNation finds that luxury customers not only pay more for their cars, but also earn more for dealers in parts and servicing.

It bought 11 "premium luxury" dealers — which it defines as those selling Mercedes, BMW, Lexus or Land Rover — since 2000. Revenue from those brands has doubled. Other dealer groups, such as United Auto Group, have indicated their interest in luxury dealerships, as well.

To a large extent, the newfound interest in luxury is driven by demographics. Boomers show the potential of rewarding themselves with luxury cars to an extent their parents, many of them raised during the Great Depression, never did.

"The baby boom generation is not going quietly into the night," AutoNation's Jackson says.

One boomer, Charles Spezzano, 58, a San Francisco psychotherapist, took the plunge a couple of months ago. For first time in his life, he paid about $50,000 for a higher-end luxury car, the Audi A6. He loves it.

"It took a long time in my life to get to the point where I say, 'That's OK,' " he says. "This kind of fits where I am. The kids are taken care of. The house is on its way to being paid off."

It's not just boomers. Gen Xers are now climbing the corporate ladder and indulging in luxury cars. Even some Millennials, the children of boomers, aren't in the mood to wait for the better things in life.

Blame it on vanity. Image is cited as the primary factor for about half of all luxury vehicle sales, says Jesse Toprak, market analyst for car-buying research website Edmunds.com. But just as luxury cars differ, so do buyers. To succeed in crowded markets, automakers are trying harder to reach different segments of luxury customers. They include:

•Upper upscales. Mercedes says it has seen a shift to higher-priced models. In 1980, only 9% of Mercedes' U.S. sales were the highest-priced models in its lineup. Now they are 28%, making the brand the biggest seller of vehicles over $50,000, McNabb says.

Toyota's Lexus is taking its brand more upscale. Its new LS 460 flagship sedan offers technology breakthroughs such as the first eight-speed automatic transmission and the ability to parallel park itself, not to mention a starting price of $61,000.

•Performance addicts. BMW hopes to break through to buyers by simply making its cars feel distinctive on the road, maintaining its reputation for handling and performance.

"We have a very clear view that a BMW should be a BMW," says Tom Purves, CEO of BMW's U.S. unit.

•Rich rebels. Honda's (HMC) Acura division is targeting a group of potential buyers it considers to be independent-minded go-getters. They're smart and affluent, and they don't follow the pack. They make up about 20% of the luxury market, says John Mendel, senior vice president of Honda's U.S. operations.

"They are very forward-thinking ... tech-savvy," Mendel says. Acura woos them with technology such as advanced navigation systems that can warn drivers about traffic jams in their paths.

Luxury buyers are dream customers, even if they require more coddling. That's why luxury dealerships selling top brands in affluent communities aren't afraid to pour on the indulgences. Built at a cost of $75 million, Newport Lexus (TM) didn't hold back when it opened in July. It has lounges with big-screen TVs, a sandwich counter, video game room and boutiques all aimed at making customers want to stick around. "When people have their car in for servicing, I don't want them to leave," says sales general manager Scott Brewer.

Fletcher Jones, the USA's biggest new Mercedes seller, is being just as aggressive. The dealer, which saw sales rise 13% to $307.8 million in the first half of the year, is already offering free car washes and airport parking up to 30 days for anyone who buys a car. It has a shoeshine stand and a manicurist.

Customers also get free Mercedes loaners when they drop off their cars for servicing, so many that the dealer opened an on-site Enterprise Rent-A-Car agency to manage them all.

"The luxury segment is all about service, personalization and building a world-class guest experience," says general manager Garth Blumenthal. "People are willing to pay a slight premium for a higher level of service."

Now Fletcher Jones is going to open a facility just to handle its free airport parking offer. It's also remodeling the customer lounge to add plusher seating and fancier entertainment systems.

"If there isn't a wow factor, you haven't succeeded," Blumenthal says.

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Old 11-16-2006, 10:25 AM   #2
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When everything is said and done, it's just a damn stealership - trying to take as much money from you when buying a new car and when going in for service. The money to pay for all these new oontzy-designed interiors will have to come from somewhere.
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Old 11-16-2006, 11:28 AM   #3
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the people in Newport don't care how much it cost... they just care that they get the very best.
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Old 11-17-2006, 06:37 PM   #4
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It's not even funny how smart of an investment this is for dealerships.
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Old 11-17-2006, 06:45 PM   #5
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More overhead costs for dealership = more cost to you, the customer
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Old 11-17-2006, 11:23 PM   #6
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My Subaru / Jaguar dealership has a leather coached Plasma TVed and computer with net access waiting room. I perfer sitting in the Jagaurs when I'm waiting though. No Cappacino bar but they do have free coffee. Also have a mini shopping area too.

I can't find an inside picture.
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Old 11-18-2006, 08:29 PM   #7
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Old 11-19-2006, 12:33 PM   #8
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Lexus has been doing this for at least 6 years now. Putting course=JM Lexus in Margate. I'm sure its been repeated elsewhere(the greens for customers), but it really is a smart idea. If you let the customers get comfortable, they are more likely to drop coin.

For those that don't understand this concept, oh well. Folks who are well to do don't necessarily care about costs. They care about being taken care of and tended to. Last Lexus dealership I worked at, hourly rate was over $120, and that was 2 years ago. While money is a concern for most, it isn't always the deciding factor for some. Rapid Roo hit the nail on the head.

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Old 11-19-2006, 01:52 PM   #9
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58 and he splurged on such an expensive car...50k!! Jeez, he probably had to cash in his 401k...for an A6. What a rip.
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Old 11-19-2006, 03:38 PM   #10
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Originally Posted by Hazdaz View Post

When everything is said and done, it's just a damn stealership - trying to take as much money from you when buying a new car and when going in for service. The money to pay for all these new oontzy-designed interiors will have to come from somewhere.
Yeah true, but many people are willing to pay for it to feel special.
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Old 11-22-2006, 09:49 AM   #11
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Oh yeah, putting lounges and having vehicle branded clothingwould never work. Just look at Harley. oh wait.
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Old 11-22-2006, 11:19 AM   #12
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its stil a car delaer all consumer care is the car

you give me a good price i'll send more ppl there

if you charge me high i'm walking and it doesn't matter

how good the dealership is
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Old 11-22-2006, 01:46 PM   #13
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Originally Posted by NismoSkylineGTR View Post
its stil a car delaer all consumer care is the car

you give me a good price i'll send more ppl there

if you charge me high i'm walking and it doesn't matter

how good the dealership is
Not when you're at that end of the spectrum. Considering the people that will be shopping there, they won't know much about their cars to start with anyway. To them, dropping off their car for maintenance is a time-consuming annoyance. So rather than having them drop off their car and leave, why not take the chance for them to stay a bit, look at their cars more and enjoy the experience more.

Little things like these can change a customer's view of a dealership, even if they do charge high prices. Look at a restaurant, a classy restaurant may not have the best italian food compared to say a family run shop but you're also paying for the service and the atmosphere.

Think about it this way, if a client is having a bad day and they had to drop off a car. Everytime, they face some greased up joe in the service department saying "k, your car will be ready in about 4 hours." Their perception of the dealership probably won't be that great. As opposed if they walked into a nice dealership is nice fixtures, people greet them as they walk into the door, with a shops on the side so they can go there too rather than just sit in the lounge and wait for their car to be ready.

Dealerships always want to have people go in and look at their cars, given they can actually afford that payments. The more people that come into their dealership, the more chances of someone buying their cars. It would make sense if they put stores and nice fixtures to attract customers.

Not to mention, if the dealership had a coffee shop inside it and given the lazy nature of people, they might just walk in for a coffee and take a look at their cars too.

Of course, if you're buying an economy car, obviously, cost does matter to you so you wouldn't be shopping at those places anyway.
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Old 11-22-2006, 02:41 PM   #14
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Low volume, high pressure wash? Wheel scraping carwash guide along floor? I used to give better free car washes at the small Honda dealership I worked for.
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