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Monday 5 December 2016

Why luxury carmakers want to make a €1m car

The past decade has seen an explosion in the number of cars with price tags in excess of €1m

Hannah Elliott

Published 12/04/2015 | 02:30

SUPERCAR: The €3m Lykan HyperSport has a top speed of 390kph
SUPERCAR: The €3m Lykan HyperSport has a top speed of 390kph

Seen Furious 7 yet? You should. Among the film's hard bodies and the muscled engines, there's a sexy little number that stands head and haunches above the rest: it's called the Lykan HyperSport.

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The car is a €3m beast with a top speed of 390km per hour and the face of a raptor. The huge audiences who saw the movie won't soon forget it - even if they'll probably never see the vehicle in real life.

The Lykan is the first supercar made by a company (W Motors) based in the Middle East (formed in Beirut, with headquarters in Dubai). It's also among the most expensive production cars ever to go on sale. But it's not the only land rocket to come out lately that costs more than ¤1m. Far from it.

Over the past decade we've seen almost every carmaker (that calls itself a true "luxury" brand, at least) produce a contraption with a seven-digit price tag. Sometimes they get there only by making a one-off with diamond-rimmed headlights and titanium bones, but they get there.

The brands make these cars because people buy them. The past few years have seen an explosion of royals and tycoons around the globe who buy entire fleets of Aston Martins and Lamborghinis to support their proclivities. They buy the cars in LA, in Doha, in Moscow and Shanghai. Some, like hotel tycoon Steve Wynn, buy them to bolster business interests just as much as their personal life.

For them, it's not a big deal.

"The fact of the matter is there are a lot of rich people around the world, and I mean super rich - hundreds of millions to billions of euro of net worth," says Jack Nerad, Executive Market Analyst for Kelley Blue Book. "When you're talking about these types of people, a million-euro car isn't really much of a stretch at all."

It's lucrative for the carmakers, despite the extra work required to specialise a given car. Margins on a standard Ferrari or Lamborghini hover around 15pc, and when the price tag on a particular car reaches into the seven figures, that amount can increase significantly.

"If you have to set up a separate assembly line, it can become expensive to produce a car," Nerad says. "But with million-euro cars, there's still money to be made."

The basic rule is that it takes €1bn to develop and produce a normal mass-market car. But developing one that's not accessible to the public can cost less than that because resource needs are narrowed. Plus, it's easier to recoup the expense when price tags are in the millions rather than, say, €40,000. That's true even if a company sells only 300 of the car.

These super expensive cars fall into different categories.

Some, like the Bugatti Veyron and Lyons Motor Car's LM2, are unique and made in minuscule numbers. Others are special editions of existing models.

Let's look at how a Rolls-Royce gets to a million euro.

A base-level Phantom starts at about €360,000. Then you add custom treatment, which most of them receive: that's special wood, paint, and leather that can hike the price by hundreds of thousands of euro. (Really.) Getting the full-armoured treatment on a sedan can cost almost half a million alone.

And at that point, the real heavyweight treatment starts: true bespoke, work that adds precious gem and pearl accents, hand-stitching, bulletproofing, theatre systems, and elite engine tuning.

That last stage is where a standard Phantom crosses the million euro threshold.

"The trend is growing, and it's driven by bespoke cars like our Serenity," says Gerry Spahn, Rolls-Royce's Head of Communications, referring to the €1.3m Phantom it introduced last month in Geneva.

You can probably get speed or strength or comfort in such an expensive car, but not all three.

Then there's what carmakers call a "halo car". That's when a brand that makes several different lines comes out with a concept car or ultra high-end superstar that serves a purpose beyond its own price tag. In fact, the indirect monetary benefits of making a halo hypercar are usually more important than direct profit.

High-profile products can make the entire brand shine like a backlit Hope Diamond - the brilliance associated with the crown jewel car inevitably rubs off on to the less expensive offerings in the fleet. If the cachet is compelling enough, it will deliver cash.

"Halo cars like these serve to really capitalise the brand," says Kelsey Mays, Senior Consumer Affairs Editor at Cars.com. "You look at Bugatti, which is owned by Volkswagen, and the only car everyone knows from Bugatti is the Veyron," he says. "But they know it's the one Beyonce bought for Jay Z. The value is in the association."

Bugatti is good for VW - even though by some estimates each Veyron that's made and sold winds up being a loss of multiple millions of euros.

When people spend €200,000 on a Ferrari California T, they're tapping into the elite aura that's emitted by the €2.1m Ferrari FXX. (There are only 30 of those, whereas thousands of Californias are made every year.) Every time a brand's race car wins a Formula 1 event, or a newly unveiled concept vehicle shows off a brand's ability to harness power and technology, the everyday drivers of the lower-tier cars get to feel like they're part of the correct club.

©Bloomberg

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