'Halo cars' crucial for luxury firms' image
- 2 March 2012
- From the section Business
To Alex Wotke, horsepower matters, but as a father of three he needs a big car.
So in an effort to have his cake and eat it, he drives an Audi RS6, an estate car that looks little different from any other estate out there.
"It is understated and discreet, and I like that," Mr Wotke says as he steers the car slowly down the exclusive private road where he lives, in a village near Great Missenden in Buckinghamshire.
"Customers don't think I'm being unreasonable when I turn up in this, rather than in a Porsche or a Ferrari," says Mr Wotke, director of ASAP CRM, a customer relationship management consultancy.
But out on the open road the £90,000 car's true nature is revealed, as Mr Wotke lets rip to overtake a slow-moving queue of cars.
Under the bonnet, a 580hp V10 Lamborghini engine grunts gently, accelerating at a rate of 0-60mph (0-100km/h) in just over four seconds.
"It accelerates like a motorbike so it's really good for overtaking in a safe way," Mr Wotke says - though he also acknowledges that "you could just go mad in this thing - but you'd lose your licence".
Mr Wotke's RS6 and his previous car, an RS4, are both derived from the RS2, which was launched by Audi around the turn of the century.
The RS2 is "arguably the model that spurred the 'fast load-lugger' segment so popular with German premium brands", according to Paul Newton, automotive analyst with IHS Global Insight.
Others see BMW as the true pioneer in this field, pointing to how Audi's main rival launched a Touring version of its M5 super-saloon in 1992. At the time, it was the world's fastest estate car.
But there is little dispute about how it all started with the first M5, hand built by BMW Motorsport and launched way back in 1984, putting into practice the idea that ordinary saloon cars could be made to behave like supercars.
BMW has been making M5 models ever since, its latest version competing with Audi's RS6 as well as with the E63 AMG from Mercedes and the XFR from Jaguar.
The cars have all been built to be practical road cars, though it is only on a racetrack that you get a feel for their full potential.
Pushing the latest 560hp M5 model at top speed through a series of long and at times rather tight bends on the track, it soon becomes clear that in spite of their discreet facades, these family saloons can rival many of the more macho-looking supercars from the likes of Ferrari, Porsche or McLaren.
"The customers want something understated, yet they want power and performance when required," according to Brian Cox, product operations manager at BMW UK.
Powerful high-end models from luxury car companies are often described as "halo cars", and all the rivals in the luxury car market have their own versions.
"It is very, very important for us," says BMW's Mr Cox. "It's seen as a brand shaper. People want to be part of that club."
In other words, in spite of their hefty price tags, the luxury carmakers' most powerful cars are not primarily sold to bolster company profits.
After all, they only sell in their hundreds - a fraction of the hundreds of thousands of cars sold by the companies that make them.
Instead, the muscle cars are essentially poster boys, their job to communicate brand values and image, and thus attract buyers for rather more civilised models.
Frugal cars and customers
The idea is that customers may feel inspired by the potential of the performance models, then go away and buy similar cars kitted out with relatively small, considerably more frugal and much less powerful engines.
"Carmakers have invested millions in loss-making Formula 1 or rally teams, or in high-performance models that help build that 'halo' around the brand," says John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA).
But in the end, he reasons, "common-sense qualities such as running costs and safety will win over many customers".
Hence, the segment where luxury car companies sell large volumes is governed by a set of performance figures that have little to do with maximum power.
Instead, fleet and business customers want them to deliver good fuel economy and low carbon dioxide emissions - since these affect how much tax they pay, whether road tax or company car tax.
"Most fleet managers will operate a car for three to four years, and they care about two things - the cost of running the car and the tax implications," says Mr Lewis.
"The key factor in both these equations is fuel efficiency. Fuel is the largest element of running costs, and company car tax is based on CO2 emissions, which are directly related to the amount of fuel a car engine burns."
Thus, the way the luxury car companies achieve volume is with the help of frugal, sensible versions of cars that look similar to their high-performance RS, M and AMG cousins.
"Fleet and business buyers are already responsible for nearly 60% of new car registrations," observes BVRLA's Mr Lewis.
"Though for popular 'executive' models, including the Audi A4 and A6, the BMW 3 and 5 series and Mercedes C and E Class, corporate sales could account for an even higher percentage."
Selling more cars than their rivals seems important to many of the carmakers' top executives.
Dieter Zetsche, chief executive of Mercedes' parent company Daimler, for instance, tells BBC News that he thinks it is important for Mercedes to try to reclaim the sales crown which it lost to BMW a few years ago.
Audi's head of marketing and sales, Peter Schwartzenbauer, is a bit less aggressive when it comes to sales volumes.
"We never really aim to be the biggest, but the most successful," he tells BBC News.
"And this is not necessarily the biggest. It's always a combination of volume, profitability and brand perception. Are you perceived as the leading brand in the premium sector?"
Rivalry about who delivers the most powerful or the most economic models, or indeed about who sells the most cars, might make for good entertainment.
But what really matters to executives of luxury is profits, and as a rule the luxury car companies have become very good at delivering to shareholders.
"Luxury carmakers are very good at producing a myriad of slightly tweaked special editions that can help prolong the life of a car model and recoup the huge sums spent developing a replacement," says Mr Lewis.
"As a basic rule of thumb, larger, more executive models tend to provide carmakers with a higher profit margin, which will also grow with economies of scale."