Luxury Lounge

ljflx

Don't know that term either but Lexus dealers are largely monoplopies with huge trading regions and rights of first refusal on new dealerships within certain proximity of existing ones that Lexus intends to develop. So I assume he means all one region or something like that to denote the small number of Lexus dealers nationwide. Lexus dealers, because of the rarity and mini monopolies are very profitable and trade at the highest multiples - assuming you can even find a seller.

blckislandguy

Brightness04, AOR = Area of Responsibility; the dealer's "territory" as defined by the factory. With new car registration data widely available, factories can easily monitor dealer sales performance, market share, etc.

Lexus dealers are few in number and far stronger as a result.

tagman

This latest round of Mercedes bashing from Consumer Reports is interesting, because it now includes a number of Chrysler vehicles as well.

Could this all possibly be true? Has this Daimler / Chrysler company totally neglected the concept of building a reliable car no matter how it's badged? Consumer Reports sure thinks so.

Here's the article:

link title

TagMan

syswei

latest round of Mercedes bashing

Does the word "bashing" imply something unjust or unfounded? I don't think that's the case here, when it comes to the reliability data...at least based on past surveys (though maybe future surveys will show some MB improvements). As the article points out, CR doesn't seem to be anti-German. And other work such as by JDP has tended to broadly corroborate CR's work.

volvomax

It has been a long time since Mercedes was a paragon of reliability, so this isn't surprising.
I am not a fan of CR's methodology, sometimes they refuse to recommend cars that has good ratings on their own scale.
FWIW, this news isn't likely to dampen the ardor of someone who wants a Mercedes.
I don't think too many Benz customers read CR in the first place.

tagman

Does the word "bashing" imply something unjust or unfounded?

Not necessarily. I really don't know the total trustworthiness of CR and whether or not there are biases involved here or not, or whether or not there are biases built into the methodology itself. As an example, built-in biases have been shown to exist in human IQ tests, so they could theoretically exist in car reliability surveys, which are less scientific.

The bashing exists. Period. To answer your question, I was not implying anything at all.

TagMan

tagman

I agree with your post.

TagMan

houdini1

I also don't know exactly how CR determines the reliability of an automobile but it would seem that this would have to be rather straight forward and objective. Not room for much subjective bias IMO.

I would also agree that Mercedes buyers do not care much about quality or reliability.

syswei

The bashing exists. Period.

If a review comes out of a Lexus product, and it is less than glowing, is that "bashing" too? And might there be "bias" in such a review?

The way you use those words, they would apply to almost ANY statement.

tagman

Let me try to be clearer.

In my original post I wasn't addressing whether or not the "[non-permissible content removed]-whooping" or "bashing" was deserved. And, I wasn't complaining that Mercedes took the beating, nor was I attempting to defend Mercedes. I was only observing that Mercedes ended up with a serious [non-permissible content removed]-whooping, or "bashing", based upon that CR info.

Unlike ALL the rest of the makes, it seems Mercedes (and Chrysler) took the worst bashing of all. Was is deserved? Again, I wasn't addressing that question, and I certainly don't know... but since you force the issue, let me just say that surely something must be wrong somewhere. That kind of horrible result doesn't come out of thin air, that's for sure. Both Mercedes and CR need to be accountable for the result. Mercedes (and Chrysler) should be accountable for taking responsibility for what appears to be a lack of quality and/or reliability with regards to the production of many of their vehicles, and CR should be accountable for the unquestionable accuracy of such a report.

After all, has Mercedes ever suggested that they deny the accuracy of the report?

TagMan

ljflx

"I don't think too many Benz customers read CR in the first place."

Since the data is compiled by survey replies of MB owners then they are subscribers and in fact are the subscribers that took the time to complete what is a pretty rigorous survey. I'd say plenty of MB owners read CR. If they didn't CR would have no sample to base the reliabilty or repair history data on.

tagman

I think you have made a good point, lj. And certainly the surveys require participation from MB owners. However, I got the impression from volvomax's expression that he meant MB owners aren't as concerned with what CR reports than perhaps other groups... and it seems logical that it is true, otherwise if they were as concerned, they'd never buy those reportedly very unreliable cars...

TagMan

volvomax

CR's recommended label is entirely subjective.

There are plenty of cars that have good numbers from CR that they don't put the recommended label on.

tagman

There are plenty of cars that have good numbers from CR that they don't put the recommended label on.

And... history has proved that CR has put their recommendation on a :lemon: or two.

TagMan

houdini1

If that happens they tell you why. Could be their pricing, history, or dealerships, feedback from owners etc. Maybe you would care to name a few of these high scorers that are not recommended. The numbers don't lie and they are extremely objective.

hpowders

Volvomax is of course correct.

There are quite a few stellar performers from CR road tests that the magazine refuses to recommend.

This information comes from the April 2007 Cars Issue of Consumer Reports, road test scores pages 36-40:

Volkswagon Passat (4 cyl) Rated Excellent. Not Recommended.

Mini Cooper. Rated Very Good. Not Recommended.

Porsche 911. Rated Excellent (96 out of 100 points). Not Recommended.

Mercedes Benz SLK 350. Rated Excellent. Not Recommended.

Chevrolet Corvette. Rated Excellent. Not Recommended.

Mercedes Benz SL 550. Rated Excellent. Not Recommended.

There are others, but my fingers are getting tired. :shades:

houdini1

Something else has to be wrong with these cars. Poor history, high price, bad feedback, etc. Or maybe CR just did not like the particular color that was tested.

designman

I saw a green SL550 on the road today. It was sort of a light shade of forest green. Looked great IMO. When I bought my Boxster I almost took one in green with beige interior, but I chickened out. Anyone else like green? Not sure what I'd think if they changed the backside of currency to another color.

;-)

blckislandguy

A New England Porsche dealer had a lovely dark green 911 with a beige leather interior that he couldn't sell for love nor money. A local MB dealer had a C Class wagon last year, the last year they offered a wagon in the C Class, in navy blue with beige interior. Looked real classy without the connotation of being in black. Same thing. He couldn't sell it until the next MY. A an earlier post here says that over half of all new S Classes are black. Notice any rigidity here?

tagman

Anyone else like green?

Apparently I need to re-aquaint you with this particular car-buying rule:

NEVER buy a green car.

Hey, don't get mad at me... I didn't write the rule. But if you ever break it, you'll have to live with the consequences.



TagMan

designman

There's a rumor that Porsche is looking to increase its stake in VW beyond the 30% mark which would trigger a mandatory takeover situation. Forbes doesn't think it will happen.

The rumor

Forbes on the rumor

designman

An earlier post here says that over half of all new S Classes are black. Notice any rigidity here?

I guess so. I also like the big ones in formal attire, black on black.

designman

Apparently I need to re-aquaint you with this particular car-buying rule:

NEVER buy a green car.

Nope, I know the rules. I have two silver cars and a white one. But I'm getting sick of silver, especially on the sports car. Don't forget, in my business I have to know and admire the entire color spectrum. ;-)

volvomax

NEVER buy a green car.

Unless its a British Racing Green Jag.

tagman

The old BRG color of the Triumph and Austin no longer work, even for the Jag, I'm afraid. While, yes, the Jags can wear the BRG attire better than most, they are still harder/slower to sell and resell.

TagMan

designman

Well, this should end speculation about how serious Porsche is with VW. This press release was put up on the Porsche website today. I’d like to hear opinions and interpretations, especially from the business pros around here. It’s headlined as a “Response to the challenges of the international automobile market” and a mandatory offer for VW is part of it. Here are clips from it:

“At its extraordinary meeting held today, the Supervisory Board of Porsche AG authorized the Managing Board to increase the stake held in Volkswagen AG from the present 27.3 per cent to up to 31 per cent of the ordinary shares and thus to make a mandatory offer for Volkswagen.

“The Managing Board of the sports car manufacturer regards the proposed increase of the stake in VW group as a logical step to enable it to meet the global challenges in the highly competitive automobile market even better. It is firmly convinced that the technical and strategic collaboration between Porsche and Volkswagen produces benefits for both partners. This particularly applies in light of the pressure to rationalize and consolidate in the global automobile industry as a result of the increasing international competition, especially from the up-and-coming automobile nations Japan, China (now the second largest automobile producer in the world), India, Malaysia, Russia and others. Cooperations and alliances are not uncommon even today, but in the not-too-distant future they will be a part of everyday life. Both Porsche and Volkswagen will be prepared for this. Based on the experience of their collaboration to date, both partners will be able to return a positive verdict.

“The automobile industry plays a key role in Germany: it creates a large part of the wealth and it must, more than ever, position itself for the future. Porsche intends to contribute to the success of this industry.”

Porsche Supervisory Board approves increase of stake in Volkswagen - Company to become a European stock corporation

dewey

It's good for VW shareholders. VW share prices have doubled since Porsche began showing interest in VW.

And it's good for Piesch and Porsche (Piesche's major controlling interest in Porsche makes his interests inseperable from Porsche). If VW thrives he wins. If VW dwindles he wins.

A prosperous VW would benefit Piesch since Porsche will own a big chunk of a thriving business. Troubles at VW may be even more beneficial for Piesch since a not so prosperous VW would likely spin off Audi and merge it with Porsche. That scenario would transform Piesch and his family members from controlling a small auto niche player (Porsche) to controlling a major luxury performance auto maker (Audi-Porsche). Not such a bad a scenario at all for the descendants of Ferdinand Porsche.

dewey

Green is the future.

This new green hyseria about the environment will make green cars an incredibly trendy colour(especially a hybrid but maybe not a green Hummer)

dewey

Increased competition from Japanese, Malaysian, and Chinese automakers was cited by Porsche as a main reason to increase its share of VW.

I certainly do have difficulty understanding the above reason. Chinese and Malaysian automakers are a threat to Porsche? So will a Malaysian Proton or a Chinese Chery steal Porsche Carrera sales? SOunds like a lot of BUNK to me.

If it is VW that is feeling nervous about competition then they would be best on focusing on the Japanese and certainly not the Malaysians.

designman

Well they seem to be showing what their long-term concerns are competing in a world market. I guess they want that piece of the bigger pie. I wouldn't make too much out of the Malaysia thing, not when they have Japan and China in the same sentence as up-and-coming world competitors.

What's not-so-curious is that Porsche doesn't want a majority stake. Between them and the state of Lower Saxony who has ~20% the combined stake just cracks 50% which brings us back to the German family thing. Porsche and the German government will now control VW. As long as the interests and welfare of the country and workers are taken care of, this probably means the government defers to Porsche on most business matters. Porsche will now control VW, lock, stock and barrel.

ljflx

Dman - Economies of scale. Said it before and I'll say it again you are going to see consolidation. It is inevitable because the size of future investments and the global competition are going to be hard for any niche business to compete with. What is happening here is textbook business, starting with price erosion and residuals that no longer hold up and ending with business consolidation. In the middle you get a slew of reliability problems as the old world lux makers try to lead with new tech but lack the car volume sales to do it with. Pure textbook and happens in any industry. It's why you see high end clothing makers get absorbed by other larger lower end makers or even by retailers.

Don't know what MB is going to do. But Chrysler is it's Iraq so it has a choice of two bad options. I have a feeling DCX sheds Chrysler, if it really can, and/or goes private. There's a lot of money out there for that.

Lexus was the straw that broke the camels back. It's success meant that the niche lux business and sports car business was broken. It meant the mass car maker could infringe upon and forever change the lux market and eventually the sports car market. Until Toyota bridged that gap the two markets operated in different hemispheres. No one ever brought economies of scale to the lux or sport car market before. That's why they were able to charge whatever they wanted and residuals would hold up in the old days. So Porsche is ahead of the curve here and trying to preserve their business in the long-term. But in this case Porsche is trying to cheat the system and get it while only taking on the risk of a minority share of the bigger company. They saw what happened to MB with a 100% absorbtion of Chrysler and don't want that risk. Unless there is some kind of gentleman's agreement here (or as they always say, someone has pictures of someone else that must stay unseen), this tells me that VW/Audi isn't in the best of shape. He who controls the deal wields the power and Porsche is controlling this deal.

dewey

Lexus was the straw that broke the camels back. It's success meant that the niche lux business and sports car business was broken.

This VW/Porsche news has as much to do with Malaysian Protons as it does with Lexus. In fact the European niche lux business has never ever been healthier than what it is is today. For the thousands of new millionaires born daily worldwide (especially in emerging markets) a niche European Lux Car becomes as essential to own as a rare Swiss watch.

Lexus does not have a strong worldwide franchise and their business model is quite inept when compared to the global successes of BMW or even Audi. In fact Lexus caters more to the North American middle classes especially among those who wants more panache than a mainstream Toyota. Unfortuantely in this case BMW is taking away sales from Lexus in North America with middle class-friendly lease deals. Sooner or later BMW will not only be number one globally but also number one in the USA (I am willing to make a wager with anyone who thinks otherwise).

The Toyota threat against VW is another story altogether. In this case VW has a lot to learn from Toyota in terms of manufacturying mainstream high volume cars.

dewey

Porsche and the German government will now control VW. As long as the interests and welfare of the country and workers are taken care of, this probably means the government defers to Porsche on most business matters.

In that case both Porsche and VW will be eaten alive by gloabl competition. This kind of tribal and national thinking is the real reason for the economic demise of Europe.(well maybe not every single European country).

In the end most consumers dont give a damned about a car's national origins. Here at Edmunds I find it very hard to find Americans who are patriotically swayed by Detroit cars.

tagman

Economies of scale. Said it before and I'll say it again you are going to see consolidation.

This is correct and inevitable. If done correctly, the benefits are all too realistic. Production of vehicle components in huge volume lower the costs... and can provide a more competitive retail price. I expect to see more and more parts-sharing than ever before... even certain parts and components that are "common" to all models of the same manufacturer... with increased reliability.

TagMan

tagman

For example, if the real production cost of a new HELC called Macrolla (which is really a Corolla with a new badge) is only $12k, if the MSRP is $200k, the manufacturer can lease the car out with 90% 36mo residual and still make handsome profit.

Hey, brightness, I want one of those Macrolla cars... that's an even better deal than hpowder's BMW deal. Since it's made by Toyota, it won't fall apart piece by piece the way the BMW does, according to houdini. And, I'll bet that Mcdonalds granted rights after a hefty palm greasing from Toyota to use the name Macrolla. Certainly such a car comes with a strong warranty and maintenance plan, and a 3-year supply of Big Macs. No doubt, CR LOVES the Macrolla... and has placed it on its recommended list as well.

TagMan

brightness04

The last time I checked, Malaysian Proton was not having 76% sales growth in Europe, like Lexus had in 2006. It's not exactly the time tout emerging markets, as they are heading down fast, just like in 1997. The economy goes in cycles; linearly projecting from the most recent past is a sure way to the poor house. Porsche was a tremedous growth and profit story back in the 1980's, but by the early to mid-90's, it was on the verge of bankruptcy. That's how dependent niche players are on the economic cycle.

I'm not sure what BMW will become number one of. The lease deals are already making the 3 series compete at the real life price levels of stripped Avalons and V6 Camries. With 1 series coming, the brand will become even more dominated by cars at plebian price levels. In terms of total vehicle sales, I'm not even sure if BMW is in the top 10 in the US or worldwide, much less #1.

dewey

Tagman,

there is a lot to be said about economies of scale. There is also a lot to be said about niche auto making. If there wasnt much to be said about niche auto making then Porsche would not have the cash to buy VW shares. BMW would not be rated the 9th most admired company by Fortune Magazine.

If economies of scale is so great then GM would be a perpetual leader. Also reliability is not necessarily a product of economies of scale.

brightness04

You can go to your nearest Toyota dealer to get the Corolla and slap the Macrolla badge on it. They won't refuse your $200k check, so long as it is legit. If you want to lease one, I'm willing to underwrite it for you: $200k MSRP, $195k capitalized cost (I'm being nice and give you $5000 off MSRP), 90% 36-mo residual, 0.00125 money factor just like BMWFS. I will underwrite the 3-year maintenance plan (heck, I will give you 5k oil change interval instead of 15k). You do have to pay for your own Big Mac's. So please come and sign on the dotted line. I can even attach a special plate to the car that says "this car MSRP $200k."

dewey

I'm not even sure if BMW is in the top 10 in the US or worldwide, much less #1.

Interesting perspective. Wrong but still intersting.

In fact I am looking forward to a smaller 1 series. Based on what I read the small Lux segment will be the fastest growth segment in North AMerica. Even Lexus intends to introduce a small A3/1 Series competitor.

tagman

Yes, there is a lot to be said. I'm touching on something that interests me about the potential of a giant manufacturer, like Toyota, for example.

I recall Mercedes recent announcement that they will be reducing the number of different components to a smaller number of "common" components. Good idea, IMO.

Large companies can build "common" parts that are shared across the model lines. This is good economics, IMO. If done, correctly, through the process of elimination, the most economical and reliable parts can become the ones that are utilized. Service benefits as well.

With regards to GM, they made mistakes. Even their philosophy was wrong. Toyota proved that there is a better way to do it.

TagMan

brightness04

There is also a lot to be said about niche auto making. If there wasnt much to be said about niche auto making then Porsche would not have the cash to buy VW shares.

If not for economy of scale, Porsche wouldn't want to buy VW :-) It's hard to argue Porsche buying VW for quality carmaking ;-) I actually give Porsche credit for looking beyond the current boom and getting ready for lean times, this time around.

BMW would not be rated the 9th most admired company by Fortune Magazine.

I'm rather surprised that a CPA/CA with long career experience would not have some vague idea that Enron was named the "Most Admired" company in terms of "Quality of Management" in 2000 and #2 in 2001; Enron was also named the "Most Admired" company in terms of "Innovativeness" in 1996, 1997, 1998, 1999, 2000, and 2001 in terms of "Innovativeness." In 2000 Enron was named the second "Most Admired" company in terms of "Employee Talent" . . . all by the same Fortunate Magazine.

Like I said, book cooking can make things look really good for quite a while. Enron was the master of financial engineering; Andrew Fastow was the sharpest accountant/CFO in the world ;-)

tagman

What's your point, about Enron? So what?

TagMan

brightness04

Luxury car used to be defined as cars worth $35k or more; that's roughly 20 years worth of inflation ago. I don't think a tarted up VW Golf carrying a different badge and its competitors can be considered luxury cars. $35k car should have a fair-market lease rate of roughly $500/mo; with 20 years of inflation adjustment, that should be over $800/mo. I doubt even half of what BMW sells really meet the luxury price point (even the $500/mo line), without further dilution fom the 1 series coming here.

brightness04

Read Dewey's post and find the point that I was rebutting. Companies run as badly as Enron could and did get nominated to Fortune Magazine's "Most Admired" list; heck, repeatedly placing much higher than BMW.

brightness04

I agree with your point on parts management. Besides up front material and production cost reduction, sharing common parts and subsystems also make debugging easier and result in more reliable cars (or at least cars easier to fix).

Another driving force behind the industry consolidation and need for economy of scale is that, it's getting progressively more expensive to develop new cars. A new Civic cost $5-10 billion dollars to develop. There just isn't that much money possible on cars with low volume. The result is that cars developed on smaller budget don't have all the bugs worked out before reaching consumers. I do not for a minute believe Japanese are inherently better at attention to details; heck, the Germans are known for their talent for tweaking and optimizing since the dawn of automobile age. Yet, having a much smaller R&D budget for a new car means there literally aren't as many man-computer-hours to examine all the minute details and subsystems. That shows up in the quality and reliability of the cars.

tagman

And Barry Bonds might have used steroids... but that doesn't take away from the greatness of history's legitimate homerun champions.

Consumer Reports once said the Audi Fox (a real Enron of a car) was a great car... by your logic, I should therefore expect that their praise of Lexus is all BS.

TagMan

brightness04

How many years did CR praise Audi Fox in a row? Do we have evidence that a whole string of top homerun champions are on steroids?

Besides, these at least had some substance, like Bonds actually had to run ;-) Ranking by Fortune Magazine is an entirely different matter altogether. Ever heard of the "magazine cover effect"? i.e. when someone or some company graces the cover of a general purpose magazine with glowing praises, it usually portends a hard fall coming up next.

In any case, the long list of Fortune top rankings for Enron over many years is more than a valid rebuttal for the assertion that BMW would not have made the Fortune list without being an honest-to-god well-run company.

brightness04

hahaha, I heartily agree!

BTW, I actually do like light shades of green, and one of my current cars is light green. hmm, the resale, I have no idea; wouldn't worry too much as the car is already 6 years old.

ljflx

Whatever you say Dewey. I'm an auto exec at a large company and see Lexus quickly vault to the top of the most important market in the world and now they are intending to penetrate my domain and I'm going to look the other way. Sure.

But my point had nothing to do with Lexus anyway. It was a point that the barriers to entry that these guys had are braking down or have broken down. Plus the cost to do business in the future is going to require large scale investments that can easily change the playing field and those costs need wide scale car sales to spread them over. That's why they are acting. If you don't have volume sales you can easily be priced out of the market in the future. If a player like Toyota didn't bridge the gap then there'd be a lot less pressure.

It seems that talking about some of the German makes and linking Lexus in touches sacred soil with you. This is pure business and I'd say the same things about these companies if they were pots and pans manufacturers. You were the guy touting no consolidation and your already seeing it happen in less than one month since you took that position.

tagman

I'm going to have to agree with you on this one, lj, as I often do. But, I'm still in disagreement over your claim that gas prices were going to stay low... I told you that they would go back up soon, and I'm already seeing evidence of rising prices lately.

One nice thing I've seen out here in California is that diesel fuel is now cheaper than regular grade gas. If this stays this way, the diesel vehicles that will be coming soon will get a little help from fuel prices as well as the new revised 2008 EPA fuel economy ratings, which reportedly will hurt hybrids and help diesels.

TagMan