Gas Prices No Obstacle for Rich Boomers

Discussion
Apr 28, 2006
George Anderson

By George Anderson


The largest car retailer in the U.S., AutoNation, Inc., says that the high prices being paid at the pump haven’t done a thing to slow down luxury car sales at its dealerships.


According to the company, the sale of luxury vehicles was up 15 percent in the most recent quarter and it sees no sign of letup in the near future.


Chairman and CEO of AutoNation Mike Jackson said, “I think over the next five years, the premium luxury segment will grow at double the rate of the volume market because of demographic trends. The baby boom generation simply shows no signs of slowing down or retiring.”


About the only thing that might cause a change in consumer’s buying behavior, said Mr. Jackson, is if a gas shortage should hit the country.


The reality of what is taking place at the company’s dealerships is different than what many industry watchers are saying.


“There is a resistance to change that is considerable,” he said. “There’s a lot of talk but you really have to look at behavior.” 


Moderator’s Comment: How do you explain the difference between AutoNation’s sales numbers and the perception that
luxury and less fuel-efficient vehicles are not selling as well as they once were? What does this say about the need for all retail businesses to engage in fact-based decision-making?

– George Anderson – Moderator

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10 Comments on "Gas Prices No Obstacle for Rich Boomers"


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Mark Lilien
Guest
14 years 9 months ago

After the Katrina peak, gas prices went down until the past month or so when they’ve risen again. It’s not hip to drive a guzzler these days. And no one likes to feel exploited by paying a lot for gas, regardless of income. Smart automakers (a very tiny group) will sell high margin luxury vehicles with great gas mileage. Whom would you like to be today: the exec in charge of Prius sales or the exec in charge of Hummer sales? Who has more job security?

John Lansdale
Guest
John Lansdale
14 years 9 months ago

Let’s distinguish between luxury and burning a lot of gas.

Even wealthy people don’t like to look old-fashioned, dumb or anti-social.

There’s a good illustration in an old Walter Annenberg biography. He showed up at one party in a big, chauffer driven limousine. Much to his dismay, he was the only one in a limo so he rushed home, grabbed a station wagon and returned driving himself.

Today he may show up in a black Lincoln and discover Priuses.

The market is ripe for a 80 MPG (superior engineering not power), $50,000+ vehicle that seats four.

Camille P. Schuster, PhD.
Guest
14 years 9 months ago

During the last quarter, I have paid $3.01 for gas (last week) and $2.63 for gas. For part of the last quarter prices were actually falling. During the last two weeks the prices have spiked. If AutoNation’s results are for the last quarter I wouldn’t expect a decrease in sales. However, if prices stay over $3.00 for the current quarter, I would expect a slowdown in sales.

Kai Clarke
Guest
14 years 9 months ago

Gas prices are a small factor when examining the desired attributes of a luxury vehicle. The historic inelasticity of demand for these vehicles (and their propensity towards large size and high prices) continues to grow and support a population which doesn’t care about conserving fuel or saving money on the price of a vehicle. This will continue to grow because of demographics and, more importantly, as the “graying” of the baby boom generation advances. As retailing progresses, fact-based decision making becomes more important in identifying and aligning oneself with current customer’s needs. Evolve or perish is reflected in modern business, and this depends on how accurately one’s business can anticipate and mirror their customer’s wants. This can only be done using data mining, data drilling and market segmentation analysis in-line with fact-based decision making.

Chuck Hartwig
Guest
Chuck Hartwig
14 years 9 months ago

I think the categories need to be luxury car and luxury truck. Some of the large luxury trucks and SUV type vehicles, that usually only have one person in the vehicle, are starting to slow. But luxury cars, that have a six speed automatic transmission, are making 25 plus miles per gallon. I made 28.28 MPG on my last trip, driving a luxury car with 105,000 miles on it. It is a luxury car but also has excellent value, and safety.

David Vandagriff
Guest
David Vandagriff
14 years 9 months ago
If you look at the total dollars, there’s not a giant impact on operating costs between $2.25 gas and $3.25 gas. Here are some annual gas costs at various MPG levels which assume that a vehicle is driven 15,000 miles per year. 15 MPG $2.25 – $2,250 $3.35 – $3,250 Annual Savings over 15 MPG $2.25 – $1,200 $ 900 25 MPG $3.35 – $1,950 $1300 While gas prices are very visible, they are a small part of the overall cost of a car. The more expensive the car, the smaller the percentage of total costs that gas represents. Monthly payment $765.77 – $25K principal – 36 month loan – 6.46% interest $1378.39 – $45K principal – 36 month loan – 6.46% interest If consumers were worried about a $100 per month difference in the cost of a vehicle that gas represents, they would likely buy a less expensive vehicle in the first place. I think that the non-reaction of the luxury car market to a 50-cent per-gallon gas price change may represent a financially… Read more »
Ben Ball
Guest
14 years 9 months ago

First rule of Marketing: Consumers talk with their mouths and vote with their wallets. Believe the sales numbers.

Second rule of Marketing: Every purchase represents a tradeoff in utilities. For those who can afford the tradeoff and place a high utility on either luxury or capacity, the purchase will still go to the lower mileage vehicle.

Third rule of Marketing: If there is a utility tradeoff that can be eliminated, you have a winning product. Someone will combine luxury with efficiency (in fact they already have) and soon we will see high capacity trucks and SUV’s powered by high torque, high efficiency 4 cylinder turbodiesels just like the ones in Asia. They won’t do 0-60 in 7 seconds, but they will move a 5,000 lb vehicle and a 6,000 lb tow load up a 15% grade just fine.

James Tenser
Guest
14 years 9 months ago
A better distinction than luxury vs. non-luxury vehicles might be large versus small. If the high gas prices are having an effect on vehicle sales, I’d hypothesize that the first negative impact might be felt on lower-priced, large vehicles, such as full-sized pickups and Mercury Marquis. Has AutoNation looked at its figures along that dimension? Regardless of the answer to that question, all this talk about lower mileage vehicles amounts to so much rearrangement of deck chairs on the Titanic. As long as we accept dependence upon gasoline-powered vehicles, this country will continue to go down slowly. What’s needed is a vision for an entirely new energy infrastructure for this country, one that incorporates hydrogen fuel and solar-electric power generation. Here’s why: Carbon dioxide is killing the planet by contributing to global warming. The only non-nuclear fuel known that does not create huge quantities of CO2 is hydrogen, which leaves only water vapor behind when it burns. Hydrogen is extracted by electrolysis of water into its component elements. Much of the electricity for this may… Read more »
Bernice Hurst
Guest
14 years 9 months ago
Ron makes an important point about the definition of luxury. The most highly priced cars are frequently that because they have been imported and there is a certain status associated with them so can justify a higher price. They do not necessarily consume more gas and, in fact, many are hybrids. There is probably some sort of message in that – hybrids are luxurious??!!! As to his question about sales being flat but revenue up, the explanation for that is the whole point of the story. More cars in the luxury category were sold than in lower price ranges. Overall total number of vehicles did not increase. It also raises questions about people who would like to consume less gas but can’t afford to buy luxury (hybrid) cars. This story isn’t at all as simple or straightforward as the headline makes it appear. There are other interpretations of all this, of course. Those with money have no reason to economise or worry about prices. Only when they begin to feel the pinch will they even… Read more »
Ron Margulis
Guest
14 years 9 months ago

First off, you can’t always equate a luxury car to a gas hog. At the NY Auto Show a few weeks ago, every luxury car-maker I saw was touting some kind of fuel efficiency message, as were Ford, GM and everyone else. Acura, Lexus and Mercedes Benz all had hybrids featured in their exhibits, and the literature for the new BMW Z4 was all about how fuel efficient the car is.

As for the sales of Chevy Tahoes and other SUVs, have you seen the incentives being offered? That $5K the consumer is getting off the price of a car or truck will cover several dozen trips to the gas pumps at $3 per gallon. People are just making a trade-off, and not a great one for sustainability.

BTW, there was one sentence in the article that I couldn’t figure out – ” Overall sales were flat for the year, but revenue was up 4 percent to $4.7 billion.” Are they saying the service and parts business is growing, but car sales aren’t?

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