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- 29 Jun 2015
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Luxury SUVs: Fleeting Phase Or Lucrative Opportunity?

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From Tesla to Rolls-Royce, rumours are swirling that a troop of luxury SUVs are on their way in. Here, we go behind the hype to ask the experts about the impact on the bottom line.

Luxury Sports Utility Vehicles (SUVs) may not be new, but they are certainly ‘hot’ right now.

Earlier this month [17th June], Jaguar Land Rover celebrated the 45th birthday of its iconic Range Rover model – “the first luxury SUV in the world”, as the company’s Director Global Engineering Operations Nick Rogers described it.

The model, revealed to the world in 1970, spawned an entire sub-series and has not lost its appeal, according to the latest reports, which state that the model had sold 26,519 units to May this year – an increase of approximately 20% on 2014.

Land Rover had its best ever full year in 2014, with sales reaching 381,108, up 9% year-on-year. Notably, the company confirmed it sold more Range Rovers, Range Rover Sports and Range Rover Evoques in 2014 than ever before, on the back of continued strong customer demand.

It’s latest model, however, is set to become “the most desirable and sophisticated Land Rover ever, mixing peerless comfort with cutting edge technology to provide the ultimate luxury SUV experience”, says Rogers.

While we can put that down to natural evolution at Jaguar Land Rover, the company is no doubt aware of competitors snapping at its heels and preparing to take on the swathe of super-luxury SUVs which are currently in the making.

Electric car company Tesla was one of the first to bite the bullet and has since received pre-orders of 20,000 units for its upcoming Model X crossover SUV set to roll out to the markets this coming September, according to reports.

High-end marques such as Aston Martin, Bentley, Lotus, Porsche, Maserati, Jaguar, Lamborghini, Alfa Romeo and Rolls-Royce have since followed suit and reportedly all have SUVs or ‘cross-overs’ in the pipeline – although, in the name of accuracy, the latter avoided the labels and defined its new model rather as “a high-bodied car that delivers supreme luxury yet is effortless to drive … and can cross any terrain”.

But is the shift to this new segment a smart move, a lucrative investment, and above all – sustainable?


 SUVs now account for about 20% of light vehicle sales overall 


According to Neil King, Automotive Analyst at Euromonitor International, the answer to the first couple of questions, is yes.

Based on research gathered by the global firm, SUVs now account for about 20% of light vehicle sales overall, and high-end luxury brands moving into that space will by and large be pioneers in that field – save for a few ‘obscure’ ultra-opulent competitors in the space, such as Dartz – which as King describes it, is more a “military-grade” tanker than a luxury SUV.

“I think, fundamentally, the trend towards more luxury car marques moving towards this [SUV] trend is just a nod really to the popularity of SUVs across the board. I mean, just to put it into perspective on a global scale – essentially one in five vehicles registered globally, except buses and trucks – is an SUV. So I think the luxury car markers have picked up on that – they’ve recognised that this isn’t just a quick trend or a fad that people initially thought it may be – whereby it was a fashion statement which saw people moving to SUVs and then with a generational shift, people would move back into other vehicles. It hasn’t really materialised that way, and the momentum has just continued and, obviously at the top end, apart from some incredibly rare, exclusive vehicles, there is nobody really in that space – and yet it is such a sizeable chunk of the automobile market now,” he says.

“So, when you talk about all those luxury players all rushing in, you realise that, as it stands today – apart from a couple of obscure million-pound Dartz-type vehicles, there is no real luxury SUV in the market right now – if you think about luxury as over the $200,000 mark.

“Apart from those real obscurities, the most commonly-known expensive SUVs that you can buy commonly buy today are pretty much the Range Rover and the Porsche Cayenne. Which – unless you fully load them up with Swarovski crystals or something – you’re not going to get them over the $200,000 price point.”


 Expansion into new segments can alienate existing customers as much as it can attract new buyers 


Andy Turton, Global Development Director, Automotive at global research agency TNS, concurs and adds that there is no question in his mind as to the long-term profitability for luxury car brands going into the SUV market – however, he warns that there could be other possible consequences which are, perhaps, not as clear cut.

“All auto brands listen carefully to consumer needs and respond accordingly – they have recognised a market gap and attempted to fill it. Auto brands are also extremely commercially savvy; so rest assured that they will have validated the business case for this movement fully, including the potential impact on their luxury brand image of offering vehicles whose styling does not easily lend itself to the classic design lines associated with luxury auto brands,” he says.

“However, luxury auto brands have valuable brand assets and distinct ‘cultures’ – so expansion into new segments with very new vehicle design lines can alienate existing customers as much as it can attract new buyers.

“Therefore, the balance between retaining loyal customers while attracting new buyers is their biggest challenge; making sure that everything that loyal buyers love about the brand is untarnished by new products in a new segment.”


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Where The Wild Things Are

Pinpointing which markets will most readily engage with a new segment – be it because of brand image, status symbols, or genuine necessity for the product – is also a consideration that must be top of mind for luxury marques musing on SUVs.

On this subject, Turton says he believes China and the USA will be two of the biggest up-takers of a luxury SUV offer, while King casts his net a bit further afar.

“They are popular in the US obviously, partly because of low fuel prices but in terms of other areas where I would foresee these beg the most popular – China, again, because that precedence on the road is important – but also Russia might be another big market,” he says.

“The other area which I assume will be a big investor in these luxury SUVs is the Middle East – because of a combination of three factors, really: The terrain and road conditions, these vehicles might actually see some desert; the low fuel prices, obviously, out in the area; and of course the sheer numbers of wealthy potential customers.”

Looking behind the consumer psyche, King adds that while geographical factors obviously impact – there are cultural inclinations which may also influence the uptake of luxury SUV vehicles in some regions over others.

“I think in terms of cultural influences as well, consumers in those particular regions think will engage more with these vehicles because of the status symbol they represent – although in Russia, I suppose you could also justify their purchase because of the road conditions as well.. But it’s more so to do with status and security,” he says.


 Whether the market sustains, remains to be seen 


Will It Last?

While consumer demand for the luxury SUV certainly seems to be alive and well, one the most obvious considerations before jumping on the bandwagon should be the sustainability of this appeal and whether buyers will continue to splash out on an off-roader which – at $200,000 plus a pop – will, most likely, never leave the city gates.

On this note, Turton doesn’t give too much away.

“I’m not convinced that off-road is an actual consumer connection with SUVs and, even if it is, it’s not a ‘real-use’ driving occasion, more a projection to the world that the driver is someone who could take to the off-road challenges.

“So whether the market sustains, remains to be seen – but auto brands do their demand research very carefully – because the investment required to produce a new product is so large – so there must be good grounds to suspect that it will sustain…

“It’s all about revenue and profit growth – all businesses need to grow and one path to growth is expansion into new vehicle segments. No auto brand would have done this unless they had carefully proved the case that their brand in this new segment would have appeal to enough buyers to make it economically worthwhile.”

It is clearly in this vein that some market specialists have also attributed the sudden rush of the luxury SUV trend to an attempt by luxury carmakers to broaden their appeal.

However, others argue that it is more an exercise in differentiation, and a race into a new space to make their own, as the luxury car market becomes more and more saturated.


 In forging new paths into the SUV segment, luxury car marques are somewhat at a crossroads 


Whichever it may be, in itself depends on the individual marque’s strategy – taking into account the available market to sell to and the sustainability and continuity of a trend such as luxury SUVs within its chosen target market – but the price point will be a telling feature.

In forging new paths into the SUV segment, luxury car marques are somewhat at a crossroads – move up the ladder to capitalize on the aura of exclusivity – or down it to the more mass ‘middle’ market, to capture the largest or most lucrative set.

As King says: “Luxury is a strange one a far as cars are concerned, because it’s so semantic – because some people when they talk about luxury cars are talking about BMWs and Audis and Mercedes and they say that’s luxury – whereas other people will say it’s $100,000 or over $200,000, so it’s sort of very difficult to pin it down officially.

“At that point you could even argue that Porsche isn’t necessarily luxury, but actually what we would call ‘near luxury’."

That’s not to say that ‘near luxury’ isn’t as profitable though. Far from it.

King in particular, points to the Porsche Cayenne as a case in point and a success story of the ‘near luxury’ SUV variety.


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Porsche Cayenne, 2015


“I think aside from how SUVs have gained in popularity generally, both in the mass market and the premium market, luxury brands looking at this space must also be looking at the success that Porsche has had with the Cayenne,” he says.

“Off the top of my head I think the Cayenne is probably the marque’s best-selling model overall. They were selling about 80,000 units around 2009 and last year they were selling around 190,000 – so they’ve almost doubled and the lion’s share of that is accounted for, really, by the addition of the Cayanne SUV and the Macan, which is probably the only luxury Compact Utility Vehicle (CUV) available..”

“There is often this blurring of the lines as to what is luxury and what’s not, and it comes down to, well if these brands move downmarket in a sense – are they essentially diluting their equity in a sense and becoming premium instead of luxury? But by the same token, you’ll have some premium players obviously eyeing the more upscale territory as well, so it’s a mixed bag” says King.

That is – unless a brand can do both.

According to King, Maserati is one marque which has done particularly well in this area and managed to introduce fresh blood to its offer and capture new customers ‘below the line’, while not staying too far from its high luxury origins.

“Maserati is one luxury brand which has done phenomenally well in this area when they introduced the Ghibli – which goes more head-to-head against a BMW 5 Series or a Mercedes E-Class now, so that’s really heading down into premium market territory, which is obviously higher volume. But, their sales have now more or less quadrupled in recent years, largely on the back of that new model,” he explains.


Back To The Future


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Tesla: Model X


Asked the question of whether the increased interest in SUVs might mean that demand for the regular luxury car is waning, however, Turton’s response is reassuring.

“I see no evidence that regular luxury demand is waning, but there are more wealthy people in the world these days – especially in China – and more luxury consumers now have vehicle needs that the SUV meets very well than was historically the case,” he explains.

Yet, with only a handful of luxury car marques undeniably confirming they have put a luxury SUV into production – and those that have signed on, holding their cards close to their chest (eg. Tesla), the ultimate question remains: What will these luxury SUVs look like?

King offers a mild introduction.

“Well, I don’t want to get to technical here, but once upon a time, SUVs were built to be off-roaders and therefore, were incredibly rugged and had sort of, different engineering foundations to a car. But what we are looking at now – if we are looking at real luxury SUVs – these aren’t necessarily all fully intended for off-road use. Yes, they will go off road, but to be honest – the average Porsche Cayenne even, doesn’t really go off-road.

“On the investment front – the SUVs today will essentially be car-based. So, you’re not looking at a whole new vehicle where you have to move too far from the blue print of what a Lamborghini, for example, looks like.”

In that case then – perhaps the Latvian Dartz Prombron Black Shark [top image] – which retails at $1.5 million a piece, and includes features such as white gold, ruby embedded badges as well as a gold-plated, bullet-proof windows, an exhaust system made out of tungsten, diamond-ruby encrusted gauges, a Kevlar exterior coating, and a security system that uses fingerprint and retina scanning – is destined to remain ruling solo in its own space for a little while longer.





To further investigate the automotive industry on Luxury Society, we invite you to explore the related materials as follows:

- Luxury Auto Brands Swap Showrooms for Experiences
- The Luxury Automotive Sector Continues to Forge Ahead
- The Most Luxurious Launches from 2013’s Geneva Motor Show