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2010 BMW 7-Series (eb.andriuolo)
2010 BMW 7-Series (eb.andriuolo)

One On One

In luxury market, exclusive counts Add to ...

While Mercedes, Audi and BMW are all heading for record sales years in Canada, the premium car segment in the United States has been badly hammered this year by the near collapse of the American banking system.

At BMW U.S. for example, year-to-date sales are down 25.6 per cent.

But the interesting story within the declining sales number is that the most expensive models are selling better than the lower-end stuff. Even with total BMW sales being off by a quarter, the high-end 7-Series was up by 10 per cent in October.

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The other telling point is that, in the down year in new-car sales, BMW's certified used-vehicle sales increased 11.6 per cent.

The man trying to make sense of it all is Jim O'Donnell, chairman and CEO of BMW North America and regional manager for the United States, Canada, Mexico, Brazil and Argentina.

O'Donnell is an outspoken Scot and a 17-year BMW veteran. While others worry that the premium car segment will never get back to the level of business it was doing before the recession, O'Donnell remains confident, defiant and fiercely independent. You can see why the Bavarians like him.

Vaughan:After the financial meltdown, I think the premium car segment in the United States is going to be a lot smaller.

O'Donnell: I don't agree with that at all.

If you study the demographics in the United States, you'll see that they're the best in the world for people moving into the premium car market. I think that market will grow over the next 10 years.

There are lots of young people coming through the system and some will benefit from the wealth they inherit from their parents. We'll see that the growth in the premium segment will outstrip growth in the overall market.

I'm amazed that the high end of your lineup has held up so well. I thought you would have to bring the purchasers down to your less-expensive products.

I don't see what is going to change the taste of the American consumer.

Look at what's happened even over these last 12 months. A year ago, the American consumer couldn't get rid of their big engines and big trucks fast enough. A year later, it's all forgotten and I mean completely forgotten.

A year ago, the bottom fell out of the used-car market and you couldn't give them away. Now they've increased in value something like 18 per cent year-on-year.

So I don't think the Americans' love affair with big cars and V-8s has disappeared.

But now you can buy premium cars from South Korea for $25,000 less. There are more manufacturers crowding into your premium space.

No, no, no. Because somebody in Korea says they're selling a premium car it doesn't say they're in the premium market.

I think that's true of jewellery, fashion, whatever. You just can't say you're a premium manufacturer and get everyone to believe it.

I think if you did a straw poll of a group of Mercedes and BMW drivers out there, they'd say no.

Audi has made great strides in the premium segment. Audi is part of the Volkswagen Group and can dig into the group for engineering and technology and doesn't have to develop it all on its own the way you have to. Therefore Audi gets it cheaper and therefore can spend more money on eye-catching interiors for example. Aren't you at a disadvantage standing alone?

I think if you look at it from a pure variable, direct cost point of view, you're absolutely right. We are at a disadvantage in comparison with Audi.

However, if you look at it from a consumer's point of view, he knows when he's buying a BMW he's buying a BMW through and through.

When you buy an Audi, you're buying a bit of Volkswagen, a bit of SEAT, you know.

Is that an authentic brand?

Well, you might also get a bit of Porsche or Lamborghini. That's not bad.

Well, at least we've got BMW original parts.

I'm not saying that the Volkswagen parts are bad. But I think in terms of pure brand strength, we are undiluted. They are slightly diluted.

Which leads to the big question about BMW. Can BMW remain stand-alone independent? Isn't at least an alliance with another manufacturer inevitable?

I think definitely BMW can remain independent if that's the way the Quandt family [the controlling shareholder]wishes to pursue it.

I think the recent traumas of the car market have indicated that the bigger you are the more you can lose.

I don't know how many alliances General Motors had, but they failed. Toyota recorded a huge loss last year and a bit of the gloss has come off Toyota.

I don't think big is beautiful. I think you need to give the market what they want. People are willing to pay for premium products.

We will never be able to match Audi in terms of pricing. We will never be able to match Lexus in terms of pricing because they also have the benefits of scale and get a lot of their technology from Toyota. We can never match that. That's why if you look at the American market we're priced roughly 10 per cent ahead of them.

So I do think we can maintain our independence because sometimes small is beautiful.

Michael Vaughan is co-host with Jeremy Cato of Car/Business, which appears Fridays at 8 p.m. on Business News Network and Saturdays at 2 p.m. on CTV.

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