At Speedway Motors Ltd. in Victoria, Carl Munro sees no signs that luxury car buyers are worried about the tepid economy or plunging stock markets. It's precisely the opposite, in fact, as sales of Audi and Porsche models surge.
"Just to give you an idea, our sales for 2010 for Audi were up 50 per cent on the nose," Mr. Munro, Speedway's vice-president of operations, said Thursday. They keep rising: Speedway sold 120 new Audis last year, expects to sell another 150 this year and is projecting 200 sales in 2012.
These are happy times for Speedway, for European luxury auto brands in Canada and for luxury auto makers generally. And they're about to get even better.
The luxury vehicle market will grow by 69 per cent by 2020, industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. said Thursday. That jump will be propelled by an estimated $1-trillion that stands to be inherited by 25- to 55-year-olds, a growing number of Canadians reaching the 55-to-65 age bracket – who tend to have the highest incomes and so are most inclined to buy luxury cars – and continuing moves by luxury auto makers to broaden their product offerings.
The figures underscore the new reality of the auto sector: The luxury and entry-level segments of the market are growing, while "the middle is collapsing," Mr. DesRosiers told a Google Canada auto conference Thursday.
As of the end of August, luxury sales represented 11.3 per cent of the market, while entry-level vehicles grabbed 47.9 per cent. Sales of mid-sized and family vehicles, such as minivans, plunged to 23.2 per cent from a dominant 40 per cent in 2000.
Luxury auto makers have cut into the vast middle of the market by expanding their product lines beyond the traditional, full-sized sedans to compact cars, crossovers and full-size sport utilities.
European auto makers have been the big winners in the Canadian luxury market, which jumped to 146,618 vehicles last year from 135,464 in 2005, Mr. DesRosiers noted, an 8.2-per-cent rise. The Europeans' share of that increased to 55.5 per cent in 2010 from 40.4 per cent in 2005. Almost all of that came at the expense of the Detroit Three, whose share of the luxury segment plunged to 16.6 per cent from 31.3 per cent.
Mr. Munro has noticed that trend, but also pointed out that many of Speedway's Audi buyers are migrating from other luxury brands. "We're seeing a lot of BMWs on trade, we're seeing Mercedes on trade, we're seeing quite a few Lexus on trade."
The only threat to the bullish forecast for luxury brands comes from new emissions standards being put in place by the U.S. government in 2016 and expected to be followed by Canada, Mr. DesRosiers said.
Burning less fuel means a reduction in greenhouse gas emissions, so governments have targeted fuel economy as a way of forcing auto makers to be more green.
Luxury auto makers have improved their fuel efficiency by double digits since 1981, but will have to boost fuel economy by another 34.5 per cent to 46.4 per cent by 2016, depending on the segment.
While Canadians snap up luxury vehicles, the potential for a double-dip global recession means the sustained growth enjoyed by Audi AG, BMW AG and Mercedes-Benz in other markets is far from assured, IHS Global Insight analyst Tim Urquhart said in a report Thursday.
"They are no doubt better prepared than previously for a double-dip recession," Mr. Urquhart noted.
China, one of the key growth markets for luxury makers, may be starting to slow down, he said.