There's mass luxury, like, say Starbucks. There's affordable luxury, like the occasional trip to Saks or Neiman Marcus. And then there's unaffordable luxury, like Ferrari, the Italian car brand whose entry-level vehicles start at around $190,000.
Amid a generally blah spring for car sales, Ferrari just turned its best half year in history, with revenues up nearly 20 percent from the year before. Worldwide, it delivered 11.8 percent more cars in the first half of 2011 than it did in the first half of 2010. And the U.S., its largest market, is booming. Sales in North and South America (with the U.S. accounting for the overwhelming majority of sales) were up 23.9 percent in the first half, to 939.
The numbers are impressive given the many headwinds to Ferrari sales. Rising uncertainty in the economy and the weak dollar, which makes Italian imports more expensive, would be expected to put a crimp in sales. You'd also think that the new normal of careful purchasing and concerns about flaunting wealth in an era of 9 percent unemployment would hamper sales.
To find out the secret to Ferrari's success, I trekked to the company's showroom at 55th St. and Park Avenue in midtown Manhattan. Watch my visit here:
It's not your normal car dealership. Only two vehicles are on display. Much of the space is filled with accessories —- luggage, clothes, model cars that go for about the price of a gently used Hyundai. Vivaldi plays in the background as visitors sip espresso in little glasses.
If the rich have done well in the past few years, the extremely rich have done extremely well. Ferrari North America President Marco Mattiacci notes that the number of high net-worth individuals grew last year and is back to the level of 2007. "What has changed is that people now want to spend, they want to enjoy life," he says. While anyone can walk into a Ferrari showroom, it's very hard to walk out with one. "Our philosophy is always to deliver one unit less than the market demand, as a way to keep exclusivity," says Mattiacci. The current wait for a California coupe (price: about $192,000) is six to eight months. (Mattiacci himself drives a Jeep Cherokee, made by another unit of Fiat.)
Unlike other luxury car makers, Ferrari hasn't adjusted to the new era by introducing a lower-priced, more accessible version. In fact, it went in the other direction. "We don't define our segment on price, we define it on best-in-class product," says Mattiacci. "Our customer is looking for something extremely exclusive. They don't want to see the same car in the parking lot."
The newest entry is the FF, a true four-seater, roomy, fit for a family. It costs about $300,000, and is the perfect bauble for the type of guy (almost all U.S. Ferrari buyers are male) who wants to drop his kids off at the soccer game in comfort. Why did Ferrari develop what could be described as a crossover? "Different Ferraris for different Ferraristi," says Mattiacci. "A lot of customers said, 'I would like to go Colorado to my ranch, I would like to go to ski, I need a Ferrari to go there.'"
There is one significant difference from the pre-crisis days. Most buyers can afford to pay cash, but today some 40 percent of car buyers in the U.S. rely on a lease or loan from Ferrari Financial Services, a financing unit started several years ago. (The typical customer using financing has annual income of $1.5 million a year and liquid assets of more than $10 million.)
Mattiacci foresees more growth and new dealerships in the U.S. But as with luxury brands, Ferrari may find that the greatest prospects for growth lie in China. Sales in China more than doubled in the first half of 2011; its network of dealers in the former worker's paradise is expected to rise from 10 to 15.
Daniel Gross is economics editor at Yahoo! Finance.
- car dealership
- the new normal
- luxury car makers
- Park Avenue
- midtown Manhattan