Got $300,000? These cars are for you.
(FORTUNE Magazine) – Talk about an accident of timing. Over the next 12 months three of the world's preeminent automobile manufacturers--all German, as it turns out--will introduce a trifecta of new cars so expensive that they are known as ultra-luxury cars. Two wear the badges of revered but long-declining British automakers; the third revives the name of an obscure pre-World War II German automaker. The cars are among the most self-indulgent and socially irresponsible ever produced, and the profits they make for their manufacturers will be trivial. Yet auto buffs and industry analysts will intently follow the progress of the cars. The contest is all about corporate ego. The winning company could well be judged the world's top automaker.
First to the starting line is the technologically resplendent Maybach, made by Mercedes-Benz. The Maybach represents the sum of all the automotive knowledge at Mercedes wrapped in a distinctive and very flashy body. Next up will be the latest incarnation of the venerable Rolls-Royce, now being manufactured by Mercedes' longtime rival BMW. Think of the new Rolls as an English country house on wheels, a motorized Blenheim Palace for the 21st century. Finally, Volkswagen, that well-known maker of people's cars, will launch the Continental GT, the first of a new generation of Bentleys. The only two-door in the race, it is designed to reinvigorate Bentley's reputation for sportiness and speed.
The cars will carry sticker prices of up to $350,000 and will be available with options, such as armor plating, that could double their price. Selling such cars is an iffy proposition at any time, and especially during a period of collapsing stock markets, economic instability, and fears of war. But the manufacturers actually have little choice. The debuts of these cars are the result of decisions made in the mid-1990s. The manufacturers have kept their sales targets low, but perhaps not low enough. Maybach and Rolls both aim to sell 400 cars a year in the U.S. and a total per company of 1,000 worldwide. By some estimates, that would represent an eightfold increase in the existing market. Bentley expects to sell about 2,000 of its less expensive GTs.
A visit to all three companies in early December revealed surprising nervousness over the impending pileup. At Rolls headquarters in Goodwood, England, executives hurled zingers at Maybach like so many pub darts, ridiculing the car for being overly technical and too much like other Mercedes models. In Stuttgart, Germany, Maybach officials politely dismissed Rolls as a moldy anachronism and joked about the retro styling of the new car. Not to be left out, one top Bentley manager at the factory in Crewe, England, said that high prices would likely prevent Rolls and Maybach from reaching more than 30% or 40% of their sales targets.
In truth, experience in this tiny slice of the market is so limited that success or failure is hard to predict. Experts believe that about 40,000 people in the world can afford to buy a $300,000 car: members of royalty and heads of state, successful entrepreneurs and well-heeled executives (and their heirs), and athletes and entertainers. In any given year, about one-fifth will be shopping. Obtaining reliable transportation is the least of their concerns.
The ultra-luxe confrontation has been in the making at least since the early '90s, when Vickers PLC, a British industrial conglomerate that had owned Rolls and Bentley since 1979, moved toward selling the two brands. It had little interest in the auto business and didn't invest enough money to keep the cars competitive. They were practically identical to and contained less new technology than mass-market cars costing one-tenth as much. Rolls and Bentley's combined sales peaked at 3,324 in 1990, then slid precipitously, reaching a bottom of 1,360 in 1993. For the rest of the decade, annual sales never exceeded 2,000.
Among the interested shoppers were Mercedes and BMW, both of which wanted to move their upscale-car business to more rarefied levels. But after discussions with Rolls, Mercedes decided to drop out of the running. Explains one Mercedes executive: "At the end of the day, we said we didn't want to play this game. The price was too high." BMW, which was already supplying Rolls and Bentley with German-made 12-cylinder engines, decided to go ahead. In March 1998, BMW chairman Bernd Pischetsrieder agreed in principle to buy Rolls and Bentley for $572 million and outlined a plan to invest $1.6 billion in the company over ten years.
But BMW hadn't counted on the determination of VW chairman Ferdinand Piech, who also wanted to add more-expensive brands to his family-car lineup. In April 1998, Piech topped BMW with a bid of $640 million. BMW sweetened its offer, only to be trumped again by VW. Finally, in June 1998, Vickers approved the sale of Rolls and Bentley to VW for $704 million. The transaction seemed closed. But in a discovery that took everyone by surprise, it turned out that Rolls-Royce PLC, an aircraft company, still owned the rights to the Rolls brand and trademark, which it had been licensing to the car company. Rather than extend the license to VW, Rolls-Royce aircraft instead transferred the rights to the Rolls name to BMW, a longtime corporate ally, for $66.3 million.
So VW owned a car but no name, while BMW had a name but no car. To untangle the mess, the two companies reached a complex agreement. BMW promised to lease the Rolls name back to VW and to continue supplying parts until 2003, by which time BMW would be free to market its own Rolls. VW agreed to keep making the Rolls and to support the brand until then.
But there was one more twist to come. In early 1999, BMW fired Pischetsrieder, who then, a year later, was hired by VW's Piech and became board chairman when Piech retired last April. The upshot: Pischetsrieder, who had worked so hard to acquire Rolls, now found himself in charge of Bentley.
While BMW and VW operated under their complicated arrangement, Mercedes watched with amusement. After backing out of the Rolls-Bentley bidding in 1997, it began work on its own ultra-luxe concept, called the Mercedes Maybach. The car was first shown in the fall of 1997 at the Tokyo Motor Show, where it drew attention for its large size and its unusual two-tone exterior.
Mercedes soon put the Maybach into development. The name had been chosen to honor an engineer who worked with the founder of Mercedes at the beginning of the 20th century, and the engineer's son, who developed aircraft engines and a line of Maybach limousines so exotic that only 1,800 were built. At first the new concept car was known as the Mercedes Maybach. But potential customers thought the name was too common for a vehicle that would cost as much as three S-class sedans. So "Mercedes" was stripped from the car, as was the three-pointed-star insignia.
The company then toyed with the name "Maybach Zeppelin" but sensibly decided the airship connection might not be a positive one. In the end, Mercedes settled on yachting terminology, which turns out to be surprisingly appropriate. The 6.2-meter-long version, simply called the Maybach 62, stretches more than 20 feet from stem to stern--the size of a comfortable sloop. Maybach customers are expected to equip their cars the way they would a yacht, spending hours selecting fabrics, colors, hides, and woods. And riding in the big Maybach is like traveling in a steamer chair, with pillowed headrests, extended footrests, and seatbacks that recline to nearly horizontal.
Determining exactly how much customers were willing to pay for this kind of extravagance required some research. Mercedes flew the concept car to Hong Kong, Monaco, and New York City to poll potential buyers; it discovered that while customers weren't very price-sensitive, they did appreciate a bargain. Some asked for freebies--like a $115,000 Mercedes SL roadster--to be included with their purchase. "Based on our research, there are enough customers who are able to afford such a car," says Joachim Schmidt, head of Mercedes's sales and marketing. "If you deliver something very special, then you have a chance, even in this bad environment, to sell 1,000 cars." By the end of 2002 the company had sold 15 Maybachs.
While the Maybach's design has been public for several years, BMW developed its first Rolls-Royce in absolute secrecy. Created at a London design studio code-named "the Bank," and developed at a second secure location known as "the Bookshop," the car is due to be unveiled this month. It looks like an old Rolls that's been pumping iron--19 feet long, with a massive front end and hood, huge slab sides, and enormous tires. The size is somewhat deceptive; the Rolls is powered by a V-12 BMW engine said to be capable of accelerating the car from zero to 60 mph in less than six seconds--as fast as a Porsche. Some traditional features remain, including the iconic Rolls grille, which used to require 16 hours of work by artisans, who shaped it from stainless steel; the grille is now cast from aluminum in a much less labor-intensive operation. The Spirit of Ecstasy ornament still stands on the grille, where it can be retracted with the flick of a switch to keep it away from vandals.
Inside, the driver navigates the car with a thin-rimmed, bus-sized steering wheel. Many switches and knobs on the instrument panel are hidden by sliding wooden covers; thus, drivers see only 31, vs. 76 (by Rolls's count) in the Maybach. The rear passenger compartment, where many Rolls owners will sit, is entered through a center-opening door--an industry rarity. The rear floor is perfectly flat and the wide, elevated rear seat has the contours and armrests of a well-upholstered sofa. The transmission hump, foot wells, and center console have been eliminated.
Although major components, like the engine and body, will be shipped from Germany, Rolls is assembling the car at a new factory southwest of London. The plant has glass walls and viewing areas, so future customers can watch their cars being finished. If boredom sets in, the factory is conveniently close to a polo field, three golf courses, and racetracks for horses and cars (not to mention one very ordinary Marriott hotel).
Back in Crewe, 200 miles to the north, Volkswagen used a different strategy to re-energize Bentley. It is spending $800 million to develop new car models and to modernize an old factory that made engines for the Spitfire planes used in World War II. Meanwhile, VW is keeping the Bentley name alive by continuing production--through 2003--of the $290,000 Continental two-door and the $350,000 Azure convertible. And it will extend production of the $200,000 Arnage sedan for a year or two after that. One British automotive magazine described the Arnage, with its slabs of wood veneer and acres of hand-stitched leather, as "existing on the margin of outright vulgarity." Bentley expects to sell 1,000 of the old cars a year.
While its competitors joust to be biggest and best, Bentley aims to be hippest. "Maybach and Rolls-Royce are in the chauffeur-driven segment," says Bentley chief executive Franz-Josef Paefgen. "These brands are too self-conscious. We are going back to our sporty heritage." No chauffeur will find his way behind the wheel of the two-door GT. Bentley says the car will exceed 180 mph with a turbocharged engine that produces more than 500 horsepower. Despite a fast-back body that recalls Bentley coupes from the '50s, the GT will be surprisingly roomy in the rear and will have a trunk large enough for three golf bags. Just the thing for the GT's target customer: a mid-40s male with a net worth of $10 million.
VW has kept the GT's price relatively low, at $155,000, by adapting the engine and chassis from its $70,000 Phaeton and the all-wheel-drive transmission from Audi. Beginning in 2004, it hopes to sell 2,000 GTs a year. A sedan version based on the same components is due later in 2004 and should bring sales up to 6,000. With all this new volume, Bentley expects to report a net profit in 2005, which would be a historic achievement. Founded in 1919 and then acquired by Rolls in 1933, Bentley has made money only twice in its history.
The new entrants don't have the ultra-luxury field to themselves. Aston Martin, Ferrari, Lamborghini, and Porsche also sell cars at unworldly prices, and several production Mercedes command upward of $100,000. Since these vehicles are more trophies than transportation, their success depends on intangibles like heritage and brand as much as dynamic attributes like speed and comfort. Despite similarities in price and concept, Rolls and Maybach have developed distinctive cars aimed at different kinds of customers. The Maybach struts its stuff, while the Rolls wraps itself in diffidence. One styling detail expresses the philosophy of each car: The long curved roof of the Maybach exposes its rear-seat passengers to the outside world, while the thickly pillared top of the Rolls keeps them hidden from view.
Not long ago Mercedes boss Jurgen Hubbert took a phone call from Burkhard Goeschel, head of product development at BMW. Goeschel wanted to know when he could drive a new Maybach. "As soon as it becomes available," replied the jovial Hubbert, who also expressed interest in testing the Rolls. "We'll have an experience over the weekend when we compare notes about the cars. We'd do the same for Pischetsrieder and VW." And after that, the pleasantries will end, and they'll race each other to the world's richest customers.