Anxiety for Lincoln, Buick as Porsche Makes All the Right Moves
The decision made by Porsche (VLKAY.PK) to expand its lineup past signature two-door sports cars generated criticisms from purists and aficionados, but from a business perspective, it may have been the best move the brand has ever made. When a block of luxury dealerships in Minneapolis was put up for sale in 2012, the Audi division and Mercedes-Benz brands were not the primary focus for the buyers.
“Porsche was the cherry on the cake,” said Jay Hulbert, the president of the dealership group that acquired the outlets, in a telephone interview with Bloomberg. “The volume is so dramatically different, yet when you dig into the financial performance, Porsche meets your expectations and then some.”
Dealers have put an added emphasis on the Porsche brand since the debut of its Cayenne SUV and Panamera four-door sedan, which increased the brand’s appeal to a much wider demographic of buyers. “In a period of sparse activity for auto-dealership acquisitions,” Bloomberg reported, ”the deals vaulted Porsche among the most frequently acquired franchises by publicly traded groups during that span.”
Adding to its appeal is the fact that Porsche’s 911 line of vehicles command some of the highest margins in the industry. “If a dealer wanted to sell, I have 10 buyers willing to overpay” for a Porsche franchise, said Bob Morris, a director at the auto-dealership brokerage firm Tim Lamb Group.
However, while the 911 helps give the dealers some breathing room around the margins, its the Cayenne and even the Panamera that offer the volume of sales needed for the franchise to be a viable business enterprise.
“There aren’t that many sports-car buyers in the world,” Alan Haig, now the managing director for Presidio Automotive, an auto-dealer advisory firm, said to Bloomberg. Haig previously oversaw acquisitions at AutoNation, the largest U.S. auto-dealer group. “Many Porsche stores were bought almost as a toy for the dealer, for him to have something nice to drive and to go on nice trips. But it wasn’t a serious money-making investment.”
With the introduction of the Cayenne though, those dealer “toys” suddenly became a far more valuable asset, as the SUV — which Bloomberg notes drives “more like a sports car than a truck” — began to lure affluent families into the dealerships, in addition to Porsche’s usual clientele of wealthy men. The Panamera, too, has helped turn Porsche into more of an everyday driver, not just a fair weather-only driver’s car.
Porsche throughput increased 23 percent in 2012 over the year prior, averaging about 183 vehicles sales per dealership franchise — better throughput figures than competing American luxury marques like General Motors’ (NYSE:GM) Cadillac or Ford’s (NYSE:F) Lincoln brand, and more than double the figures of the latter, as well as GM’s Buick brand.
So far this year, Prosche is on track to break the 200 vehicle throughput milestone, reinforcing the brand as one of the most valuable dealership opportunities available. Haig estimates that a Porsche dealer may make about $10,000 per new vehicle compared to about $4,000 on a high-end pickup from Ford. Even for Toyota’s (NYSE:TM) Lexus luxury brand, dealers are only at about $3,000 per vehicle sold.
From here, the Porsche brand is only expected to grow. The company — now fully owned under the Volkswagen AG umbrella — will be introducing the smaller Macan SUV later this year to fulfill the demand for a more fuel-efficient, smaller utility vehicle that will compete with Cadillac’s SRX and Lincoln’s upcoming MKC.