Getting out of the crisis with luxury is a problematic strategy in the auto industry

The car manufacturers rely on noble and expensive. That is economically consistent, but socially questionable.

The new 2021 Mercedes S-Class – (photo by Mercedes-Benz)

It is at least five meters long and weighs a good two tons. The interior appears as airy as the dimensions are large. Neck warming pillows and mood-enhancing play of light relax the passengers, the air you breathe is filtered several times and, if desired, flavored. Anyone who takes a seat in the new Mercedes flagship is protected from stress, viruses and, above all, the adversity of the outside world.

The new Mercedes S-Class will probably arrive at exactly the right time. The need of wealthy travelers to disappear into a filtered capsule of luxury has never been as great as it is today. The renovated top model is probably helping Daimler boss Ola Källenius to lead his term of office to success – the billions in profits from a fresh S-Class have saved every stumbling Daimler boss. But the new super limousine certainly represents the new path of the auto industry, which is saying goodbye to the crowd and increasingly sees its products as luxury goods.

After the financial crash in 2008, the auto industry relied on cheap and compact models, thus taking into account the reduced budget of its customers. In the corona crisis, the industry is going in exactly the other direction. Price comes before quantity and market share.

The new role model for Mercedes boss Källenius is not Volkswagen, but the Louis Vuitton mother LVMH. Even before the Corona breakdown, the corporate planners cut the compact and small car models together and declared noble and expensive to be the new leitmotif of the product portfolio. While every S-Class is sold around 20,000 euros in the corporate treasury, Mercedes pays more for every Smart.

The high returns in the luxury business arouse the desires of the competition, whose margin, like Mercedes, is getting thinner and thinner. Mercedes rival BMW has set itself the goal of doubling sales of its luxury sedans and SUVs within two years. With its “Artemis” project, Audi is planning an electric sedan above the previous top-of-the-range A8. All three houses are pushing the sales of their tuning daughters, who turn honest series models into sinfully expensive small series.

The mass manufacturers are also on the run up. Luca de Meo, the new head of the troubled car company Renault, announces that he wants to convert the whole range from “volume to value”. As a former VW manager, he knows that mass-produced automobiles no longer have a future. If the industry suffered from overcapacities even before the crisis, hardly any factory is now fully utilized. Those who produce dozens of automobiles without any loss consider themselves lucky.

The EU climate policy is increasing the trend towards luxury cars

The move away from mass business will continue. This is also due to the EU’s climate policy. As long as there were no electric cars, compact and small cars ensured that the fuel consumption of the respective manufacturer’s fleet remained halfway within the framework. The transition to electromobility makes this strategy obsolete. The EU’s climate rules calculate a two-tonne electric SUV on paper to be cleaner than a conventional Smart. The Mercedes small car subsidiary, like the Opel- Adam and the Volkswagen up! done their duty. Little by little, these models will disappear.

The smaller the car, the less it is possible to finance the increasing demands on the drives. Diesel and gasoline engines need complex filters if they are even allowed in the city. Hybrid and electric drives will remain expensive for the foreseeable future, even if the lavish state subsidies suggest affordable prices to customers. In the long term, the following applies: Only those who manage to market their expensive drives through expensive cars will have a future.

This is not an unfavorable development for the German auto industry. The inexpensive profession is neither Volkswagen nor Daimler or BMW. From Wolfsburg to Munich, people look less and less at their home market, but at the ten percent of the world population who can afford German cars. This customer base is not only growing faster than the middle class, it should also get through the corona crisis better.

If the Germans get electromobility and digitalization under control, their cars will remain coveted products alongside Tesla. If world trade remains somewhat open, S-Classes will continue to be built in Sindelfingen in the future and they will be shipped to China and California with high profits.

For the mass of car buyers, however, the following applies: Driving is becoming more expensive because the auto industry can no longer afford cheap cars. First of all, that’s good for our overcrowded cities and for the global climate that threatens to tip over. But when the entry-level models disappear, when even the compact car mutates into the small S-Class, more and more people are excluded from owning a car.

The car is losing its role as a pacemaker of mobility for the masses; as in the 1920s, it is developing into the exclusive vehicle of an elite. The car then no longer connects, it divides. This can become explosive in times of a worsening social climate.

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