CNBC Business | Supercar explosion

Supercar explosion

Ben Oliver explains how the market for ultra-expensive cars has taken off, and asks what it means for the European car industry

Aston Martin and James Bond have more in common than a joint big-screen adventure every few years. Every Bond movie features a scene where the iconic superspy seems to be facing certain death, but pulls off a near-miraculous escape. Aston Martin has regularly done the same thing – despite being one of the most revered names in UK motoring, the company has been in receivership seven times in its 93-year history and has changed hands more often than an old five-euro note. The difference between Bond and Aston is that you know Bond will always escape, but Aston’s survival has never been certain. Its worst moment came in 1992; in the midst of a recession and with uncompetitive, overpriced product, it built just 46 cars all year. Assuming 24-hour production, Toyota builds that many cars every three minutes.

Today, however, Aston Martin builds over 7,000 cars a year at its ultra-modern new factory in Gaydon, Warwickshire. In 2005 it turned a profit for the first time in 40 years, and that profit will skyrocket as the final models in its greatly expanded range are introduced. Ford bought Aston in 1987 for an undisclosed sum, believed to be around £20m (€29.5m). This year it sold 85% of the firm to private equity investors for €627m. Aston’s cars have received huge acclaim from the motoring press and punters alike; the queues are at least a year long for each model. Aston’s biggest dilemma is no longer how many cars it can sell, but how many cars it wants to build; too many and it might risk its reputation for exclusivity.

Aston’s revival is part of a much bigger story. The market for super-luxury cars costing over €150,000 has exploded; it has increased five-fold since the late 1990s and is now worth around €6bn and over 25,000 cars annually. Aston Martin has seen the most dramatic transformation in its fortunes, but all of its rivals have grown rapidly. Although the growth in demand is global, it is only the prestigious European carmakers that have benefited. In the UK, Bentley has leapt from fewer than 1,000 sales to 11,000 each year. BMW has completely reinvented the Rolls-Royce brand, selling 850 €400,000 Phantoms each year; it has plans to at least treble that output with the introduction of coupe and convertible versions and a second, more affordable model line. Ferrari has quietly dropped its promise not to compromise exclusivity by building more than 5,000 cars; last year it grew by 10% to nearly 6,000. Lamborghini has doubled in volume and both Porsche and Mercedes-Benz have seen sales of their highest-priced models boom.

So who’s spending the money? The latest Merrill Lynch/Capgemini World Wealth Report estimates that there are now 9.5 million high-net-worth individuals, defined as those with assets of over $1m (€735,000) excluding their main home; this is more than twice the number recorded in the first annual report a decade ago. The subset defined as ultra-high-net-worth, with over $30m in assets, has leapt 11% in the past year alone, to 94,970. The extra wealth has been created by booming real estate and stock markets and the fast-emerging economies of China, India and Russia.

There are some incredibly expensive cars available to tempt the ultra-wealthy, with the €1.4m, 253mph Bugatti Veyron the most outrageous, but these sell in tiny numbers and compete with yachts, helicopters and racehorses rather than other cars. The market in which Aston and its rivals compete – between €150,000 and €250,000 – is where the real action is, with big volumes, big profits and even year-old cars changing hands at a premium because desperate punters don’t want to wait.

The growth in the numbers of those able to afford these cars is obviously a major factor influencing the growth in sales, but the decisions taken by the major automotive groups that control the super-luxury brands to invest heavily in new, more affordable models are arguably far more significant. In the past, owners of a prestigious German saloon at €100,000 would have had to more than double their expenditure to move up to a Bentley Arnage at around €250,000. Now new models such as the Bentley Continental offer everything buyers expect from a super-luxury car; a blue-blooded brand, a hand-crafted interior and massive performance. Unlike supercars of the past, however, they are spacious, comfortable and reliable, and their automatic gearbox and four-wheel drive make that performance accessible for drivers unused to such power.

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