Even in a down economy, Rolls-Royce is on a roll

Wed, 05 Dec 2012

Limited Volume, Big Margins Spell Success

Bigger isn't always better, especially when it comes to selling super luxury. Rolls-Royce CEO Torsten Müller-Ötvös expects the British automaker to again post a record year, despite the economic troubles in Europe and weak growth in both the US and China.

"It is not all doom and gloom out there," Müller-Ötvös explains, noting that the declining sales in Europe and elsewhere have been offset by good performance for the marque in the Middle East, Japan, Singapore, Hong Kong and Russia.

You won't see an SUV from Rolls-Royce.

The key to this success is remaining focused on its strengths by limiting itself to what it knows best, very expensive cars and cars alone. As a result, you won't see an SUV from Rolls-Royce.

"Our clear strategy is to stick to this segment of 200,000 Euros and up," he explains, adding because of the limited volume of about 3,500 cars per year, "we are not in a situation where we need to fill up excess capacity in the plant."

Matt DeLorenzo is the former editor-in-chief of Road & Track and has covered the auto industry for 35 years, including stints at Automotive News and AutoWeek. He has authored books including VW's New Beetle, Chrysler's Modern Concept Cars, and Corvette Dynasty.

With that exceedingly high price point, there is no direct competitor for the company since the demise of Maybach. Even then, Müller-Ötvös doesn't see much of a lift to Rolls-Royce sales as a result of the move by Daimler-Benz to end Maybach production since sales for that car never exceeded mid-triple digits.

And while Bentley does compete with Rolls with its range-topping Mulsanne, the Continental coupe and Flying Spur sedan are below Müller-Ötvös' 200,000-euro threshold. Bentley's EXP 9F concept for an SUV also shows an appetite to increase the marque's overall volume.

Rolls-Royce's approach is quite the opposite. Its business case emphasizes the margins on individual units rather than boosting production to increase revenue.

Rolls-Royce launched the lower-priced Ghost with no bespoke program to speak of, but since opening up that option to customers, the company has seen the share of custom-built cars increase to 65 percent of total sales.

"We do not focus so much on volume but rather on earnings per car before taxes," Müller-Ötvös says. As a result, the time-honored tradition of producing bespoke (customer customized) cars is a priority. "Over 90 percent of the Phantom models are bespoke cars," he notes. Rolls-Royce launched the lower-priced Ghost with no bespoke program to speak of, but since opening up that option to customers, the company has seen the share of custom-built cars increase to 65 percent of total sales.

Even though the cars are sold through a traditional dealer network, every customer is invited to Rolls' Goodwood factory southwest of London. In addition to touring the plant, customers select the materials and colors and even offer their own ideas of special features that the factory may never have considered. Seizing on these ideas, you could call it well-heeled crowd-sourcing, Rolls-Royce has introduced some of these customer-designed features as regular production options.

As successful as the bespoke program has been in allowing customers to select the materials and accessories going into the car, there is little prospect that Rolls-Royce will return to the days of offering custom bodywork. "There are homologation issues with the bodywork," Müller-Ötvös observes, adding that they have to crash as many as five or six models whenever there is a body change or redesign.

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Even with its very specific focus on primarily bespoke luxury cars, Müller-Ötvös says Rolls-Royce isn't immune to the demands for cleaner, more fuel efficient vehicles. Last year, Rolls-Royce tested the EX102 battery electric Phantom (pictured above). An impressive car to drive, it did not offer an experience much different than the already near silent V12 Phantom and had the range limitations and lengthy recharge times inherent in current EV technology. As a result, Rolls-Royce discovered little enthusiasm for the car among its current owner base.

Rolls-Royce does need to offer an alternative powerplant and that the likely solution will be a plug-in hybrid of some sort.

However, Müller-Ötvös believes that Rolls-Royce does need to offer an alternative powerplant and that the likely solution will be a plug-in hybrid of some sort. When that will be, he won't say.

What he will say is that Rolls-Royce is committed to investing in the product line and continues to refresh both the Phantom and Ghost, as evidenced by the Series II enhancements to both product lines. But what most excites him is the addition of a new model to the lineup. While he won't specifically elaborate on the car, he acknowledges the existence of recent spy photos of a coupe based on the Ghost platform and wryly hints at making some news at Geneva.

These may not be the best of times for the global economy, and yet the fact that a Rolls-Royce can find its way bodes well for this iconic marque.

By Matt DeLorenzo