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Why Every Luxury Automaker Wants to Make a Million-Dollar Car

10 April 2015 - Automotive News

Why Every Luxury Automaker Wants to Make a Million-Dollar Car

Have you seen Furious 7 yet? You should. There's a hot little number in there that Drake would tap in a second. It's called the Lykan HyperSport. The car is a $3.4 million beast with a top speed of 240 mph and the face of a raptor.

What, you thought I was talking about a girl? The Lykan is the first supercar made by a company (W Motors) based in the Middle East (formed in Beirut, with headquarters in Dubai).

It's also among the most expensive production cars ever to go on sale. But it's not the only land rocket to come out lately that costs more than a million dollars. Far from it.

Over the past decade we've seen almost every automaker (that calls itself a true "luxury" brand, at least) produce a contraption with a seven-digit price tag. Sometimes they get there only by making a one-off with diamond-rimmed headlights and titanium bones, but they get there.

Billionaire boom

The brands make these cars because people buy them. The past few years have seen an explosion of royals and tycoons around the globe who buy entire fleets of Aston Martins and Lamborghinis to support their proclivities.

Bloomberg has discovered more than three dozen new billionaires in the world since January alone, and more than 300 since 2012.

They buy the cars in Los Angeles, Doha, Moscow, Sao Paulo and Shanghai.

Some, like hotel tycoon Steve Wynn, buy them to bolster their business interests just as much as their personal life. For them, it's not that big a deal.

"The fact of the matter is there are a lot of rich people around the world, and I mean super rich -- hundreds of millions of dollars to billions of dollars of net worth," says Jack Nerad, executive market analyst for Kelley Blue Book. "When you're talking about these types of people, a million-dollar car isn't really much of a stretch at all."

It takes $1 billion to develop and produce a normal mass-market car.

Lucrative pursuit

It's also lucrative for the carmakers, despite the extra work required to specialize a given automobile. Margins on a standard Ferrari or Lamborghini hover around 15 percent, and when the price tag on a particular car reaches into the seven figures, that amount can increase significantly.

"If you have to set up a separate assembly line, it can become expensive to produce" an automobile, Nerad says. "But with million-dollar cars, there's still money to be made."

The basic rule is that it takes $1 billion to develop and produce a normal mass-market car. But developing one that's not accessible to the public can cost less than that, because resource needs are narrowed. Plus, it's easier to recoup the expense when price tags are in the millions rather than, say, $30,000. That's true even if a company sells only 300 of the car.

These super expensive cars fall into different categories. Some, like the Bugatti Veyron and Lyons Motor Car's LM2, are truly unique and made in minuscule production numbers.

Others are special editions of existing models (see: Lamborghini and Ferrari). Let's look at how a Rolls-Royce gets to a million dollars. A base-level Phantom starts at about $400,000. Then you add custom treatment, which most of them receive: That's special wood, paint, and leather that can hike the price by hundreds of thousands of dollars. (Really.)

Speed, strength, comfort

Getting the full-armored treatment on a sedan can cost almost half a million dollars alone. And at that point the real heavyweight treatment starts: true bespoke, one-of-one work that adds precious gem and pearl accents, hand-stitching, bulletproofing, theater systems and elite engine tuning. That last stage is where a standard Phantom crosses the million-dollar threshold.

"The trend is growing, and it's driven by bespoke cars like our Serenity," says Gerry Spahn, Rolls-Royce's head of communications, referring to the $1.5 million Phantom it introduced last month in Geneva. You can probably get speed or strength or comfort in such an expensive car, but not all three. Then there's what automakers call a "halo car."

That's when a brand that makes several different lines comes out with a concept car or ultra high-end superstar that serves a purpose beyond its own price tag.

In fact, the indirect monetary benefits of making a halo hypercar are usually more important than direct profit. High-profile products can make the entire brand shine like a back lit Hope Diamond -- the brilliance associated with the crown jewel car inevitably rubs off onto the less expensive offerings in the fleet.

If the cachet is compelling enough, it will deliver cash.

"Halo cars like these serve to really capitalize the brand," says Kelsey Mays, senior consumer affairs editor at Cars.com. "You look at Bugatti, which is owned by Volkswagen, and the only car everyone knows from Bugatti is the Veyron," he says.

"But they know it's the one that Beyonce buys for Jay Z. The real value is in the association."

The correct club

Bugatti is good for Volkswagen, even though by some estimates each Veyron that's made and sold winds up being a loss of multiple millions of euros. When people spend $200,000 on a Ferrari California T, they're tapping into the elite aura that's emitted by the $2.1 million Ferrari FXX. (There are only 30 of those, whereas thousands of Californias are made every year.)

Every time a brand's race car wins a Formula 1 event, or a newly unveiled concept vehicle shows off a brand's ability to harness power and technology, the everyday drivers of the lower-tier cars get to feel like they're part of the correct club.

Finally, some automakers don't want to persuade a broader market to buy their cars. Ultra-niche supercar companies such as Koenigsegg, Zenvo, and the aforementioned Lykan make limited runs of cars whose price tags can soar into the multimillions.

They're selling only to the uber-rich, and in those cases the exclusivity is a big part of the draw: You can't drive these cars except on a track, but that's OK, because no one else can drive them at all. These efforts are often a gamble and high risk, and not always high rewards.

Zenvo, in Denmark, will make only 15 of its $952,000 ST1 supercars. They're betting that the top speed of 233 mph and 1,104 horsepower will help them sell through the line, at which point the owners estimate they'll break even. But before the Geneva Motor Show this year, the company had delivered only two and received orders for five more. Then it'll be a few years before Zenvo can roll a new model off the production floor in a time period when bigger automakers can accomplish all kinds of feats.

Demonic manta rays

New York-based Lyons, the only American supercar maker, is pinning its hopes on a 1,700-horsepower stealth bomb called the LM2 Streamliner. In theory, at least, the car will have a twin-turbo V8 with 1,610 pounds-feet of torque, all put on a seven-speed gearbox.

It looks like a cross between a demonic manta ray and a hooded slug. Talk about a niche audience. And the thing wasn't even finished by the press previews of the New York auto show this month, where it was supposed to premiere.

It's important to remember that a high price doesn't mean you can have it all. You can probably get speed or strength or comfort in such an expensive car, but not all three. To wit: The Lykan is fast, but its engine contains only six cylinders -- ”the same number as pretty much every mass-made sedan on the road today. (Admittedly, the Lykan is the exception to the rule: Most million-dollar cars have 10, 12, or 16 cylinders.)

Or take the million-dollar armored Mercedes-Maybach Pullman, which requires more than five seconds to hit 60 mph. Don't buy it to win any drag races. Or consider the $2 million Pagani Zonda, which has a certain flair but has endured persistent criticisms about its high maintenance costs and propensity to break down under even the slightest inclement conditions.

"Exotic cars are fairly unpractical," says Cars.com's Mays, in the understatement of the week. "You need a whole garage of things to drive when you own one of these things that are a bit more rugged. With something like a Pagani, you need real roads and, ultimately, racetracks to stretch its legs."

Of course, if you're wealthy enough to afford something like the Pagani, you're wealthy enough to afford the racetrack that goes with it.

 

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