Rolls Royce still rolling despite the downturn?
Comments earlier this week by Tom Purves (see here), the boss of the luxury car firm Rolls-Royce, were interesting on a number of fronts...
Despite the global economic downturn, RR has received 1,500 'serious expressions of interest' in the new Ghost model which is set to be unveiled in September and launched next year. The Ghost model has generated much interest after a prototype has toured the globe. If these expressions of interest were translated into sales they could effectively double RR's annual sales.
It seems that firms - luxury brands included - can (and must) innovate and develop new products for new markets (witness the splendid Jaguar XF as well). In this sense, the new Ghost is critical for RR in extending its product range and moving into new markets. The model will especially aim at a lower price category and hence potential customers who would potentially go for a Bentley Continental Flying Spur instead.
The model could also appeal to the growing numbers of rich people in emerging markets such as Russia and China, even if 'mature' western markets move away from ostentatious displays of wealth, as some seem to suggest will happen post credit-crunch.
RR sold record numbers of cars in 2008 (some 1200 of its Phantom model) but sales have this year been down given the recession. Sales in the year to May have been down by 28%, very much in line with the market as a whole. Yet that in itself is no mean feat for a luxury brand which you'd expect to be especially sensitive to cyclical conditions.
Apparently the luxury market is often late going into recession and late coming out. Or maybe if you're rich enough to afford a Roller, you're rich enough to afford a Roller, whatever the state of the economy...
The firm is still - it seems - delivering a profit to its German parent BMW (which by the way is currently loss making, like many of the world's auto firms). RR should be a prized asset for the parent company.
Of particular interest, for RR at least the economy has bottomed out: "We are bumping along the bottom ... I do not see things getting any worse" said RR's boss. If accurate this will be welcome news to many in an auto industry which has been hammered by the double whammy of recession and credit crunch.
What has been especially impressive about Rolls Royce is that it has worked hard to keep skilled craftsmen in place through the recession. Whilst the firm has laid off agency staff, it has kept its skilled workforce in place: "we know we need them with the Ghost coming, and also because we know they are highly skilled and highly qualified and it is much better for us to retain them than not" said Purves a few months ago.
If only more manufacturers in the UK had been able to do this - of course a part-time wage subsidy for the mass manufacturers could help on this front.
It's true that much of the engineering underpinning RR cars now comes from outside the UK. Engines come from BMW, and many parts are sourced from Continental Europe. In so doing, the Ghost shares elements of the platform which underpins the BMW 7 series, and enables BMW to achieve some economies of scope across brands through platform sharing.
Nevertheless, the assembly, leather work, wood work, and finishing is completed at RR's Goodwood factory in Sussex. Over 150 new jobs have been created there in connection with the Ghost launch. By the end of this year, the total Goodwood workforce will have risen to 900, some 400 up on two years ago.
When the upswing does finally come, RR will be in a better place because of its investment and long-term thinking.
Professor David Bailey works at Coventry University Business School