It costs extra to develop the technology and marginal
features of performance cars compared with regular cars,
this is after all the ‘uber’ sector of the market and the
ultimate status toy that individuals can enjoy.
To estimate how these costs affect margins we look to Porsche for guidance. Given the
prestige premium Porsche is able to demand, it is unreasonable to expect
the performance cars of mainstream carmakers to rival its 17 per cent
margin of earnings before interest and tax. However, it is likely that 15 per
cent is a reasonable estimate for this analysis.
True, operating margin is not independent of
volume, and Porsche outsells its rivals’ performance cars, however, for the
sake of estimating the increasing importance of performance cars to the
industry, a 15 per cent margin offers a reasonable base rate.
Throwing these calculations forward, we can see that BMW’s
performance cars currently add six per cent to revenue and nine per cent
to earnings before interest and tax. That is double the earnings
contribution of five years ago and is one reason why the group’s operating
profit has risen one-tenth over that time. At Mercedes, the impact is even
larger. The AMG performance cars contribute 14 per cent to revenues and
20 per cent to earnings. Similar to BMW, the earnings provided by the
performance cars at Mercedes have doubled as a proportion of the
Thus effective brand management , especially in the luxury sector
results in better investment returns for shareholders and the