Slow lane

VW’s Bentley gets left behind as a luxury car cash cow

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Not so easy to move from car show to customer. Source: Reuters

The James Bond of film — whether played by Sean Connery, Pierce Brosnan, or Daniel Craig — famously drives an Aston Martin, usually souped up by MI6 tech guru Q with some deadly gadgets.

But the original James Bond in the novels penned by Ian Fleming drove a vintage Bentley, a classic marque for car enthusiasts. The substitution in the film version sums up the fate of the Bentley, left behind by changing consumer tastes, the advances of automobile technology and perhaps the lassitude of English craftsmanship.

As it moves past its preoccupation with Dieselgate, Volkswagen, which acquired the Bentley brand in 1998, is finally waking up to the fact that its luxury sedan is losing money hand over fist instead of racking up the hefty margins more typical of the class.

VW’s sports car brand Porsche, for instance, posts a fat 18-percent margin on its vehicles, while Ferrari, owned by the Agnellis of Fiat fame, approaches a 25-percent profit on its cars. Bentley, manufactured in Crewe, south of Manchester, recorded an operating loss of €80 million in the first six months of this year with no end in sight.

Checkered history for British luxury cars

English luxury cars have rarely been popular with their financiers.  Bentley, founded in 1919, became a darling for motor sports enthusiasts but first went bankrupt in 1931, before it was bought in a blind auction by Rolls-Royce. But by 1971, Rolls-Royce was in receivership and was nationalized. Eventually, Bentley ended up with VW and Rolls-Royce with BMW.

For that matter, VW has not always had a lucky hand with luxury models. The company launched the VW Phaeton in 2002 as a luxury flagship, only to halt sales in 2016 as the brand failed to gain any traction and ran up huge losses. The Phaeton shared a platform with Bentley models.

The last good earnings year for Bentley under VW ownership was 2013, when it reported operating earnings of €168 million for a return on sales of 10 percent. By 2015, that return had fallen to 5.7 percent and by 2017, to 3 percent, before this year’s losses. Sales in the first half fell by nearly 400 to 4,520 vehicles. Sales of the new Continental GT model got off to a slow start, a Bentley spokesman said, because further software engineering was needed to meet its luxury standards.

At VW headquarters in Germany, the model launch came under sharp criticism as the “worst production ramp-up of all time,” in the words of company insiders. Already last year, then-CEO Matthias Müller replaced the hapless Wolfgang Dürheimer as the head of Bentley with Jaguar executive Adrian Hallmark. He took the helm in February, so he can hardly be responsible for the first-half losses.

SUV model falters after introduction

Bentley blames the falling profit margins on heavy capital spending in the years 2014 to 2016, when it invested £840 million ($1.1 billion) in new technologies. The transition to electric cars will also require significant investment.

But what comes next? Bentley’s effort to jump on the SUV bandwagon with the Bentayga has faltered after the 2016 introduction, with sales last year actually declining in contrast to most new SUV models, which go from strength to strength. Among other failings, critics fault the carmaker for a bad dealer strategy in China, which led to thousands of unsold cars there.

China, however, is a key part of Mr. Hallmark’s strategy to grow the brand. Bentley hopes to appeal to the growing millionaire class there and boost annual sales to 15,000 units from the 10,000 to 11,000 rut it has occupied for some years.

VW has consolidated its luxury and sports brands to develop greater synergies, with Porsche as the flagship for the group. Porsche CEO Oliver Blume has also become the production manager in the parent company’s executive board and will be able to keep a close eye on Bentley to avoid the type of ramp-up problems the Continental GT experienced. “We would certainly like for Porsche to have more control over Bentley,” VW insiders said.

Bond aficionados, however, are virtually certain Aston Martin will be 007’s ride in the Bond 25 film scheduled for next year. Some are agitating for a reboot of the franchise for Bond 26, with a new star and returning the superspy of the 1950s. Perhaps then a vintage Bentley will have a chance.

Stefan Menzel covers the auto industry for Handelsblatt, with a focus on VW. Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the authors: menzel@handelsblatt.com and d.delamaide@extern.handelsblatt.com.

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