It’s the Autobahn...or the Highway

Anybody who’s missed the current woes of the US car makers is either living on a different planet or not living at all.

With emergency life support in the form of billions from taxpayers and bankruptcy likely in the near future for both GM and Chrysler the car industry looks like a sure bet for losing money.

But wait! What if I told you that you can still run a profitable car business despite the global recession and the precipitous drop in automobile sales? Impossible, right? Well, not at Porsche. Let’s compare the first 6 months of Porsche’s sales data for 2007/2008 and 2008/2009.

Financial Year: 07/08
Total Number of cars sold: 46,600
Revenues from operations (Euro): 3.5b
Average Selling price (Euro): 75,107
Profits from operations (Euro): 1.658b

Financial Year: 08/09
Total Number of cars sold: 34,266
Revenues from operations (Euro): 3,04b
Average Selling price (Euro): 88,718
Profits from operations (Euro): 0.5b

So what do these numbers tell us? It is obvious that Porsche is not insulated from the global decline in car sales, and sales are down considerably. But, as opposed to almost every other car manufacturer out there, they have been able to fight back and increase the average selling price of their cars. As they say in their financial press release from March 31st:

“The substantially better development in revenue compared to the development in sales is primarily due to a changed model mix.”

So what can we all learn from Porsche? I think the following:

1. Ongoing discounting that is used by most other car manufacturers (especially the “Big Three”) detracts from the perception of value of the product and creates downward pricing pressure. Prospective buyers also quickly learn to buy on regular promotions (Presidents Day Sale!) and delay their purchase for some time. To my knowledge, Porsche never discounts its products, never runs “employee pricing” schemes, or anything of that nature. Thus, they never suffer from self-inflicted value perception wounds.

What do you do? Do you train your customers to buy at the end of the quarter or end of the fiscal year? Do you always discount to close the deal?

2. Porsche has done a spectacular job of increasing the average selling price of its products, raising their average sale price to €88,718 from €75,107. An 18% increase - in this economy!

It is a demonstration of how changing the product mix can be a powerful way to increase your revenues.

Have you thought about what you can do to change your product (or service) mix to drive your customers to a more expensive or maybe just more profitable mix? What programs do you have to have in place? What knowledge of your customers purchase decision behavior will ensure these programs have the maximum success rate? Can you do as good a job as Porsche? In this economy? Why not?

With speedy best regards,

Per Sjofors
Founder/CEO
Atenga Inc
818 887 4970
per@atenga.com