ngfan

Found this report about current Cayenne sales in the US:

Bloomberg report

Unsold Cayenne SUVs Could Hurt Porsche's Stock: Doron Levin

Aug. 21 (Bloomberg) -- Initial U.S. sales of Porsche AG's high-performance Cayenne SUV reveal buyers are choosing the most expensive options. The problem is not enough Cayennes are being sold, and those without the options are piling up.

The inventory of unsold Cayennes may explain why the price of Porsches' preferred shares have declined almost 17 percent this year. The Stuttgart-based company's common stock is held privately.

Porsche, as a matter of policy, refuses to discount its vehicles, thereby removing one possible means of reducing its Cayenne inventory. The company says it can't risk devaluing its cachet.

The Cayenne represents a departure and a risk for an automotive brand that made its fortune building high-priced, low- slung sports cars. Porsche believes its long-term profitability will hinge on making inroads in unfamiliar market territory, one that is becoming so dominated by truck-based variants.

Prior to March, when Cayenne went on sale in the U.S., automotive analysts openly wondered how many buyers would spend up to $90,000 for a vehicle more closely associated with soccer moms than race-driver wannabes.

60-Day Supply

As of July 31, U.S. sales of Cayenne were 1,354 for the month and 6,350 so far in 2003, boosting the automaker to a 15 percent sales gain for the year. Without Cayenne, Porsche's U.S. sales would have dropped 21 percent.

Porsche said Cayenne sales are consistent with its projections. Still, the inventory of unsold Cayennes represents a 60-day supply ``which is unusual for us,'' said Martin Peters, a spokesman. ``We have to accept higher levels of stock, people want to order cars exactly to their liking.''

In most instances customers must wait for delivery of Porsche models or choose from a limited inventory, which undoubtedly has contributed to the brand's mystique.

``We're off to a relatively slow start with the Cayenne, but modifying the content will help us gain momentum for this wonderful car,'' said Bob Snodgrass, owner of Brumos Porsche in Jacksonville, Florida.

Peter Hennessy, co-owner of Hennessy Porsche in North Atlanta called the Cayenne ``a spectacular vehicle.'' The less expensive versions, he said, are running into competition from BMW's X5 sport utility ``that are $10,000 less than Cayenne when you consider all the discounts BMW is giving.''

Air Suspension Popular

The entry level, $56,000 version of the Cayenne -- with numerous luxury items such as leather upholstery -- doesn't come with air suspension. The air suspension has proven popular; it is installed as standard equipment in the $89,000 model, powered by a turbocharged engine.

Continental AG, manufacturer of the $3,200 suspension option, hasn't been able to keep up with demand. The suspension controls the vehicle's height and makes the ride smoother.

U.S. buyers also seem to favor the 19-inch and 20-inch wheels, selling as $2,100 options, rather than the standard 18- inch wheels. ``The bigger ones are scarce,'' said Snodgrass.

Next month Porsche is expected to introduce a six-cylinder version of Cayenne, inviting inevitable comparisons with Volkswagen AG's new VW Touareg sport utility, which ranges in price from $35,000 to $50,000. Cayenne and Touareg bodies are identical and are manufactured at the same assembly plant in Bratislava, Slovakia.

VW, after its first two months in the U.S. market ending July 31, reported 1,669 Touareg sales.

Thinking Emblem

Lehman Brothers, which is recommending Porsche's preferred shares, said on Aug. 8 that the ``stock price outlook depends principally on its earnings in the current 2004 fiscal year,'' which ends on July 31, 2004. The automaker is scheduled to post earnings for fiscal 2003 on Sept. 9.

There is a consensus among equity analysts that Porsche will post earnings for the 2003 fiscal year of about 31.6 Euros ($35.20) per share, which would represent its ninth consecutive year of increasing profit -- something not even Toyota Motor achieved over the same period.

Proving that Cayenne can be a consistent moneymaker won't be easy for Porsche. The lower-priced eight-cylinder version and the expected six-cylinder model will run smack into formidable competition from numerous competitors.

The trick will be to hold on to the high-priced end of the luxury SUV segment and to convince others that the Porsche emblem justifies the price in the more competitive end of the segment. After all, the number of buyers who will shell out $60,000 and up for a new vehicle doesn't constitute much of a market.

Torags

These allusions to reality are sobering........

George from MD

Indeed. I'm struck by the statement that Porsche doesn't discount its vehicles. IMO it's just another lie propagated by Porsche management and we all know better. Rumor has it that significant amounts of money are currently "in the trunk" and that Porsche is or will shortly be sending a coupon to current Porsche owners inviting them to visit their dealers to share in this discount.

Ironically or not, when I bought my first Porsche in 1990 the cars were significantly overpriced compared to the rest of the market. My 944S2 had a list price of $49,900- the competition was selling in the high twenties and low thirties. I paid $35,000, tax and tags included, and understood that there were a large amount of $ in the trunk though I never knew how much.

Shortly after that, Porsche revamped its pricing and production methodologies and engineered the most amazing turn-around; I think the 1995 993 initially sold (like gangbusters) with a list price of under $60,000.

I think history is set to repeat itself. I wish Porsche were more honest with itself and its customers- the Cayenne was never "sold-out" and Porsche DOES discount- rather heavily when necessary.

Signed,
Potential Cayenne Buyer (when styling changes, prices are reasonable and a spare tire is standard)- assuming BMW doesn't leapfrog them of course.

Torags

I think it would be helpful to distiguish the who's discounting what.

PAG sells to dealers, do they discount to their dealers (below invoice)? I don't know.

PNA sells to the public. They do discount, that I know....

George from MD

I think Porsche has discounted to dealers (and will again in this case hence the term "money in the trunk"). It's a sly way of discounting the vehicle price that can generally be kept secret from the public if the manufacturer wishes. Or I guess it could have been before the advent of the internet etc...

What portion of this discount dealers will pass along to the public is of course up to them.

Torags

George.. are you suggesting a car manufacturer would give secret discounts, rebates or whatever they call them........... to dealers.

If they do that, an unscruptulous dealer may claim he's losing money selling you the car. :-)

dawktah

With all the tweaks you have with the Cayenne, it would have made more sense to build a large holding area in Leipzig and finish "on demand."
IMHO

Anir

At one time, wasn't Porsche planning to sell 25,000 Cayennes per year in the U.S.? Later, I saw a revised figure of 15,000. Based on the 6,350 sold to date in 2003 (as of 7/31), one might expect a total sales volume of 10,886 for the year.

Seem like total sales will fall far short of expectations - largely due to the controversial styling and high pricing, I suspect.

EuroCarNut

Anir,

The original plan was to produce 25,000 vehicles for total worldwide consumption in the first 12 months of production with half coming to the US (12,500 units), and the other 12,500 split between the rest of the world. However, due to the successful sales volume seen here in the US, our allocation has subsequently been increased to 17,000 for the first 12 months, thus leaving only 8,000 units for the rest of the world. This is why there have been waiting lists in a lot of European countries to get this vehicle.

If sales volume keeps close to the current pace, Porsche will be close to selling all 17,000 units for the US at the sacrifice of the ROW customers. Regardless, I think Porsche is still on track in terms of covering their butts with products that will sell. They are on they way to being quite profitable once again, even in the face of a sagging economy and reduced 911 and Boxster sales. Some call it hedging. I think it's just good management.

JeffES

Kind of OT here, but the aforementioned article raises, for me, some questions about "analyists" and "researchers" for investment firms. I've read several of these items, and they all seem (my term) to be related to the very poorly researched GSachs article of a few months ago (search this forum for details), and consist of taking the poor data and now adding bad analysis on top.
Is this a standard for many such items/articles found in the finacial press? If so, I see why there are so many upset with the quality of investment advice!
If not, does someone have a resource for better analysis?
J

JeffES

PS -
George & Torags - PAG does not discount today, neither does PCNA (but they have in the past - recall the five figure trunk money on early 1990 Turbos). Do not confuse corporate discounting (a common industry practice) with the sales process at a local dealership for retail. "Discounts" or dealer money programs are regularly listed in industry publications (Automotive News, for example). "Packaging", the practice of offering a dealer a break on certain "hot selling" models in return for stocking a slow seller is now prohibited by law - and dealers are very good at turning each other in on this.
J

Anir

Karl,

With all due respect, I don't see how the numbers add up. The article suggests that Porsche has sold 6,350 units in the U.S. through 7/31. However, you're quoting an expected shipment of 17,000 units to the U.S. to be sold in the first year.

Does this mean that Porsche expects to move 10,650 additional units in the remaining 5 months of calendar year 2003? Seems a little optimistic, no?

I do understand the brave face put on by the dealers and Porsche itself. As a dedicated Porsche nut, I hope you're right. However, I certainly hear of a lot of unsold Cayennes languishing on dealer lots. There may be waiting lists in some areas for the Turbo, but I've not heard of this with the "S" model.

It's a landmark vehicle in terms of engineering, but maybe too ugly and too expensive to reach the projected sales figures.

JeffES

Anir,
You're confusing "model Year", "Calendar Year", and "year to date".
PAG's final production estimate was for approx 25,000 units worldwide in any given 12 month period after the initial 120 day ramp up. In NA terms, sales of 6,350 divided by 4 (months available at retail) yields 1588 (rounded up by .5), for a yearly sales rate of 19,056......

So, what happens now? Does the ROW get held back even more to satisfy NA demand (do that, and there will be "supply issue" stories from the European motor press), or will NA supply be held back (thus generating more analysis from the NA financial press), or will PAG be able to ramp up and meet worldwide sales demands????????
J
PS - and when did not having inventory become a good thing? Maybe I'm a bit old fashioned, but I like having things on shelves when I go to a store (including car dealerships)

Anir

Jeff,

We'll see. Don't forget that any new vehicle tends to sell more quickly during the first few months of availability. As the previously pent-up demand is met, monthly sales figures may fall. So, I wouldn't assume a a linear relationship in terms of monthly sales.

In the car business, having a lot of unsold inventory on the lot is not a good thing from a financial perspective. It costs the dealer money. A 60-day supply of unsold vehicles this early in the game ain't a good thing.

JeffES

Actually, the typical sales curve is for an initial blip (pentup demand), then a slight dip (caused by changes in production to meet the changes between plan and actual demand of options/colors/styles/etc), then growth to maturity, then decline. Cayenne sales could tail off at the 9 month mark, but this effect may be masked by PAG's ability to shift production to different markets, thus maintaining overall sales.

Will the Cayenne be around forever? Not very likely. I'd guess the total plan for this product line is somewhere around the 12 year mark (three four year cycles)....

In the car business, having no inventory is an incredibly short sighted "plus" for lazy PHD's (papa had dealership).....
Yeah, there are floorplanning costs, overhead, etc.... but what business doesn't?

J