SUVs have become popular among middle-class buyers, but some automakers are looking to take these vehicles upmarket. With prices in the six-figure range, these SUVs are luxury vehicles for the wealthy.
But why the big move into high-priced SUVs, and which companies are taking this strategy?
Sports-car companies making moves?
Fiat Chrysler (NYSE:FCAU)-owned Maserati and Volkswagen Group (OTC:VWAGY)-owned Porsche and Lamborghini have built themselves around high-performance sports cars and continue to brand themselves as such today.
But all three of these automakers are looking for areas to expand into, and SUVs are their latest strategy.
Porsche already big-time SUV maker
Having been around since 2003, Porsche's Cayenne currently starts at under $60,000 but easily tops $150,000 with high-end versions. While some have criticized the automaker for straying from its sports-car reputation, the sales numbers show why Porsche continues to pursue this model.
Sales numbers from 2013 show how the Cayenne has made an impact on Porsche's sales. That year, the model sold more units than any other Porsche model in North America, where it claimed 44% of total sales.
This may be due to demand from fans of the Porsche brand who require an SUV for their daily tasks. By providing the Cayenne, Porsche is able to use its brand name to sell an SUV to this otherwise out-of-reach group of buyers.
At the same time, Porsche's margins are some of the highest in the automotive industry implying that the Cayenne SUV margins are also strong.
Maserati SUV in 2016?
Under the control of Fiat Chrysler, Maserati has seen sales surge as it unveils new models and opens more dealerships. But as the automaker grows, it looks poised to release an SUV of its own for the 2016 model year.
Carrying the name Maserati Levante, it is expected to ride on its own platform and be the first SUV from this high-end Italian brand. At this point, I see the Levante as another way for Maserati to expand its total sales. since it will let the automaker collect sales from fans of the brand that require or like SUVs.
Lamborghini Urus in the works?
Even supercar maker Lamborghini may move into the SUV market with the possible Lamborghini Urus. Slated for 2017, the Urus would take a company that makes only coupes into the SUV space, carrying its brand name along with it.
But perhaps the biggest question for Lamborghini is not whether the Urus will sell but whether it will hurt the Lamborghini brand name. Concern over brand-name damage has been cited as a key reason Fiat Chrysler's Ferrari unit hasn't made an SUV.
So even if Lamborghini does release the Urus, I would expect that non-coupe models would remain fewer in number than other vehicles. Lamborghini will also probably continue using its sports cars as the face of the company, since the brand name is built around these vehicles.
Going forward, investors should watch to see whether Lamborghini offers a four-door vehicle, possibly based on the Estoque concept. With four-door vehicles already on offer from Porsche, Maserati, and Aston Martin, such a vehicle wouldn't be out of place for a high-end car company. If this does happen, it could open up yet another area for Lamborghini expansion.
Rolls-Royce and Bentley SUVs already announced
High-end luxury-car companies have tended to focus on sedans and large coupes, but now BMW (OTC:BAMXF)-owned Rolls-Royce and Volkswagen Group-owned Bentley are moving into the SUV market.
Rolls-Royce recently announced an SUV to move into a new market, describing it to CNN Money as a "car that offers the luxury of a Rolls-Royce in a vehicle that can cross any terrain." Also planning an SUV for the luxury market, Bentley plays heavily on its website the Bentley Bentayga's ability to cross all terrains in the luxury of a high-end car.
Even as Rolls-Royce and Bentley venture into new territory, there is precedent for luxury SUVs. Although they aren't as expensive as those planned at Rolls-Royce and Bentley, high-end SUVs come from such companies as Audi, BMW, Lexus, and Land Rover. At these companies, SUVs are a growing part of the picture, with new models being introduced and sales continuing to grow.
Rolls-Royce and Bentley will make SUVs that are positioned to capture the demand for SUVs at price points higher than those from current offerings. Unlike with some of the sports-car makers, Rolls-Royce and Bentley are less likely to suffer from damage to their brand names, since their reputation is already built around making large, luxurious vehicles. Furthermore, there is a wide array of luxury automakers that have entered the SUV market and found success.
I therefore see the SUV offerings as an excellent way for BMW and Volkswagen to boost sales at their high-end automaking units of Rolls-Royce and Bentley, respectively.
The bottom line for investors: Will SUVs lift margins?
These five high-end automakers are moving into SUVs to expand and tap into an area with potentially higher margins. Although the exact margin numbers on these high-priced SUVs are not available, Porsche as a whole has been able to generate some of the highest margins in the automotive industry, and the Cayenne accounts for 44% of sales. Investors should watch to see whether margins at these five automakers increase, and what sales figures these SUVs post.