Pickup trucks and truck-based SUVs are the profit engines for domestic manufacturers, as they boast the widest and most comfortable margins in the industry — especially in the higher trims. That’s why companies like Ford (NYSE:F) and General Motors (NYSE:GM) love moving loaded pickups: Per unit, they return more profit than anything on the lower end (like a Fiesta or a Spark).
However, when it comes to boasting comfortable margins as a brand, one company does it better than virtually anyone else: Volkswagen AG (VLKAY.PK) property Porsche (POAHF.PK). For every one of Volkswagen’s lower-end, VW-badged vehicles, the company pockets about $850. For Lamborghini, another VW property, it’s a more respectable $5,200 per car; for the Ford F-150 pickup, it’s an impressive $8,000-$10,000 per unit sold.
For Porsche, $23,000 from each purchase — on average, across the brand’s range — is funneled into the company’s coffers. That’s a whole new car in profit alone, though admittedly not a Porsche.
This implies that Volkswagen has to sell about 28 Jettas or Passats or any other entry-level vehicle (carrying an $850 margin) to equal the profit returned by one Porsche vehicle, highlighting the importance of the portfolio of luxury brands to the company. Essentially, it all comes down to the customer that each product is aimed at.
“For one thing, [Porsche’s] customers are far less price sensitive,” Bloomberg’s Kyle Stock wrote in a dissection of VW’s annual report last week. “Drivers wealthy enough to consider such a plush ride were likely making a mint on U.S. stocks last year, regardless of where they lived.”
Further, Porsche — and VW’s other profit powerhouse, Bentley — have fewer natural competitors. Whereas Volkswagen has to compete with numerous mass-market contenders, Porsche and company are not under the same pressure to compete on an MSRP-basis: There’s no need to drop the price to lure in buyers. People buying a Porsche typically have their mind made up, and as mentioned before, they aren’t going to make a fuss about a few thousand dollars.
It’s a good thing that VW’s luxury models paved the road last year. Slow sales of its more pedestrian model forced a 23 percent spike in R&D spending at VW to retool its entry-level lineups to remain competitive. Volkswagen brand sales have been battered in the U.S., and the company is evaluating its options moving forward. But this may not have been possible were it not for the cushy margins provided by its low-volume sellers.
“Porsche is growing in every respect, from profitability to innovative power, right up to its motor portfolio,” Martin Winterkorn, Volkswagen’s chief executive, told Bloomberg last week.
Volkswagen is hoping to regain some sales momentum among its other brands, though, and it has 100 models across its several brands being introduced or refreshed to help VW meet its goal of moving 10 million vehicles this year.