“For a long time, the business model has been stack ’em high and sell ’em cheap,” Aston Martin CEO Andy Palmer said. “But profitless volume is no way to build a sustainable company.”
TURIN — The increasing commoditization of cars will force mass-market manufacturers to change their business models or face extinction, Aston Martin CEO Andy Palmer told the Automotive News Europe Congress.
“I do believe we are at the beginning of end of the traditional automotive industry,” he said.
Palmer drew on his nearly 40 years in the mass-market industry, most recently as co-chief operating officer at Nissan, to make his remarks at the event, held at Italdesign’s headquarters here.
“For a long time, the business model has been stack ’em high and sell ’em cheap,” he said. “But profitless volume is no way to build a sustainable company. It makes no sense to spend 1 billion [euros] on a new car and discount it almost at launch.”
Palmer referenced Fiat Chrysler Automobiles CEO Sergio Marchionne’s 2015 analysis titled Confessions of a Capital Junkie, in which he argued that automakers needed to consolidate to stop spending billions making almost identical products.
“In our industry there are too many capital junkies spending billions and getting too little return for it,” Palmer said.
The problem will get worse as autonomous and electric technology encourage more ride-sharing.
“We risk moving toward commoditization of a pod,” he said, drawing a comparison with the aerospace industry as a possible scenario for car manufacturers. “The world does not need dozens of nameplates making the same objects. There are more than 75 automotive nameplates in Europe, but just four plane makers,” he said.
Palmer said there was need for “a different business model” that capitalized on customers’ desire to own beautiful, exciting cars built by a company with a strong brand.
“People are still looking for emotion in their motion and that’s where the luxury manufacturers sit, and where Aston Martin is flourishing,” he said.
Aston Martin has proved that car companies don’t need to be part of a wider giant group to survive and generate good profit margins, Palmer argued. “Having worked in mass market and volume, I know now that small is beautiful. You have the agility to respond to market and customer needs, and as long as you have friends to share technology there is the ability to improve margins,” he said.
Aston Martin has an agreement with Daimler to supply V-8 engines, electrical systems and technology such as semi-autonomous driving features.
Aston Martin reported a profit in 2017 after six years of losses and has maintained its profitability in 2018.
One reason for Aston’s financial improvement is the demand for ever more expensive cars, including hypercars such as the Valkyrie, which is due next year and expected to cost 2 million to 3 million pounds ($2.7 million to $4 million), fueled by the growth of high net worth individuals globally.
Said Palmer: “It’s almost as though the more expensive it is, the easier it is to sell.”