BusinessWeek - Give the Chauffeur the Day Off

Merc1 · 10-26-2007, 05:43 AM

Rolls Royce readies a smaller, but still very upscale, model for buyers who want to drive themselves

Rolls Royce is about nothing if not extravagance. Its Phantom sedan, after all, is 19 feet long, sells for more than most houses, and includes a 420-watt sound system with 15 speakers, plush sheepskin carpets, and a 12-cylinder engine. So what to make of a downsized model that the company plans to introduce in 2009—a Rolls that you might, say, take to the bakery to pick up some bread for cucumber sandwiches? "This is your everyday Rolls," says Chris Bangle, design chief at German automaker BMW, which bought the Rolls name in 1998.

Everyday, maybe, but it's no Toyota (TM) Corolla. While the new model, yet to be named, will be smaller and cheaper than the $340,000 Phantom, it'll still set you back at least $260,000. The aim is to build a car that its owner—not a chauffeur—can drive, while still outclassing everything it passes (except, of course, the Phantom). The problem is doing it without denting Rolls' image of wealth, status, and power. "We're not going downmarket," says Rolls Royce Chief Executive Ian Robertson.

A BIGGER POOL

Building cars that are a bit cheaper, though, is vital to making Rolls pay off for BMW. The company won't say how much it has put into the luxury nameplate, but outsiders estimate it may have spent $1.5 billion on design, development, and a new cedar-and-glass-clad factory in horse country on England's south coast, where 550 workers—some sporting neckties—hand-fit parts into the cars. Analysts say Rolls' operating margin is below BMW Group's 7% average, but that Rolls could sell 2,500 to 3,000 smaller cars a year, boosting margins well above 10% through parts and technology sharing. "The baby Rolls is a smart move," says John A. Casesa, managing partner at New York auto consultancy Casesa Shapiro Group. "With just a few models costing $350,000 and up, you don't have a business."

The smaller car should help Rolls extend its dominance of the upper echelon of the superluxury segment. The company expects sales of more than 900 Phantoms this year. Volkswagen, by contrast, will likely make some 750 Bentley Arnages, and Mercedes (DCX) will move only about 300 Maybachs, J.D. Power & Associates (MHP) estimates. But there's still plenty of room to build hyper-expensive cars that aren't quite as stratospheric as the Phantom. Bentley, for instance, is likely to sell about 10,000 smaller cars such as its $170,000 Continental GT sports coupe.

There is a precedent for a less regal Rolls: One of the biggest hits in the past was the Silver Shadow, sold from 1965 to 1980 for as little as one-fourth the price of the Phantom. Under BMW, Rolls has already broadened its offerings. This year it began selling a $407,000 convertible called the Drophead Coupé, which uses many parts from the Phantom, and a hardtop coupe is on its way.

The timing of the new baby Rolls seems right. A steady rise in the ranks of the superwealthy, especially in emerging markets, expands the pool of potential customers. These people often want pop-out wine coolers, headrests embroidered with family members' initials, or a dashboard made from a special tree the buyer chose—bringing the typical Phantom tab close to $500,000, and sometimes as high as $2 million. Just the sort of folks who might figure a smaller Rolls is de rigueur when they don't want to get the Phantom out of the garage. "Most of our buyers," says Robertson, "have a car for each occasion."

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