Rolls-Royce on a roll despite downturn?

By David Bailey
June 10, 2009

David BaileyProfessor David Bailey works at the Coventry University Business School and has written extensively on globalisation, economic restructuring and industrial policy, with particular reference to the auto industry. The opinions expressed are his own. -

Recent comments by Tom Purves, Chief Executive of the British based but German-owned luxury car firm Rolls-Royce, struck me as interesting on a number of levels this week.

Firstly, despite the downturn, the firm has apparently received some 1,500 “serious expressions of interest” in its new Ghost model to be unveiled later this year. If these were translated into sales they could effectively double RR’s annual sales.

The Ghost will be unwrapped in September and has generated much interest after a prototype has toured the globe. Despite the global downturn, it seems that firms – luxury brands included – can still innovate and develop new products for new markets.

The Ghost is key for RR in extending their product range and hence tapping into new markets, both in terms of market segments and geographical markets. The model will especially aim at a lower price category (i.e. people who might otherwise buy a Bentley Continental Flying Spur). It could also appeal to the growing numbers of rich people in emerging markets such as Russia and China. The Ghost shares elements of the platform which underpins the BMW 7 series, and enables BMW to achieve some economies of scope across brands through platform sharing.

Secondly, RR sold record numbers in 2008 (some 1200 of its Phantom model) but sales have this year been flat given the recession. Yet that in itself is no mean feat when auto markets are down considerably around the world. Apparently the luxury market is often late going into recession and late coming out.

Thirdly, Rolls-Royce is still – it seems – delivering a profit to its German parent BMW (which by the way is currently loss making, like many of the world’s auto firms). RR should be a prized asset for the parent company.

Fourthly, for RR at least the economy has bottomed out: “We are bumping along the bottom … I do not see things getting any worse.” If accurate this will be welcome news to many in the auto industry which has been hammered by the double whammy of recession and credit crunch.

What has been especially impressive about Rolls Royce is that it has worked hard to keep skilled craftsmen in place through the recession. While some agency staff were unfortunately laid off, the firm has kept its skilled workforce in place: “we know we need them with the Ghost coming, and also because we know they are highly skilled and highly qualified and it is much better for us to retain them than not” said Purves a few months ago.

When the upswing does come, RR will be in a better place because of this long-term thinking.

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