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Era of million-dollar luxury cars

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4/11/2015 1:14:03 AM

There is a hot little number in there called the Lykan HyperSport. The car is a US$3.4-million (S$4.6-million) beast with a top speed of 386kmh and the face of a raptor.


 

It is also among the most expensive production cars ever to go on sale. But it is not the only land rocket to come out lately that costs more than a million dollars. Far from it.

Over the past decade, almost every carmaker (that calls itself a true "luxury" brand, at least) has produced a contraption with a seven-digit price tag. Sometimes, they get there by only making a one-off with diamond-rimmed headlights and titanium bones, but they get there.

The brands make these cars because people buy them. The past few years have seen an explosion of royals and tycoons around the globe who buy entire fleets of Aston Martins and Lamborghinis to support their proclivities.

Bloomberg has discovered more than three dozen new billionaires in the world since January alone, and more than 300 since 2012. They buy the cars in Los Angeles, Doha, Moscow, Sao Paulo and Shanghai. Some, like hotel tycoon Steve Wynn, buy them to bolster their business interests just as much as their personal life.

"The fact of the matter is there are a lot of rich people around the world and I mean super-rich - hundreds of millions of dollars to billions of dollars of net worth," says Mr Jack Nerad, executive market analyst for Kelley Blue Book. "When you're talking about these types of people, a million-dollar car isn't really much of a stretch at all."

It is also lucrative for the carmakers, despite the extra work required to specialise a given automobile. Margins on a standard Ferrari or Lamborghini hover around 15 per cent, and when the price tag on a particular car reaches into the seven figures, that amount can increase significantly.

"If you have to set up a separate assembly line, it can become expensive to produce" a car, Mr Nerad says. "But with million-dollar cars, there's still money to be made."

The basic rule is that it takes US$1 billion to develop and produce a normal mass-market car. But developing one that is not accessible to the public can cost less than that because resource needs are narrowed. Plus, it is easier to recoup the expense when price tags are in the millions rather than, say, US$30,000. That is true even if a company sells only 300 units of the car.

These super-expensive cars fall into different categories. Some, such as the Bugatti Veyron and Lyons Motor Car's LM2, are truly unique and  made in minuscule production numbers. Others are special editions of existing models (see: Lamborghini and Ferrari).

Let's look at how a Rolls-Royce gets to US$1 million. A base-level Phantom starts at about US$400,000. Then you add custom treatment, which most of them receive: special wood, paint and leather that can hike the price by hundreds of thousands of dollars. Getting the full-armoured treatment on a sedan can cost almost US$500,000 alone.

And at that point, the real heavyweight treatment starts: true bespoke, unique work that adds precious gem and pearl accents, hand-stitching, bulletproofing, theatre systems and elite engine tuning. That last stage is where a standard Phantom crosses the US$1-million threshold.

Then there is what carmakers call a "halo car". That is when a brand that makes several different lines comes out with a concept car or ultra high-end superstar that serves a purpose beyond its own price tag.

"Halo cars like these serve to really capitalise the brand," says Mr Kelsey Mays, senior consumer affairs editor at Cars.com. "You look at Bugatti, which is owned by Volkswagen, and the only car everyone knows from Bugatti is the Veyron," he says. "But they know it's the one that Beyonce buys for Jay Z. The real value... is in the association."

When people spend US$200,000 on a Ferrari California T, they are tapping into the elite aura  that is emitted  by the US$2.1-million Ferrari FXX. (There are only 30 of those, whereas thousands of Californias are made every year.)

Every time a brand's race car wins a Formula 1  event, or a newly unveiled concept vehicle shows off a brand's ability to harness power and technology, the everyday drivers of the lower-tier cars get to feel like they are part of the correct club.

Finally, some carmakers do not want to persuade a broader market to buy their cars.

Ultra-niche supercar companies  such as Koenigsegg, Zenvo and the aforementioned Lykan make limited runs of cars whose price tags can soar into the multimillions. They are selling only to the uber-rich, and in those cases, the exclusivity is a big part of the draw.

These efforts are often a gamble with high risk, and not always high rewards. Zenvo, in Denmark, will make only 15 of its US$952,000 ST1 supercars. It is betting that the top speed of 603kmh and 1,104 horsepower will help it sell through the line, at which point the owners estimate they will break even.

But before the Geneva Motor Show this year, the company had delivered only two and received orders for five more. Then it will be a few years before Zenvo can roll a new model off the production floor - a time period when bigger carmakers can accomplish all kinds of feats.

It is important to remember that a high price does not mean the consumer can have it all. One can probably get speed or strength or comfort in such an expensive car, but not all three.

To wit: The Lykan is fast, but its engine contains only six cylinders - the same number as pretty much every mass-made sedan on the road today.

Or take the US$1-million armoured Mercedes-Maybach Pullman, which requires more than five seconds to hit 100kmh. Do not buy it to win any drag races.

Or consider the US$2-million Pagani Zonda, which has a certain flair but has endured persistent criticisms about its high maintenance costs and propensity to break down under even the slightest inclement conditions.

"Exotic cars are fairly unpractical," says Cars.com's Mr Mays, in the understatement of the week. "You need a whole garage of things to drive when you own one of these - things that are a bit more rugged. With something like a Pagani, you need real roads and, ultimately, racetracks to stretch its legs."

Of course, if you are wealthy enough to afford something like the Pagani, you are wealthy enough to afford the racetrack that goes with it.

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