No Time to Pause for Rolls-Royce

The next step involves expanded capacity, first with a tweak meant to squeeze out more Phantom convertibles, then with a more ambitious program to launch the new RR4 model.

David E. Zoia

January 16, 2008

6 Min Read
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North American Int’l Auto Show

DETROIT – After a slow start under new owner BMW AG, Rolls-Royce Motor Cars. Ltd. appears to be hitting stride.

When its all-new Phantom was launched in 2003, it met with mixed reviews, as critics wondered if the car, the first designed under BMW, was too Germanic and a bit too ostentatious even for Rolls.

Executives refused to admit it, but first year sales, at about 300, were a disappointment and well below the Goodwood, U.K.’s plant capacity of 1,000. Rolls had targeted U.S. sales, alone, at 270-280 Phantoms in the first year.

But Rolls now appears on a roll, with sales last year reaching a capacity-constrained 1,010 units for the first time, a 26% gain on 2006. Its new Phantom Drophead Coupe is a hot commodity, with an order backlog of two years in the U.S., the brand’s biggest market.

Orders for the 4-door sedan were stacked up enough at year’s end that Rolls added overtime at Goodwood to meet demand. The new longer-wheelbase version of the car launched last year also was a success, accounting for 25% of the auto maker’s 4-door sales worldwide.

And a new, less-expensive model, codenamed the RR4, on tap for late 2009 is targeted to broaden Rolls’ customer base and double its sales by decade’s end.

“When you’re re-launching a brand, especially a brand like Rolls-Royce that is at the pinnacle of the industry, you can’t force it,” Chairman and CEO Ian Robertson says of the company’s early days under new ownership. “You have to take it step by step. Because the worst thing you do is force the market.”

18-month wait for Phantom convertible.

Robertson says Rolls sales have grown at an appropriate pace.

“We’re at our fifth year now and the company is producing the volume of cars, the mix of cars that we always intended to do,” he says. “And now we’re ready for the next step.”

That next step involves expanded capacity, first with a tweak meant to squeeze out more Phantom convertibles and add a 2-door coupe into the mix, then with a more ambitious program to launch the new RR4 model.

Originally, Rolls targeted convertible sales at 200 units, but it sold 250 last year. And with an order bank stretching out to mid-2009, “we’re going to try to make a few more – but not too many,” Robertson says in an interview at the North American International Auto Show.

The short supply has dealers charging a premium for the cars, “which we see nothing of,” he adds. “But that’s a nice position to be in.”

The 4-seat coupe, codenamed the 101EX and shown in concept form at the 2006 Geneva auto show, will be launched into the market midyear. Robertson says Rolls already has a “healthy advance order book” for the new model.

The big capacity push comes with the RR4, which will require a new line and a couple hundred additional workers at the Goodwood plant, increasing capacity to 2,000 vehicles.

The RR4 will be priced at roughly $250,000-$280,000. That’s below the $360,000-$450,000 Phantom but above the $150,000 Bentley Continental, putting it in a gap where few cars reside.

“If you look at this super-luxury segment, it is split into three tiers, over $300,000, $200,000-$300,000 and below $200,000,” Robertson says. “There are a lot of cars under $200,000. But there’s been very little development at $200,000-$300,000.

“We dominate the upper segment to the tune of 70% of world sales. So we see the $250,000 and above as a very interesting part of the market for us.”

Moving further down the price ladder would have diluted the marque, Robertson says.

“Rolls-Royce has to remain a pinnacle brand,” he says. “Dropping further into a more competitive segment is not appropriate for us.”

Robertson promises the new model will be an “authentic” Rolls. Although it will share some components with other BMWs, it will have an engine tailored to the brand that will maintain what Rolls says is its segment leadership in fuel efficiency.

In addition to new products, the auto maker is growing through an expanding presence in key emerging markets.

Sales soared 50% in China (110 vehicles) and Russia (30) last year, and China has risen to become the brand’s No.3 market behind the U.S. (40% of sales) and the U.K.

“It was the fifth-, sixth-, seventh-biggest market when we started,” Robertson says of China. “So it has come from nowhere. And it was a standing start (there for the brand). There was no history, no heritage, virtually no knowledge (of Rolls-Royce).”

Overall, studies show wealth is increasing worldwide – good news for Rolls, whose average customer boasts a net worth of $25 million-$30 million. That demographic is growing 8%-9% in North America, according to some studies, and 20%-25% in China, Robertson says.

“Over time, China will become a bigger market,” he says. “(Rolls) fits the psyche of an American customer very well, because in America people want to demonstrate success. It seems acceptable. In China, it’s the same.”

There are some concerns about the weakened state of the U.S. economy and the sub-prime mortgage debacle that has spread to Europe and elsewhere, even though most of the brand’s customers typically are immune to such downturns.

“When sentiment changes, people…don’t go out shopping as much,” Robertson says. “When hurricanes hit Florida a couple of years ago, we didn’t sell a car for nearly eight weeks. That wasn’t because people weren’t as wealthy as they were before. They largely got on their planes, flew out of the area and when they came back, they didn’t feel like spending.

“The good thing about a global company like ours is, by and large, the whole world doesn’t move in the same cycle. If the U.S. would ease up a bit, I’m sure China would take up the slack.”

But Robertson says the auto maker’s biggest hurdle isn’t the global economy, it is managing its own rapid expansion.

“If you read these university business reports, one of the things (they say) is try not to do too many things at once,” he says. “And in the last few years we re-established the brand, built a new factory, recruited a completely new workforce and recruited a new worldwide dealer body. More importantly, we launched a car, having designed it from scratch into a price segment that was double what had been seen before.

“Now we’re expanding at a very rapid rate, as well,” he adds. “And there is every indication (growth will be) at even higher levels in the next few years.

So a lot is happening, which in essence means there’s very little stability.”

Once Rolls reaches its 2,000-unit target?

“Then we’ll take the next step,” Robertson says.

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