STANDING AT THE TOP of the escalator between the two floors of Palexpo Hall 7, amid the crashing thunder and carbon-fiber lightning of the 87th Geneva International Motor Show, all I could see were bubbles, bubbles everywhere: delicate, iridescent, aching to pop.
The biggest is floating just across the ocean. The U.S. car market—upon whose riches these splendid European luxury brands now heavily depend—has grown steadily for seven years, with a record 17.5 million light-vehicle sales in 2016. In that time, low gas prices and low interest rates have combined to ease Americans into progressively larger, more expensive crossovers, trucks and SUVs, which also happen to be the vehicles most profitable to manufacturers.
GM sold 3 million vehicles in the U.S. in 2016 (10 million world-wide), had record earnings per share, and returned $4.8 billion to shareholders.
But there’s a lot of paper out—over $1 trillion in outstanding automotive loans in 2016, according to the credit-score company Equifax. About 20% of auto loan originations are subprime and delinquency rates have climbed steadily. And just like risky mortgages, delinquency-prone car loans are securitized, bundled and sold as asset-backed securities (ABS), which never worked out badly for anyone, ever.
Quietly, auto execs are worried sick about any contraction in auto-loan credit, but they would tear their tongue out before saying so on the record.
The Trump administration would like to keep the bubble floating, if possible.
The EPA is expected to undo future fuel-economy standards locked in during the last days of the Obama administration, the Corporate Average Fuel Economy standard, pegged to a nominal 54.5-mpg by model year 2025. EPA Administrator Scott Pruitt hasn’t committed to continuing the waiver by which California fuel-economy rules supersede the federal standards.
In force, such policies would act like automotive growth hormone, incentivizing sales of larger, thirstier vehicles by lowering the relative cost of compliance. That would help the domestic auto makers, certainly; it would also encourage European premium/luxury marques— Audi, Bentley, BMW, Mercedes-Benz, Land Rover and Volvo—to design and sell bigger vehicles in the States. Not that they need much encouragement. Each of these brands introduced new or enhanced crossover/SUV products at Geneva.
You may wonder what happens in the case of a sustained increase in the cost of gasoline, as occurred in the mid-2000s, when the average price of gas rose to more than $4 per gallon and people were literally trading Hummer H2s for Toyota Priuses. It was precisely GM’s wrongheaded product mix of big SUVs and trucks that popped its bubble and sent it fluttering into bankruptcy.
When the music of cheap gas stops, as it inevitably will, many of these fine, fat fellows will have nowhere to sit.
The U.S.’s reverse course on vehicle emissions reflects another sort of bubble. No other industrialized nation is considering looser standards on carbon emissions. In fact, fuel-economy and emissions rules in the European Union are getting tougher, with real-world driving tests and not simulated models. Cities from London to Paris to Beijing are preparing for low-emission and no-emission zones, which will be accessible only to battery-electric vehicles or plug-in hybrids.
One such car is the new Porsche Panamera 4 E-Hybrid Sport Turismo, with 32 miles of all-electric range, enough to get in and out of the city, and a 330-hp gas V6 for romps in the country.
German car companies Daimler, BMW and VW Group will gladly take the profit from selling dirtier, less advanced vehicles in the U.S. and spend it to clear their own skies.
Some bubbles are actually quite comfortable. Geneva itself, for instance. Switzerland has the world’s highest average individual worth, more than $500,000. The Geneva show is traditionally where the ultrarich find their newest, fastest toys.
From the Red Keep in Maranello, Italy, came the new Ferrari 812 Superfast, a slingback heel of a car with a 789-horsepower V12 and a top speed of 211 mph. Expect a retail price around $350,000, sans floor mats. British supercar maker McLaren unveiled the lovely, sculpturally impeccable 720S, with a 4.0-liter, 710-hp V8 stuffed amidships, capable of 0-186 mph pulls in 21.4 seconds and a top speed of 212 mph. All for a mere $300,000 or so. Lamborghini brandished the Huracán Performante (5.2-liter, 631-hp V10 and all-wheel drive), which claimed the production-car lap record at the Nürburgring Nordschleife of just 6:52 minutes, five ticks quicker than the Porsche 918 Spyder.
Never shy on matters of ostentation, Rolls-Royce debuted a special-edition Ghost with diamond dust in the paint.
‘Execs are worried sick about any contraction in auto-loan credit, but they would tear their tongues out before saying so.’
There were rarer cars still. On Aston Martin’s stand hovered the newly christened Valkyrie, a collaboration with F1 aero engineering master Adrian Newey. Aston Martin claims the Valkyrie will keep pace with a full-on Le Mans prototype. Price: $3 to $5 million, and all 200 cars all sold out.
Bubbles—and potential bursting of same—also help explain the increasing number of specialty car-builders and coachworks represented, including historic names like Carrozzeria Touring Superleggera, Pininfarina and auto toy makers Brabus, Gemballa and Radical. These companies live off the flight of wealth to tangible assets, and the wares they sell are the four-wheeled equivalents of collector chronographs.
One such company is Ruf Automobile, the famous Porsche hyper-tuner. Ruf unveiled its first whole-car construction at Geneva, the Ruf CTR, a modern interpretation of an air-cooled 911 but with a 710-hp, twin-turbo flat six, carbon construction and pushrod suspension.
I asked Alois Ruf Jr. if any of his buyers ever drove the cars on track, or do they just tuck them in garages, collecting value?