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Tough economic times could batter German luxury automakers

If current economic stagnation in Europe continues, belt tightening by corporations and consumers could cripple the market for luxury cars, warns international consulting firm IHS Automotive.

Tom De Vleesschauwer, director of long-term planning and sustainability for IHS Automotive, recently warned European auto executives gathered in Munich that in the case of tough economic conditions, subcompacts could displace much of the sales of entry-level and mid-size luxury cars by 2040. That situation would be especially acute in Europe but also would affect the U.S. market, De Vleesschauwer says.

5 hot trends in 2015 cars
5 hot trends in 2015 cars

"If the challenging economic business conditions continue to remain present in the global market, this could create a generation of ultra-cost-sensitive consumers," he said.

De Vleesschauwer emphasized to CBS MoneyWatch that this situation was not an economic prediction but a worst-case scenario aimed at letting auto executives plan for the possibility.

His research focused on the market for company cars provided to senior employees -- a staple in European corporations. He noted that in Europe 70 percent of so-called E-segment vehicles -- such as the BMW 5 series -- and 65 percent of D-segment cars like the Mercedes-Benz C-Class are now owned or leased as company cars. If cost-conscious companies cut back sharply on these "perk cars," employees who lost such cars would likely buy less expensive cars for themselves.

"Market conditions would demand a huge increase in smaller, more efficient vehicle options," De Vleesschauwer told his Munich audience.

Here are some additional points made in the IHS Automotive scenario:

  • Sales of the European D-segment such as BMW 3 Series and Audi A4 could fall as much as 50 percent from current levels by 2040. The biggest volume of sales would likely move to the B-segment or subcompacts like the Ford Fiesta, which have become better-equipped and more attractive in recent years.
  • The impact in the U.S. would be smaller since the providing of company cars -- except for the highest executive level -- is less widespread. Nonetheless, entry-level and midsize luxury cars sales here would likely decline more than 20 percent because of tough economic conditions, De Vleesschauwer told MoneyWatch in an e-mail.
  • The biggest impact would be felt by German luxury brands that also sell well here such as BMW, Mercedes-Benz and Audi.

Even in a less punishing economic scenario, sales of entry-level and mid-size luxury cars will likely decline by 2040 due to other market forces, such as the millennial generation not feeling as attached to cars as their elders and more people moving to cities where they rarely need a car, says De Vleesschauwer.