This Crazy Rolls-Royce Will Mean Big Profits for BMW – Motley Fool

Posted: Sunday, April 12, 2015

Someone’s crazy idea of a hot rod? Nope. This car is helping Rolls-Royce engineers develop the brand’s first-ever SUV. Source: Rolls-Royce Motor Cars.

Is it the latest example of Hollywood excess? Some hot rodder’s bizarre fantasy?

It’s neither. That jacked-up, bewinged Rolls-Royce you see in the photo above is actually a rolling testbed for something that is arguably even wackier: the first-ever Rolls-Royce SUV.

That’s an official Rolls-Royce photo. Is it proof Rolls has gone off the deep end?

Yes, Rolls-Royce is developing an SUV
Luxury SUVs are nothing new, of course, and it’s not news that the segment has been booming in the last few years. Premium brands such as Porsche and BMW (NASDAQOTH: BAMXF  ) have profited greatly from “crossover” SUVs that combine some off-road capability with car-like handling.

But it was still a surprise when Rolls-Royce, the 111-year-old maker of stately sedans for very well-heeled clients, announced in February that it is “developing an all-new Rolls-Royce with exceptional presence, elegance and purpose:

• A car that offers the luxury of a Rolls-Royce in a vehicle that can cross any terrain

• A car that meets our customers’ highly mobile, contemporary lifestyle expectations

• A Rolls-Royce that is as much about the pioneering, adventurous spirit of Charles Rolls as it is about Sir Henry Royce’s dedication to engineering and innovation

• A car that appropriately reflects Rolls-Royce’s brand promise of effortless luxury

• A high-bodied car, with an all-new aluminum architecture

• A unique new motor car worthy of carrying the Spirit of Ecstasy into the future

“This new Rolls-Royce,” the announcement continued, “will be Effortless … Everywhere.”

It’s an SUV, in other words, even if Rolls-Royce would rather describe it delicately as a “high-bodied car” that can “cross any terrain.” And the car in the photo above is what Rolls calls an “engineering mule,” a test bed for the all-wheel-drive system and other technologies that will go into the future Rolls SUV.

But why does Rolls-Royce — Rolls-Royce! — want an SUV?

It’s about profits, and something else
Rolls-Royce said, “many discerning customers have urged us to develop this new car — and we have listened.” 

That is no doubt true. But it’s also true that Rolls’ corporate parent, BMW, knows full well that there’s an opportunity for an ultra-luxury SUV right now — and that if Rolls doesn’t seize it, its rivals will.

Specifically, the Bentley brand, now owned by BMW rival Volkswagen Group (NASDAQOTH: VLKAY  ) , is expected later this year to unveil a super-luxury SUV called the Bentayga. But apparently demand is already outstripping supply — even though the Bentayga hasn’t yet been shown. 

Another view of Rolls-Royce’s “Project Cullinan” test car. Source: Rolls-Royce Motor Cars.

Bentley Chairman Wolfgang Durheimer told Business Insider that the company will build 3,600 Bentaygas in the first year of production. He said demand already extends far beyond the United States.

This is about more than just jumping into a hot market. For Rolls, a tiny automaker that sold just 4,063 cars last year (a record, by the way), an SUV model offers some diversification, a bit of insurance against a falloff in sales of sedans.

SUV sales can help a small brand get through economic downturns
That’s why Porsche originally developed its Cayenne, after all — as a hedge against the steep ups-and-downs of its core sports car business. Premium sports cars tend to sell very well during good economic times, but are the first purchase eliminated from many buyers’ lists when the economy turns down and it’s time to cut spending.

SUV sales have proven a little more resilient. Even though Rolls-Royce is now owned by deep-pocketed BMW, such resilience surely has some appeal.

But mostly, this new Rolls — which is currently called “Project Cullinan” — will be a ticket to fat profits for Rolls and BMW for as long as this super-luxury-SUV boom lasts.

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