March 31, 2011

People Who Drive Luxury Cars Are Usually Affluent

The book The Millionare Next Door which I reviewed a while ago was an interesting book.   It pointed out how many millionaires live modest middle class style lives.    The book had an entire chapter about how millionaires buy cars.   It talked about how much millionaires pay on average, whether they buy new or used, what brands they buy etc.   One interesting conclusion from that book is that most millionaires don't seem to drive expensive cars.    That piece of data from the book seems to have caused many people to conclude that most of the people driving expensive cars are not rich.    But that is not a safe conclusion.

Just because most millionaires don't drive expensive cars does not mean that most expensive car drivers are not well off.

Its theoretically possible that most luxury car drivers are actually poor people, but you can not conclude that by only knowing that most millionaires don't drive expensive cars.

Here are several examples to illustrate analogous logic :
Most of the people with low incomes don't have high net worth.   That does not mean that having high net worth means that you have a high income.

Most of the Republicans in American don't live in Texas.   That does not mean that most Texans are Democrats.
Most of the people who get a Bachelors degree don't go to graduate school.    This does not imply that most graduate school students didn't get bachelors degrees.

Lets look at fake numbers to illustrate the point :

Lets say that 5% of the American population are millionaires.    Lets say that only 30% of millionaires drive luxury cars.   Most millionaires don't drive luxury cars.    We can figure that if 30% of millionaires drive luxury cars and 5% of the population are millionaires then that means 1.5% of the population are millionaires who drive luxury cars.   But if we know that only 2% of the total population drives luxury cars and 1.5% of them are millionares then we conclude also that most luxury car drivers are millionaires.  SO this is a situation where most millionaires do not drive luxury cars but most luxury car drivers are millionaires.

Household income and wealth Demographic Data of Luxury Car Drivers

This Forbes article What Your Car Says About You from 2008 talked about the demographics of luxury cars.

Most notable they found that the median income of Porsche 911 drivers was $390,000.   Thats pretty clear cut case that most Porsche 911 drivers are doing quite well.

Bentley's are very expensive.   "Buyers of this ultra-luxury car tend to be highly successful, with a net worth on average of $30 million, according to Bentley."  Thats just an average so I guess a few very rich folks could skew that number.

A Businessweek article titled With Lincoln, Ford Isn't in the Lap of Luxury listed median incomes of the owners of various luxury brands.

Cadillac $129,656
BMW $169,289
Lexus $141,745
Mercedes-Benz $174,558
Audi $183,601
Lincoln $113,782

Now of course these are just median incomes and a relatively high median income doesn't mean you're a millionaire.   But theres fairly high correlation between high income and high wealth.

Are Most Luxury Car drivers Millionaires?

I didn't find a clear answer to this.   Auto sales figures from the WSJ show that about 7% of the autos sold are "luxury" models.     We can also find that about 5% of the households in the U.S. are millionaires.
But I don't know exactly what % of millionaires drive luxury cars.   The Millionaire Next Door has some data on that but its pretty old information.

How Expensive Are Luxury Cars Anyway?

Ok now having said all the above about luxury cars we should also consider that not all luxury car brand models are that expensive.  Some luxury brand models are not that expensive.   In fact you can spend more on a typical minivan than a Mercedes.    You can buy a Mercedes C class for under $34,000.   You could spend over $38,000 on a Chrysler Town and Country minivan.  

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