How Rolls-Royce Got Its Rebound

Toward the end of every calendar year, Ian Robertson puts his small arsenal of expensive fountain pens into overdrive. That's when Rolls-Royce Motor Cars sends a yearbook to customers who have purchased a Rolls since Jan. 1, 2003, when production began under the German automaker BMW. As head of Rolls-Royce, Robertson personally signs each book's accompanying cover letter. The bespoke touch is appreciated by the company's superrich clientele--which numbered 2,800 when Robertson performed the task last year. "With that many customers," he says, "I could just about do it."

This year Robertson may need an autopen. The iconic British car company is expecting already rising sales to soar, relatively speaking. This is, after all, a company whose ambition is to sell a mere 1,000 cars a year. That's a goal within reach, thanks to upcoming expansions of the product line, increasing numbers of extremely rich potential buyers and fast-growing Asian markets. Last year Rolls sold 805 Phantoms, its main model, slightly more than the previous year. Revenues were also up--the company won't say by how much--largely because of the newly introduced extended-wheelbase Phantom, which has a base price of $403,000, or $63,000 more than the standard version. Garel Rhys, emeritus professor of automotive economics at Cardiff Business School in Wales, applauds the company's performance since its acquisition by BMW: "You couldn't expect much better." In July, it rolled out the Drophead Coupe, a two-door convertible Phantom starting at $407,000. Overall, Robertson predicts, the firm should enjoy double-digit sales growth this year.

The company began life in 1904, when Charles Rolls, an aristocratic automobile aficionado and dealership owner, joined forces with fledgling carmaker Henry Royce. Then and now, the company's cars were big, powerful, stately and silent. In 1931, Rolls acquired the more sporty, slightly less expensive rival Bentley.

When Rolls--which also made aircraft engines--went bust in 1971, the auto and aerospace units became separate companies. After a variety of owners, BMW took over. It now builds the cars at a plant in Sussex, England, operating one line and one shift that turns out four or five hand-built cars a day. The 550 employees include craftsmen--skilled cabinet- and saddlemakers, for example. Most Rolls are made to order; on average, customers pay $20,000 to have their car customized. The company is adding a second line next year and a second shift in 2009 to handle (at the same careful pace) both the Drophead and other planned new cars.

For its first Rolls, BMW opted to resurrect the Phantom--a big sedan limousine that all but begs to be chauffeur-driven. That meant targeting the very rich, whose legions are growing fast. Rolls wants to increase its market share while still remaining at the price pinnacle. Next year it's introducing a hardtop coupe version of the Phantom and launching a smaller, as-yet-unnamed sedan.

So who is willing to pay a small ransom to own a Roller? Buyers tend to be entrepreneurs, show-business celebrities or sports stars; few are corporate executives. One factor working for Rolls in developing economies: showing off one's megabucks is culturally acceptable in China. That helps explain why China is now Rolls' third largest and fastest-growing market, accounting for 10% of sales. (The U.S. still accounts for 45%.) It was a Beijing property developer who last year paid a record $2.3 million for a superstretch Phantom.

BMW will certainly be happy to see Rolls generating profits, given the $1.2 billion Rhys estimates it put into the company. Rolls won't budge Beemer's bottom line, given the parent company's $65 billion in sales. But owning Rolls-Royce gives BMW prestige and bragging rights. It proves it can sell cars that sweep the breadth of the market, from budget to budget-busting. Should the world's economy sputter and car sales drop off a cliff, "Rolls-Royce would probably be the first thing to go," Rhys says. But for now, like that iconic spirit of ecstasy that makes up its hood ornament, Rolls-Royce looks poised to speed ahead.