(Cj)

Luxury-Car Makers Push Function More Than Flash

By VANESSA FUHRMANS And KATE LINEBAUGH



U.S. luxury-car sales, once considered resistant to recessions, have plunged 40% over the past two years, compared with the overall market's 35% drop. Now, high-end car makers are preparing for a rebound that promises to be just as unconventional.

After falling to their lowest level in more than a decade, sales of high-end cars look set to inch toward recovery this year. Volkswagen AG's Audi is forecasting a roughly 10% jump in U.S. sales, while BMW AG, Toyota Motor Corp.'s Lexus and Daimler AG's Mercedes-Benz say they also expect modest increases.

But exactly how the premium-car market will recover remains uncertain and was a topic of intense speculation at this week's big Detroit auto show. The sales plunge prompted by the recession has been so steep that consumers may be redefining what they want in a luxury vehicle, adding anxiety to a rebound.

"Affluent people will still choose to reward themselves," said Audi of America's chief, Johann de Nysschen. "But it will continue to be less about conspicuous consumption" and more about exclusivity and fuelefficient performance.

At the same time, traditional premium-car brands face increasing competition from mass-market manufacturers offering many of the same high-tech features as well as from unexpected upstarts, such as Hyundai Motor Corp. The Korean company had surprise success with its Genesis midrange luxury sedan last year and aims to tackle the higher-end market this year with its Equus model.

That is pushing luxury makers to reposition themselves on multiple fronts: deploying smaller, cheaper and more fuel-thrifty engines, tending to used-car sales and tweaking their marketing messages to target consumers who may begin to spend more but remain in an austere frame of mind.

Mercedes, for example, has been promoting its midsize E-class sedans in recent months with TV commercials that emphasize high-end safety features, such as a fatigue-warning system for drowsy drivers, and play down the brand's old-school luxury image.

"It gives [the consumer] ammunition to feel good about the purchase," said Steve Cannon, vice president of marketing for Mercedes in the U.S.

Premium-car makers also hope to revitalize sales with a slew of new or refreshed models this year, many on display in Detroit this week, such as BMW's revamped 5 series, a convertible-top addition to the Mercedes E-class line and Audi's restyled A8.

Lexus is hoping to defend its top-selling spot in the U.S. luxury market with four vehicles it introduced last year, including a dedicated hybrid vehicle and a new GX sedan, also at the Detroit show.The Germans, though, are eager to wrest market share from the Japanese leader, still scarred from a massive recall announced by parent Toyota this fall to remedy a problem with floor mats that could cause accelerators to get stuck.

For Mercedes, BMW and Audi, the U.S. market is all the more critical this year, given the bleak outlook on their home turf. Aggressive government car-scrappage incentive programs, particularly in Germany, buoyed European car sales last year but also deferred much of the slump's pain until this year.

Though the anticipated sales drop will hit mostly mass-market producers such as VW and Ford Motor Co., luxury-car makers are bracing for a ripple effect. Germany, said Audi's chief executive, Rupert Stadler, "will be pretty tough."

That offense is happening on some unexpected fronts. One is the used-car market, where many luxury-car buyers are turning to replace or buy models they prefer rather than downsize to a new but less-expensive version, said BMW's North America chief, Jim O'Donnell. Sales of used BMWs rose 10% last year in the U.S., while its new-car sales dropped 20%.


The increase in used-car sales helps out its dealers, but BMW said it also sees a plus in higher resale values for the cars it leases. To take advantage, it has shifted marketing dollars to promote and support used-car sales, Mr. O'Donnell added.

European car makers also are deploying what they see as a strength vis-à-vis their U.S. and Asian rivals: giving shoppers the option to buy traditional models with smaller, more fuel-efficient engines already commonplace in many European markets.

Mercedes, for instance, plans to introduce four-cylinder engine options in the U.S. for its C-class models. The move, its executives said, anticipates more-stringent emissions standards.

For now, analysts and dealers believe that four-cylinder luxury cars will be a tough sell. "Traditional six- and eight-cylinder engines are still the moniker of luxury in the U.S," said Rebecca Lindland, an analyst at IHS Global Insight.

But Mercedes's U.S. chief, Ernst Lieb, said the German car maker is seeing more buyers shift away from the highest-output engines.

For instance, the hybrid version of its high-end S-class now makes up 10% of S-class sales in the U.S. Mr. Lieb added the company has adjusted production to reflect the hybrid's rising share of sales.

Write to Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com and Kate Linebaugh at kate.linebaugh@wsj.com

LexFather

(Cj) are you bringing some good heat and articles in CarChat. Thank you.

IS-SV

I saw that article in WSJ recently, found it to be interesting.

LexFather

The S400 hybrid is 10% of S-class sales, not bad!

I8ABMR

the market has drastically changed. I feel sorry for the auto makers right now. They have scramble and bend to make a dime right now.