GS69

The Changing Face of Luxury Cars

If you drive a Mercedes-Benz, you drive a luxury car, correct? Any BMW is a luxury car, agreed? Lexus? Luxury, without a doubt. Audi? Why even ask the question? Infiniti, Cadillac, Lincoln? Give me a break. Of course, of course, of course.

Not so fast. Lexus sells a $30,950 front-wheel-drive hatchback called the CT 200h. Is this hybrid a luxury car? Really? Is it a luxury car when you and I can buy a mainstream, mid-size sedan such as a Hyundai Sonata or a Honda Accord listing for more money?

What about the Audi A3 hatchback? The base version of this 4-door hatch stickers for $34,100. Like the CT 200h, the A3 is a smallish ride from a premium brand, which begs the obvious question: Is luxury exclusively about the brand, not specific models?

Pause and consider Mercedes-Benz’s B200 4-door hatchback, a family runabout that is more station wagon/minivan than car. At $29,900, the B lands right smack on top of the average transaction price of a passenger car in Canada. Is luxury about price or something else?

“Doesn’t one of the fundamental definitions of luxury include the word ‘exclusive,’ ” asks auto analyst Dennis DesRosiers in a note to clients. “Isn’t it true that once a vehicle becomes a mass-market vehicle, then by definition it is no longer ‘luxury?’ ”

Fair questions. What we know is that based on traditional definitions, the luxury vehicle market has exploded in Canada and also around the world. Since 1990, DesRosiers Automotive Consultants notes that the luxury share of the new-vehicle market in Canada has tripled, from 3.1 per cent of the market in 1990 to 9.4 at the end of 2010 (146,618 units sold in all).

The trend has continued through 2011, too: BMW sales were up 10.5 per cent through the end of November, while also up were Mercedes-Benz (6.5 per cent), Audi (17.0 per cent), Land Rover (21.4 per cent), Porsche (14.9 per cent) and Volvo (3.3 per cent).

True, there are some laggards in luxury-land. Acura, Jaguar, Lexus and Infiniti are all off this year (by 11.8 per cent, 2.5 per cent, 8.6 per cent and 16.1 per cent respectively) though a significant reason for flagging sales had everything to do with supply problems in the wake of the earthquake and tsunami in Japan last March. Obviously, not all the woes here can be blamed on natural disasters, but some, for sure.

What we can all see is that luxury vehicles have been going in 2 directions for 20 years: up in terms of sales, down in terms of pricing for a growing list of pretty mainstream-like models. DesRosiers is part of a growing chorus of observers and experts who wonder if the down-market push from luxury car brands is a case of chasing sales gains at the expense of brand health.

“By telling your customer base that you can now afford ‘XYZ Luxury Vehicle’ because it is in the same price range as a mid-sized, mass-volume intermediate car, are you not undermining your core brand values?” he asks.

“And in essence telling those same consumers to buy the mass-market vehicle instead of the niche luxury vehicle? I could argue that 1 of the kicks a luxury buyer gets out of embracing a luxury vehicle is the signal to their neighbour that they can afford to ‘overpay’ for their vehicle and their neighbour can’t.”

Hmm.

The obvious question: Has the definition of a luxury car changed over the past 20 years, thereby explaining this boom in demand and the drop in prices? A USA Today roundtable of marketers suggests that there is a new definition of luxury out there, that the traditional measures of a luxury car are still in the mix, but less important now.

Where size, space, comfort, price and presence defined luxury cars in the 1990s and before, luxury cars in 2011 are now about the driving experience, in-car technology, vehicle design and customer service or the “overall experience” of owning a vehicle.

That is, says U.S. Lexus sales chief Brian Smith in USA Today, a luxury vehicle is defined by a combination of factors – the car itself, the dealer and the brand’s reputation, image and placement. Emotion also factors in when distinguishing a luxury car from a mainstreamer, adds Ludwig Willisch, president of BMW of North America.

Interesting, but some might wonder if all this equivocating (fudging?) around the definition of a luxury car might be just a little self-serving and ultimately an act of survival. Here’s the key point: Luxury car makers must meet the same fleet-wide fuel economy targets as mainstream brands starting in 2016. That’s when an auto maker’s overall fleet will need to average 6.67 litres/100 km or 35.5 miles per U.S. gallon. To get there, luxury manufacturers simply must downsize their fleets while also introducing new, fuel-thrifty technologies, designs and models.

In this the car companies have already made strides. As The Wall Street Journal notes, the thriftiest BMW 3-Series, already on sale in Europe, is a 320d Efficient Dynamics sedan. It has such fuel-savings features as automatic start-stop function (to shut off the engine at stop lights), low-friction tires and regenerative braking that uses braking energy to recharge the battery.

“These allow it to put out just 109 grams of carbon dioxide per kilometre under Europe's mileage-measuring system, which translates to roughly 57 miles per U.S. gallon,” notes Joe White in The Journal.

Going forward, the European luxury brands will introduce high-performance diesels and 4-cylinder engines. Mercedes plans to start offering a 4-cylinder version of the C Class for 2012, for instance, and BMW has plans for a front-wheel-drive line going forward. The regulators, then, are having their very strong and determined say about the definition of a luxury car and car companies are responding accordingly.

“My own personal belief,” says DesRosiers, “is that as our regulators do their best to take away the attributes consumers enjoy in a vehicle, led by performance variables and followed closely by size and type of vehicle, consumers will adjust and purchase better-appointed vehicles and the luxury segments offer the most latitude for consumers to move up-market if they have to sacrifice size and power.”

Beyond government rules, however, wealth and demographics come into play as factors in the luxury segment; they help shape its growth and what new models will define “luxury” now and in the future. DesRosiers suggests that Canada, despite the global economic situation, continues to enjoy “decent wealth creation", while an aging baby boomer set and a relatively wealthy retiring community will all play into the expansion of the luxury segment.

“As the [luxury] segments expand their definition and introduce all kinds of new product [particularly down-market] there is an excellent chance that luxury will continue a very slow but positive increase in market penetration,” he notes.

Meanwhile, auto makers with an eye to the global luxury market are planning for a world in which 70 per cent of the world’s people live in packed mega-cities and attitudes about car ownership among younger buyers will be as focused on in-car technologies and “green” performance as baby boomers were obsessed with 0-100 km/h times in the 1960s and 1970s.

At both this year’s Tokyo and Frankfurt motor shows, the concept of “mobility” trumped considerations around high-horsepower by a long shot. The idea here is to provide owners with flexible mobility choices, from the use of smartphone apps designed to help with navigating and parking in crowded cities, to electric vehicles of all sorts of shapes and sizes.

So yes, the luxury car market will keep growing. But 20 years from now it will look very different than what we have today – far more different than today’s luxury market differs from that of 20 years ago.

*****

LUXURY BY SEGMENT

According to DesRosiers Automotive Consultants, the various sub-segments of the luxury market differ greatly in a number of ways. Here's a look:

Compact luxury sport-utility

Mercedes Benz has been No. 1 here, in one of the fastest-growing segments in the market, says DesRosiers. This segment grew from 4,000 units five years ago to 19,000 in 2010. Big winner: Mercedes-Benz GLK.

Intermediate luxury sport-utility

The runaway leader here is the Lexus RX, though sales have lagged in the last 18 months.

Large luxury sport-utility

The hugely successful Lincoln MKT and Navigator lead this segment, though it is not one with a lot of growth potential.

Luxury sport car

DesRosiers says this one should be divided into at least 3 sub-segments, but that said, in 2010 Nissan's 350Z captured the number 1 spot. Sports cars are in decline, in Canada, in large part as a result of skyrocketing insurance costs. In 2010, 3,657 units were sold here, but DesRosiers points out that at one point at 1 point Canadians bought close to 9,000 sports cars a year.

High luxury

On top here is the Mercedes-Benz S-Class. Canadians once bought 25,000 cars here in 2000, but the segment hit an all-time low of 10,000 in 2009, the year the big recession hit hardest. With so many buyers migrating to SUVs and also going down market to save money, this remains a segment in decline.

Small or entry-level luxury

BMW is on top with the 3-Series, though last year the big winner was Audi with an increase of 26.6 per cent and the Ford 5 Hundred (up 89.0 per cent ). Compact luxury SUVs such as the BMW X3 and represent 45.6 per cent of luxury sales.

PhilipMSPT

iTrader: (5)

We're gonna get a lot of people arguing what defines "luxury" in a car.

I don't think it's about price anymore. It's brand image. It's somewhat exclusive. It's sometimes a benchmark. It's innovation. It's authenticity. It's passion.

It's providing the most complex of desires in the most simple & attainable package.

Luxury pleases all senses. It isn't ugly, rough, bitter, coarse, nor stenched. It's handsome, sleek, tasteful, refined, and fresh. It coddles your sight, touch, taste, sound, and smell. Make it unpleasant, and it is no longer luxurious.

Read quote in sig...

spwolf

definitively brand image.

Och

iTrader: (3)

The CT is the only car in its class that looks upscale and great. MB A/B, 1er, A3 - all look awful and cheap.

jwong77

+1 This is something that Acura, Infiniti, and others have not really come to grips with yet.

DustinV

Is this a fact or your opinion?

The CT is a great car, but in terms of design I'm not feeling it. Design-wise it looks unbalanced to me. And I see to much Toyota design cues all over it - with a Lexus grille tacked on.

Great car, questionable design - my opinion.

spwolf

i think he was saying about luxurious interior... which imho, most others dont really have.

I have been trying to purchase A4, and in real life, interior plastics are like on Auris. Despite what Autobild says :-). Pretty disappointing.

Ty419

I feel like luxury is comfortable, relaxing, smooth, and quiet. The only cars I really consider luxury cars by any of the brands listed are the flagships. They are the only ones designed strictly to be luxurious. The smaller and sportier cars within the lineup are sold by a luxury brand, but aren't luxury cars. A better term for the smaller stuff would probably be premium vehicles.

Och

iTrader: (3)

Dude this is the internet, everybody presents their opinions as facts here.

That being said, design wise the CT is just > *, and if you disagree, your opinion is just wrong.

Och

iTrader: (3)

Toys4RJill

As a CT200h owner, my husband and I wanted a hybrid car. We also wanted a well designed interior with good materials.

The Prius with the harder plastics and the center speedo cluster was a turnoff.

We would of considered a Camry Hyrbid but the only models available at the time were the 2011 models ande design and materials of the interior were lacking.


Prestige and image were not at all important in the consideration for the CT. It was the interior design that counted the most and if our Lexus was called a Toyota we would of been fine with that.

We are happy with 40 MPG and we really like the interior which was paramount in our choice.

bad co

I love how you take 2 generation old cars lol,

Och

iTrader: (3)

Well, I don't keep up to date with junk thats only sold in irrelevant parts of the world.

And judging from your pics, the new generation models got even uglier.

Mr. Burns

I love the CT.



Even nicer in F-sport:



You can have your A3 and B-class

Vladi

What? This must be something new.