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Automotive Industry

Downwardly mobile: the luxury market is a battleground; are automakers going up…or down?

Automotive Industries, May, 2003 by Ken Gross

Automotive history is replete with instances where luxury brands expanded their lines downmarket. Sadly, for many carmakers, the result was usually a temporary respite, followed by an acute loss of prestige, and ultimately, the brand's demise. While the move downscale wasn't always the precipitating factor, it usually started the decline.

Packard's low-priced Light Eight arrived in the early 1930s, followed in 1935 by the mass-produced, six-cylinder 120, priced below $1,000, which arguably saved the company in the Depression. But these cars, and the even less expensive models that followed, seriously undermined Packard's prestigious name.

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By 1937, according to James Ward who wrote "The Fall of the Packard Motor Company," "...a frugal shopper could drive away in a new (Model) 1150 for only $795. A well-heeled shopper could glide away in a 16th Series Twelve after shelling out as much as $8510... Within a few years, Packard had become a mass producer of middle-priced automobiles... The approach confused the public. Packards could not be both practical and luxurious, cheap and expensive, exclusive and common."

GM's low-priced LaSalle line was introduced in 1927 to fill a then-perceived gap between Cadillac and Buick. Fortunately, the financial strength of General Motors, and the company's desire to field the finest car in America, ensured Cadillac would survive, even though its high-end V-12s and V-16 volume was extremely small. LaSalle probably didn't hurt Cadillac as much as it competed with Buick. But not surprisingly, the brand did not return when GM production began again after WWII.

Studebaker's purchase of Pierce-Arrow in 1928, resulted in a needed cash infusion, along with less expensive Pierces, (engineered by several ex-GM staffers) and that soon resulted in a situation where the top-line Studebaker President was nearly identical to an entry-level Pierce. Sales quickly dried up, perhaps accelerated when Pierce announced the $10,000 Silver Arrow sedan. Once-proud Pierce-Arrow was gone for good by 1938.

The smaller expensive car phenomenon was not limited to the luxury carmakers of the 1930s, Ferrari got into the affordability act in the mid-Seventies, with its Dino 246 GT/GTS. Advertised as "Almost a Ferrari," and sharing its 4-cam V-6 with two Fiat models, Luigi Chinetti's dealers practically had to give Dinos away at the end (although they're beloved by collectors now). In the early 1980s, the Chevy-based Cimarron, remember: "Best of all...it's a Cadillac," soon became the butt of marketing jokes.

So why do you suppose so many brands today are adopting this questionable strategy?

Before you argue that we're not in a severe economic depression like the one that crippled the 1930s, consider the confused and highly competitive state of the luxury market today.

The entire core of the prestige luxury business has shifted dramatically. Mercedes-Benz, BMW and Lexus (temporarily the volume leader) are fighting it out, in a greatly expanded category, stalked by Audi and Jaguar. Along with those competitors, Cadillac and Lincoln have shrunk from years past and like Lexus, they have become very dependent upon SUV sales. In addition, both domestic top-liners have models in what's euphemistically known as the "entry lux" category with LS and CTS positioned against the 3-series, C-Class and IS300. Jaguar's X-Type is running in this pack too. The X-Type is a decent amalgam of Mondeo and Jag underpinflings, with the bonus of all-wheel-drive, but it's still been slow to catch on.

Possibly urged on by dealers who want to be competitive on every level, and marketers who arrange their lineups against rivals on a model-by-model basis, the flow of new products is continuous as these competing vehicles are matched, one by one. Cadillac is about to launch its Corvette-based XLR roadster against the Lexus SC430 and M-B's SL-Class. BMW's Z8 is now history, but the Muncheners are planning a 6-series convertible for 2004.

Lincoln has just announced a strategy that will include all-wheel-drive entries like its Navicross show car, and the brand will not pursue a higher-end position, leaving that ground to Ford-owned Jaguar and Volvo. Jaguar, by the way, is developing station wagons (the British call them 'Shooting Brakes") and insists it won't do an SUV. After all, Ford has Volvo and Land Rover (which is often co-located near Jaguar stores) for that business.

Curiously, as Audi realigns itself (in the U.S.) upward against the loftier brands, its in-house "partner" Volkswagen is impishly introducing very competitive models like the Passat W8, the $100,000 Phaeton sedan and a Porsche rival, the Touareg SUV. Although most people feel the brand positioning of 'people's car" precludes upscale models, former VW-head Ferdinand Piech, did not. raking a stand against luxury forays can cost you your job. Reportedly VW's Robert Buechelhofer, an ex-BMW board member and most recently VW's marketing chief, left the company over a policy dispute regarding the marketing rationale (read sense) of the Phaeton. While it's too early to predict failure for the Porsche Cayenne, PCNA's canny former CEO, Fred Schwab, was out the door soon after he proposed a $500 customer spiff to entice more people to at least have a look at the new Porsche truck. (The Cayenne is fun to drive, no question, but did Porsche really need to get into the SUV business and double its sales volume? Ferrari seems content to remain at around 4,000 units annually. Porsche was selling a lot more than that.

Automotive Industry

Downwardly mobile: the luxury market is a battleground; are automakers going up…or down?

Automotive Industries, May, 2003 by Ken Gross

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