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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But size doesn't seem to be a concem for these carmakers. Audi has tested small A2s and A3s on North American roads. Volvo's already here with smaller cars. And Saab may partner in showrooms with Cadillac. GM executives who are seemingly indifferent to the obvious transparency of badge engineering (just look at the Celica-esque Holden Monaro/Pontiac GTO), have strongly indicated a rebadged Trailblazer, masquerading as a Saab, is a possibility.

And trucks are welcome. Luxury knows no physical bounds these days as high-end SUV sales rise. For upscale carmakers, the booming truck business has been a mixed blessing. Product planners are wrestling with the fact that as more trucks are sold, that puts pressure on CAFE averages, so these forays into smaller luxocars will help. Interestingly, 'luxotrus' have had immediate and continuous acceptance (with the exception of Lincoln's hapless Blackwood).

Case in point, as this is written, Lexus is mailing out invitations that read: "What if you had the opportunity to drive and evaluate a dozen of the world's finest Luxury Sport Utility Vehicles in one unique setting...and all the salespeople had the day off? What follows is an invitation to drive Lexus and other SUVs ata resort near you. No salespeople need apply. For Lexus, who was selling more trucks than cars for a while, obviously SUV's remain big business.

And the Lexus brand, with RX, GX and LX variants, is hardly alone. Controversial newspaper columnists couldn't stop the demand for SUVs. The war in Iraq actually helped the sale of H2 Hummers. I don't foresee any changes here unless gasoline rises to over $2.50 per gallon. Even then, it may be too late to dent the fondness luxury buyers have for SUVs.

The other even bigger issue is aging buyers...luxury carmakers want to intercept younger customers, get them into the fold and keep them there. Along with the Escalade, the hot-selling CTS has helped Cadillac (who had nowhere else to go but downward in the age appeal of its models, Seville aside), but the IS300 has been a relatively poor seller for Lexus.

Ignore this marketing axiom at your peril. There's a range of elasticity for every brand. M-B's Jurgen Hubbert has often stated his belief that 'there can be a Mercedes-Benz model for every segment.' His company has convincingly demonstrated this in Europe with a range that extends from A-Class to SClass. Of course, in Germany, the taxicabs and the police cars are Benzes. But even Mercedes-Benz recognizes that there are limits, hence the Smart car at the bottom end and the new Maybach at the top.

Why this headlong chase for volume anyway? Are there enough upwardly mobile folk to justify the increased numbers? You could argue that the luxury brands are being chased up the ladder by an increasing number of feature-rich, less expensive cars. Luxury no longer means a greater level of quality and even features. The Kia Amanti, which bowed at the New York Auto Show in April, has content and safety features that rival entry-level German cars and Lexus with a sticker that's under $30,000. Interestingly, but for an "n," the name is eerily reminiscent of Mazda's stillborn Amati luxury entry, and the Kia flagship's styling (complete with EClass headlights and a bold grille that apes Chrysler and Audi) will probably please people (read Toyota Avalon and Buick Park Avenue buyers) who like driving a bargain.