Thanks to Uncle Sam’s Cash for Clunkers program, even the weakest of America’s mainstream automakers will live to die another day. Meanwhile, the so-called “mass luxury” brands are hurtin’ for certain. The falling tide of the global economic meltdown has left Audi, BMW, Cadillac, Lexus and Mercedes stranded, flopping around on the metaphorical beach, gasping for the oxygen of financial lubricity. It’s hard to feel sorry for any of them. The upmarket marques marked the last ten years or so by chasing volume sales with “entry level” models that cheapened and weakened their brands. Is it any surprise that the very customers that fueled their expansive profits have abandoned them in droves, as badge snobbery has kept pace with financial security (or lack thereof)? In other words, the fact that these “luxury” brands are “suddenly” in worse trouble than everyone else is their own damn fault.
Yesterday, the Wall Street Journal (WSJ) highlighted the fact that American luxury car sales fell “almost 21% last year — double the decline in overall car sales — and continue to slide this year.” It’s a bit odd that: tagging the tanking trend with last year’s annual stat and declaring that, in general, sales still suck. A snapshot of the last seven months via Automotive News shows that luxury car sales have gone from bad to hideous—keeping in mind (as we must) that the numbers are relative to last year’s fall from grace.
So far, Audi’s sales are down 18.9 percent. BMW’s are off by 27.6 percent. Cadillac clocks-in with a 45.4 percent tumble. Lexus is 41.9 percent off of last year’s pace. And Mercedes’ cha-chingery dropped by 33.6 percent.
And what of margins? It’s no secret that moving even this ever-declining number of units has required radical price reductions. “Take it or leave it” has become “make me an offer and I won’t refuse” (e.g., my kid’s doc got $25K off a brand new Audi S4). While new car inventories don’t appear disastrously high, turnover has slowed to a trickle. Meanwhile, pre-unloved 2010 models are heading for palatial, tumbleweed-strewn showrooms.
Bottom line: luxury car prices are about as firm about as a bowl of Jello in a Turkish steam bath. And the difference between MSRP and actual money tendered is coming out of the manufacturers’ hides.
Mass luxury automakers have painted themselves into a coroner [sic]. By expanding their model range into the mainstream, they’ve become addicted to volume. Their entire business model—from manufacturing through to the size of their dealer network—depends on moving a large amount of metal. But buyers at the lower, larger end of the spectrum are the first to abandon luxury makes when money’s too tight to mention. Ipso facto.
So what’s a luxury automaker to do? According to the WSJ, “Car companies aren’t taking chances. Some are preparing smaller, cheaper versions of their high-end nameplates. Others are tweaking their messages, emphasizing ’sustainability’ and fuel economy in a market segment that for years competed on who had the highest horsepower and richest leather.” Yeah, that’s the ticket. When sales crater, accelerate the move downmarket, or sacrifice decades of upscale branding on the altar PC fashion.
To wit: Cadillac still swears it’s going to introduce a sub-CTS model called the ATS. Lexus is pushing ahead with plans to offer a luxury compact based on the hybrid Prius. Despite generating just 335 A3 sales in July, Audi’s introducing a diesel variant, reflecting the German brand’s re-branding as makers of oil import-reducing diesels.
Along the same lines, BMW’s US website leads off with a $4500 “Eco-Credit” (discount?) for their drug-on-the-market 3-Series and X-Series oil burners. “Responsibility” may have “never been so exhilarating,” but with three out of the five videos emphasizing fuel economy, the change in Bimmer’s brand emphasis is obvious. Meanwhile, Mercedes has introduced the sub-ML GLK.
There is an alternative: retrench. Reinvigorate the ailing luxury car brand by returning it to the stratosphere. Pare the number of models, adhere to the core brand promise and build a limited number of best-in-class vehicles. Earn a price premium through excellence and exclusivity, and charge the consumer full whack for the privilege of owning same.
It’s the slowest, most expensive, most painful, least likely, most difficult and most dangerous option. But it would work.
The economy will recover, eventually. Car buyers will be back. Some day, again, still, they’ll be an excellent market for exclusive automobiles. The best cars, the most desirable cars, will generate fabulous margins. Meanwhile, someone should remind these misguided automakers that Lincoln and Jaguar already died for their sins.
I know: BMW was down market before it went up market. Mercedes builds taxis in Europe. Audi’s already moving in the right direction. Lexus didn’t get where it is today by ignoring the value-for-money equation. And Cadillac doesn’t have a clue, really. But all of these brands lost their halo/mojo in the headlong pursuit of profit. They must either begin the long trek back to genuine brand cachet or continue their inexorable slide into mundane mass market mediocrity and correspondingly slim margins.
The thing of it is, as we’ve pointed out before the economy went south, these luxury brands should have never dallied down market in the first place. If they’d stayed small and tightly focused, they could have hunkered down and weathered the storm, ready for the recovery. As it is, there’s no guarantee that any of them will emerge from the current downturn with their brand untainted by the stench of massive discounts and how-low-can-you-go financing. And when it comes to the long term future of any luxury product, branding isn’t everything. It’s the only thing.
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I don’t think that all of it has to do with a “re-emphasis” of the brand image. For instance, you’re example about the 3 outta 5 BMWs videos online that concerned efficiency. Why can’t that just be called effective marketing? We already know that they are going to drive well, which is what BMWs main image is. Now, they’re just doing it while also waving the eco flag, which is what’s hot in this era of advertising.
homeworld1031tx:
A car brand can be many things to many people. But it shouldn’t.
The mid to lower end of “aspirational” always takes the big hit during a recession (goes back to the Edsel and before).
The problem with emphasising the top end too much is that it isn’t where the real money is (note that Ferrari is not all that big a player in world auto or finance, no matter how much they cost). The issue has always been, how low can you go (chasing volume) without destroying your cachet (that is the ability to charge silly prices).
The answer seems to depend on how much of a “premium” you are charging. The more you gouge, the more “exclusive” you have to be. This is the paradox of SAAB, being overpriced (and in many ways out-of-date) was part of what they were.
Jag’s another brand that had to stay high (the S-type was as low as they should have dared).
The problem with going down is that you kill your “top” for a (temporary) better bottom-line, often at your own expense (the “300,000 Buicks problem”).
Merc, BMW and Lexus play in the lower (volume) reaches a lot more (especially the later two). They NEED to move metal. The problem for them is probably less in cars than in wallets and finance (their customers are trading down by choice or lack of financial werewithal). Toyota at least probably keeps most of them in-house.
The German car companies need to get back to basics and stop trying to be everything to everyone. Porsche/BMW/Audi/MB SUVs? Mercedes entry-level compact cars? Porsche four-door sedan? Come on guys — get with the (old) program!
Twotone
I have to say, this is a very astute post on the current state of the luxury auto market…lots of wisdom here.
My favorite…
‘adhere to the core brand promise and build a limited number of best in class vehicles…Earn a price premium through excellence and exclusivity.’
You’d think that would be patently obvious to all, but that’s exactly where so many brands have fallen short. Cadillac and Lincoln’s long, long fall into mediocrity has, instead of being used as a cautionary tale, become almost the playbook.
Mercedes let it’s quality fall terribly short, BMW chased every segment,and embraced convoluted i-Drive technology, Acura seems hellbent on blinding everyone with the atrocity of their new design language, among others…
With loaded, leather-lined Cam/cord/Fusions etc., (not to mention the Hyundai Genesis) being very decent,’luxurious enough’ rides available at a fraction of the price of the premium brands… true excellence, quality and long-term reliabilty (not endless brand/marketing spin) becomes a much more valid litmus test for the true ‘worth’ of a nameplate.
Ugly, less than reliable, cost-cut and dubious technology-laden ‘premium priced’ rides cannot forever sell in droves…people eventually wake up, and smell the con job.
When factories pressure dealers to build palaces for their product, and groups come along and pay stupid blue sky money for them, it’s a recipe for disaster. To service a debt that size you must have volume. The factory gets the pressure from the dealers, and as you mentioned in the article, there goes the neighborhood. You can follow a McDonalds worker with a new 3 series right into the parking lot. Cachet ? No, cheeseburger and fries please.
Wonderful editorial and I agree with it.
What I wonder is why this happened? Was it loss of direction from the manufacturers or was it because dealers are so greedy they want to sell to every niche and level without thought of their brand?
Cadillac and Lincoln pick ups and Porsche SUVs – were these from confused manufacturers or from pressure on the manufacturers from too many, too greedy, and too stupid dealers?
SO by this logic the high end car makers who have not moved downmarket, RR, Bentley, Lambo, Ferrari, AM?, Bugatti etc should be doing better relatively than the mass market luxury car brands.
I haven’t got those numbers to hand, do the real numbers bear this out?
Audi may be hurting in the US market (along with the others) but in the first half of this year I believe they contributed two-thirds of VW’s billion-odd bottom line. Globally-speaking, A3 sales are healthy and have no apparent ill-effect on the brand’s lustre.
The editorial describes (to me, anyway) why GM ought to keep the brand people love to hate: Hummer. Minus the H3, of course.
We need an answer to Greg’s question, stat – therein lies to the key to whether this editorial is simply bunk sentimentalism. In addition, my intuition is that the investments already made in factories, dealers, inventory, staff, and all the now fixed costs of running an automaker could not possibly sustain the type of reductive moves RF is advocating . Not just “hard,” but impossible and frankly stupid. Once the economy does recover, as RF admits, these guys should be back to churning out metal in no time, and taking a real nice profit margin to boot (when compared with non-luxury brands). A move toward exclusivity is probably a great 10 year plan (and one which Audi seems to be implementing quite well in product, design, reliability improvements, and douchebag-per-car factor), but to throw the hail mary now is ridiculous. Platforms are built, factories are ready, and the ideas in this piece seem to me a bit of hopeless romanticism.
Premium brands have come under pressure to expand as the auto business focuses on economies of scale.
As much as I hate the Cayenne, it saved Porsche giving it volume in a segment (SUVs) where you could print money as a car maker.
BMW overdid it (X6, 1 series) and started a horsepower war with Audi and MB (500 BHP really in a sedan…why?)
These luxury makers also stuff their cars with electronics and gizmos which fail / suck, hurting the brand.
I think we see some consolidation absent an economic rebound
Lots of problems with this analysis:
1) Is there any evidence that the non-GM automakers have “cheapened and weakened” their luxury brands? The high-end always suffers most in a downturn. The correlation does not prove causation
2) This analysis doesn’t seem to take the European market into account, where Merc, BMW and Audi went downmarket years before they introduced those models in the US, with no ill effects. At this point, it looks like Europe is going to keep them all afloat.
3) I agree with Greg: you need to show that the high end has performed proportionally better. For one, Ferrari sales have tanked.
4) As a 1, 2 or 5 year plan, your “retrenching” strategy is completely unworkable.
5) All of the things that you ascribe to “brand weakening” can really be attributed to “quality weakening.” The brands that have recognized this, (Audi and more recently Daimler) have seen their “cachet” and sales, improve.
So there.
Volume is the death of excellence. Luxury = excellence.
It’s not a difficult equation to figure out, but they managed to screw it up.
The editorial is right, and retrenching isn’t that hard to do, unless your options packages are dependent upon continuous and expanding hypergrowth, which is why they have been destroying these luxury brands.
Luxury is for the few, not the many. Period.
Will the market recover soon?
Have you noticed how thin bankers and brokers have become? They wish to signal that they’re not at the trough stuffing their faces, that they’re frugal and responsible (right).
This is a universal trend, and goes right against ostentatious, obvious signalling of luxury. It’s no longer in fashion.
Sensible luxury, in keeping with today’s developing values, will be in fashion — for instance, if Tesla knew what they were doing, they would be reaping the benefits.
I dislike VW’s attempt to go upmarket even more.
They tried to push cars into the area Audi was supposed to cover.
-Phaeton? Kooky & wild in the conceptual sense. But, isn’t the enormous Deutsch luxo-barge what a BMW 7-series is supposed to be?
I’m also a.stoun.ded. how low MB’s reliability went. Those things used to be indestructible despot-haulers awhile back.
And the problem of Second-Mover Advantage happened with Volvo. Yes, they’re still really safe. But they don’t have the same cachet they had back in the 240 days.
When almost every car has 8 airbags, and even Ford is putting Boron Steel into the pillars, Volvo has got some serious value proposition issues to resolve.
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Anyway, I disagree with the article a little.
It’s not volume dilution. It’s the downturn. Luxury goods Always suck it therein. Especially one that affects finance guys so much.
And if even P&G is making a few less dollars because people are buying generics, Then every luxo brand will be losing money by def.
-Much more distressing than desperation-diversity is the drop in Quality and Reliability. [looking @ you, MB!]
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To survive long-term, you either build a few volume cars in the current ~lux brand,
Or: you buy yourself a company like VW.
Because you need a hybrid strategy that includes some sort of Disaster Insurance.
The “passenger” dies if you engineer for perfect conditions, instead of structurally preparing for crashes.
(ask the guys from Long-Term Capital, eh?)
Why do you think VW owns Lambo and Bentley? Because every downturn will wash out companies that sell only 10 cars / month.
It’s like teaching your kid that snacks are the exception, not the rule.
So as an adult, you know you get to snort one line of Beluga Caviar and chase it with one glass of Nouvelle-Orléans once for every 100 PB&Js you eat.
You sell one 750iL for every 300 325is [ed: that you lease :P].
And the Uni-brand bracketizing strategy could just be viewed as a legal form of ~predatory pricing.
Ie: find a way to make different variants, where you preserve your margins, but capture increasing customer segments; -up to a low-price crapola threshold [ed: that your Brand Champions are watching diligently, right?].
I personally Never looked down on Audi for the A4. I just saw it as… smaller.
It’s my favorite car they make.
And counter to this article, it’s always been like a Gateway-Drug-Pusher/Omnipresent Advertising Device to me.
(they’re everywhere over here, so I don’t have to watch Audi’s ads, I just walk down the main street)
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Anyway, most of the time it’s the VWs and Toyotas of the world that allow the IP/Brand plays of Bentley, Rolls, Lambo, Bugatti, Maserati, Landie, Jaguar, Saab, Volvo, Lotus, Aston, Ferrari, etc. to even exist at all.
Jewelers are expendable; bakers are not.
(bonus points: look up the oldest etymology for the word, “lady”)
++The pre-finance-DeMedici/Habsburg-ing Porsches of the world are rare exceptions to the rule. -Other than them, only Ninjas, Steve Jobs, Jonathan Ive and Chuck Norris can dance on the heads of pins like that.
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Going forward:
The luxos should stay the course & just run things lean.
The current message changes are Al Gore and AIG driven.
They will evaporate by 2013.
When Jim Cramer drops his pants on live TV and shows you the boys out of pure Freude Schöner Götterfunken, your Audi dealer will go back to telling you to piss off.
–
(God that was long! Yikes!!)
Looking around me in recent years, I’ve seen a lot of people who were driving cars/trucks that could go a long way toward purchasing a house (and they didn’t own either one).
The days of easy credit and lease deals seem to have abated, and those who aspired to these luxury brands have been frozen out of the market by either external economic forces, or their own irresponsible behavior (even if these cars were so-called “entry-level”; $30-40K doesn’t seem very entry-level to me)
Regarding RF’s analysis, I don’t doubt that the cheapening of the brand plays a role in lack of prolonged desirability, but with so many marques competing for the same clientele, they have little choice but to expand the line.
Perhaps cars (in general) have become too homogenized to allow for that many specialty/luxury brands, and the herd needs to be culled.
“Luxury Car.” Why do I always cringe at those words?
Fancy wheelchair? Final ride in final stage of life? Rolling retirement home? Uninvolving, disinteresting, ego-box? Undeserving corporate clown’s highest attempt at wanting me to pay way too much? Excessive? Overpriced? Money pit? Unneeded image projected to people whose opinion is unimportant to me? Opposite of adventurous, individualistic, capable American?
@ Greg Locock
Most of these brands are owned or controlled by other lower class prestige companies, Royce is owned by BMW for example.
For the case of Mercedes, BMW et al. Are the current owners of 3 series and C classes holding on or trading down?
I wonder if these marques have had the effect of pushing the parent’s brand down market, for example the Mercedes won’t bring out a replacement for the 600 Grosser because they have Maybach.
The high end of the market are usually expensive show horses rather than expensive workhorses. The typical Bentley owner goes to work in his Lexus or Audi and leave the Bentley for showing off at the golf-club at the weekend. You see this in the classified ads where a 3 year old Bentley, Rolls-Royce etc has less than 10,000 miles on the clock.
CyCarConsulting
McDonalds worker with a new 3 series right into the parking lot. Cachet ? No, cheeseburger and fries please.
I don’t know if it’s true elsewhere, but in my neck of the woods, the average MacDonald’s manager earns about the same as a professional engineer, accountant, or pharmacist. A 3 series they can definitely afford.
Mind you, this is redneck Alberta Canada, where high school dropouts can go into the oil/gas industry and out-earn family physicians and attorneys. Things are kind of stupid out here.
On a lark (looking for a new car next year) we entered the Orlando Lexus dealership. I have respect for Toyota, although I prefer European cars, and have owned Merc, Audi, and VW mostly. A colleague bought a new IS-250, so I thought I’d go check ‘em out.
First, I cringe at the thought of driving a car with the name of a black hooker, or white stripper, but that’s just me. Nevertheless, we walked into the dealership and were promptly greeted by a “product specialist.” He made sure to let us know he was not a salesman. Who is, anymore?
Before we could see the cars we had to take the mandatory tour of the dealership: this is the guest cafeteria, this is the nursery, this is the lounge and so forth. I thought to myself, “wonder who pays for all this?”
Finally we saw “the cars”. I couldn’t believe my eyes: pimped out Camrys with stickers over 50 large, sporting shiny chrome wheels with small strips of rubber on top(must be the tires). “Who buys these, and why?” I thought.
The car itself was underpowered, completely inoffensive, and soul-less. Nothing I’d be interested in.
Yesterday, I opened the latest issue of C/D (this has to be the weirdest and most useless issue yet). They discussed their long term hot rod IS (not sure what it’s called–I think the F). The boys from up north had massive praise for the car, with one…um…er…small exception: the ride was horrible. Now, ask yourself, what’s the main attribute of a car (especially a daily driver), if not “the ride quality?” Here we have a 60 large compact Toyota that is “perfect” in almost all respects, except no one wants to drive it. Am I in the Twilight Zone?
Then there was the Audi with the five thousand dollar apiece LED headlights, but don’t get me started on that one. Somewhere along the line car manufacturers lost their way and now live in the land of unreality.
My next car will probably be a GTI. I know, I know…it’s VW. But at the same time it will be fun, relatively cheap, roomy, and of reasonable quality, given the current state of German engineering (read about service on the 20 thousand dollar used Merc 600 coupe in the same C/D, and you’ll know what I mean).
Sorry, I know people like the image of a “luxury car” but I just don’t buy it. What I do by is a great car. (Even if it is only perceived to be great).
When the Porsches, Corvettes and Ferrari’s start having the same problems as the VW’s, Cameros, and Fiats – when the Caddies, Mercs, Lincolns start having the same problems in quality and substance as the Chevy, VW, Opel, Fiat, and Ford…that is brand dilution. Having the Boxter doesn’t hurt the 911 but having the Boxters 50k mile engine sure doesn’t help it!
Look, I am sure that most people planning to buy a car do this:
1) How much can I afford to pay?
2) What is available in my price range and fits my needs/desires?
3) What is a) the best of these or b) the best deal I can get of these?
You know, kind of tlike that Car-Max commercial…”I want a red car…”
These “luxury car companies” are losing out to the cheapos (Koreans et al) because the quality is not significantly better than the masses.
Leftover 2008 or 2009 convertible still on a dealer’s lot, I assume. Which is still brand new to any rational person, but OMG it’s not this year’s model! And it’s the previous platform to boot!
Hey, RF liked that car. Nearly bought one.
But yeah, the IS 250 is underpowered. ToMoCo clearly decided that the entry level version is for people who don’t care about power at all. But I don’t believe that any are sold over 50 large. Even if you tart it up with Nav and everything else, it doesn’t get but barely over $40k. (Unless you start adding the random “give me some of the F components, like just the suspension” parts.)
Yeah, but that’s even more argument against RF’s editorial. There’s always downturns, and the luxury market gets hit the worst. In previous downturns, the “small, tightly focused” lux marques ended up losing so much money that they couldn’t “hunker[] down and weather[] the storm” but had to get bought instead. If being small and tightly focused is the way to go, why have most of them outside Ferrari been purchased?
I’m not sure that there’s better advice than the general “always forecast market conditions and adjust appropriately, and improve quality and productivity to the point where you can charge more for what costs you less to make.”
Article is wrong, they are not foolish or evil for moving down market.
They wanted more volume so they went downmarket. OK so far. That was not bad. Abandoning down market would be ruination for all of them. Which would benefit from cutting off 75% of their sales? What do they do with sunk costs of lower models? What do they do with no accessible product when the next bubble starts rising so many boats?
They are dumb for offering stupid products- cadillac pickup truck? But nothing wrong with lower price smaller luxury car. An A4 or A3 is still very far away from a cobalt or elanta.
In Boston, one woman behind counter at Starbucks in my building lobby drives a 4 year old 3 series to work and parks in the street, running out with bag of quarters every 2 hours. They pay about 10 an hour. I think the health coverage is worth more than the base pay to her.
$25k off a $45k car?
Which dealer do I talk to?
I’ve been saying on this forum for a long time that if GM wants to save Cadillac, they can. Right now, Cadillac is pretty much where Buick and Oldsmobile used to be.
There’s no reason GM can’t repurpose their content, so to speak, but bring back the coachbuilding aesthetic. You, the major playa, should be able to go to your Cadillac dealer and order it, paint color, interior, wheels, cladding or no cladding, etc. Hey, if you can order a Polaris Victory motorcycle that way, you should be able to order your car that way, too, even though a car is more complex. Harley-Davidson used to be able to sell a lot of bikes that way, too, making 20-30 bikes of a “unique” color to pull customers into the stores. The stuff that makes it special, extra special, isn’t that complex. That is where GM needs to go with Caddy.
The Europeans are in a different situation. We don’t see it here in North America, but VW’s move “upmarket” in Europe is to distinguish itself from its Skoda and SEAT brands. Meanwhile, BMW and Mercedes-Benz have to build some flexibility in their cars to deal with the currency fluctuations. So that’s why we get fewer choices in engine and interior specifications when we show up at the Mercedes or BMW stores. And since that’s how they market their European made cars, it’s how they market their US-made trucks.
Frankly, I’d love to be able to buy a smaller displacement diesel engine in an e-class sized body. I don’t need thermostatically controlled HVAC, but A/C is nice. I don’t need 8-way-electrically adjustable seats that are integrated with the rearview mirrors. And yes, I’d be happy with tex, rather than leather.
But with currency fluctuations and short product cycles, there’s no way BMW or Mercedes can be profitable in the U.S. market making cars like they did 30 years ago. Besides, customers like me are freaks anyway because we want cars to drive, not cars for stylin’ and profilin’
I blame it all on Lexus. When Toyota slowly but surely redefined what luxury is for many non-TTACers (ultra-quiet, ultra-reliable, comfortable appliances at a relatively fair price premium), it shined a harsh light on what the true luxury brands were really offering. The old school luxury brands can’t match Lexus in reliability (it’s the electricals, stupid!) and apparently they can no longer sell enough of their high end models to be profitable. It’s a problem without a palatable solution. Sure, Lexus is hurting now, but that brand isn’t going anywhere and it’s going to keep doing things the way it always has. One way or another the other “luxury” brands have to continue to adjust their business models or die.
While I understand the reasons for it, if the bottom-feeding trend RF is railing against continues, in ten years we could be talking about how Hyundai’s higher-end offerings are killing the entire “luxury” segment, including the Lexus brand. And so it goes.
RF.
So who do we really praise?
Who do we bash?
Those that try to go down market or those who expand upwards?
Which ever it is, it expands/dilutes your R&D and Marketing money as well as your image.
Why is Hyundai building the next super luxury automobile?
Why does this sight praise them for having dealers with Equis, Genesis alongside Accents and Elantras?
This in itself is confusing to a buyer as to what kind of car is made by this team.
This is the genetic make up of business.
The ME TOO!.
When in consumer products, everybody studies the IRI sales data of every brand.
IF there was a hot item, everybody needed to get in on it.
Very, very few companies kept their focus. We are all told if you don’t expand, you will die.
Somebody always comes along and has more money and eventually eats your lunch.
Trying to think of any brand that stayed its course here.
Let’s all try:
WD 40?
Apple?
FedEX?
Auto companies…
Hmmmm….
Those that did are now gone.
One more thought…
Yesterday went out test driving the new SHO.
That’s another story.
But try discussing pricing…forget it.
They are actually demanding full price!
Why?
Because your god damned government gave away billions to folks and help these dealers empty their lots.
Plants are now running full blown and stock is hard pressed to be had.
I actually laughed at the sales lady when she said there wasn’t much room for profit.
I walked away and told her I’d stop by again when the SHO is being push at 36K.
So yes, these luxo brands are suffering because they buyers were given our money to buy other cars.
Now, the rest of us have to pay full price.
Thanks BIG BROTHER.
Hold off all car buying until late fall.
Let reality smack them in the ass.
You can buy a Honda Civic or a Mazda 3 which has good interior space, good handling, very nice paint job, gets good gas mileage. You can splurge and get a V6 Accord. You want some muscle, you can buy a Mustang or Camaro.
The luxury cars are totally irrelevant. Buying an expensive car just sets you up for a car jacking. If you really want to display wealth, that’s what yachts, mansions, jets, and trophy wives are for.
I tend to agree with RF here. The people who spend big money on fancy autos in down economies are already bucking the trend; they just might adhere to a company that flaunts trends right along with them.
I’m a little fuzzy on the details as pre-war auto history was never my forte, but I do recall the Henry Ford Museum has some very impressive luxo-barges. I also have read that luxury automakers who existed before, during, and continued after the Great Depression generally made tremendous advances in the level of power/size/luxury of their cars during the depression. The depression era brought V12 and V16 cars and 2-seater roadsters as long as a modern heavy duty pickup. Luxury makers moved upmarket and continued to survive where the entrenched wealth continued to exist despite the down market elsewhere.
I’m also unfamiliar with the price point of cars that are clearly in excess of 50k because, well if I have to ask I can’t afford it. But it seems to me that there’s a gaping hole between your typical everyday “luxury car” such as the 5/7-series BMW, Audi A6/A8, Cadillac/Lexus whatever-costs-most, and your uber-luxuries like Bentley, Rolls, etc. Seems more brand-defining and a position for a halo-car for any luxury marque to shoot for that gap between whatever is their current ceiling and the typical pricing of the truly aspirational brands.
@Rod Panhard
Me too. In Europe Mercedes offers the E-class wagon with three different four-cylinder diesel engines and two diesel sixes. The 4s come standard with a 6-speed manual transmission, and get phenomenal mileage for a car of that size. Believe me, I would line up to buy a basic version of one of these (as described above).
Mercedes did it with the W123 300TD wagon. It became the must-have sensible car for wealthy folks with kids, de rigeur for the prep school set, standard fashion at the stables, etc. etc.
I’m sure they could do it again, a volume car that wouldn’t hurt the brand.
Times change. I’ve had two Mercedes-Benzes and used to figure the next time I buy a luxury sedan it would be another MB. Funny thing though, now I assume I’ll go straight to an off-lease Lexus LS . . .
This my longer-term view of how things went from the 70s until now. Mercedes has been going steadily downmarket beginning in the 70s when they sold mostly low volume, exclusive high end luxury cars (mostly S models), and then built volume by moving downward, e.g. C-class and advertised cars with monthly lease pricing. In past 10 years, Mercedes simultaneously went way up market, selling AMG-class performance cars for upwards of $200K.
BMW went the other way. In the early 70s, they were a niche, small performance car player. To build volume, they went steadily up market, building bigger, expensive and more luxurious cars at higher price points (and in the 80s and 90s advertised them as status symbols). They started with the 3-series (which evolved out of the 1970’s 2002) and went up market with the 5, 6, 7, M-models and the short-lived 8-series. The new 1-series does show some down market activity.
Essentially, BMW and Mercedes converged. I don’t have any guess about their future direction, but it is very hard for a brand that has gone down market to change course and go back up market. Mercedes can’t scale back their volume of low-priced cars to concentrate on a niche upper end without drastically restructuring and downsizing its business. And they won’t because they are much more of a main-stream player in Europe. Similarly, I don’t expect BMWs mix to change because the 3-series is their bread and butter and because they need the higher end models to build brand aura to help sell volume at the low end.
This is a long way of responding to the author that I don’t think BMW or Mercedes will do anything differently.
If they’d stayed small and tightly focused, they could have hunkered down and weathered the storm, ready for the recovery
I can’t agree. They wouldn’t be nearly as profitable during the good times if they kept things small. The margins might end up being high, but the volumes would be too low to produce adequate revenue or to contribute to overall profits. And with too limited a lineup, they would lose potential customers to their rivals, who may never give them a look were it not for the near-luxury entries.
The near-luxury cars are usually the bread and butter with the sales volume that keeps the lights on and that provides a gateway for new customers who can climb the product ladder. The high end stuff is for the halo and to squeeze extra margin out of parts that are already being produced for other purposes. Together, they make the companies profitable most of the time.
The car business is cyclical. The good companies will prepare for the down cycles, when there are either low profits or losses, by making enough money during the up cycles to make up for it. Since the economy is good more often than it is bad, this works out as a net positive over the long run.
The companies that do best post-recession will be the ones that have strong luxury marques to complement solid mainstream brands beneath. Toyota will come out of this as the winner of the race.
I’ve been checking out new possible rides for the wife lately to replace her RX330.
The Cayenne has that Porsche name, but it’s an unreliable VW underneath.
The Benz small SUV is nice, and has the coveted Benz name, but Benzes made in this century have not been reliable.
The BMW SUVs are nice, but the reliability question comes up again.
I don’t like the Audi SUVs, but even if I did they are basically unreliable VWs under the skin.
Land Rovers are beautiful and would be my top pick, but these are probably the most unreliable vehicles built today.
I just don’t want to spend my time running a car to the dealer all the time (or having to pick up the wife when her car breaks down). Like a lot of folks here already stated, some of the luxury marques have become a hassle to own. They break a lot and are expensive to maintain. Inexcusable for vehicles that cost $40-50k. I would say that this is one of the main reasons that fewer folks are buying cars like these.
Probably we’ll get another Lexus.
Robert Farago: There is an alternative: retrench. Reinvigorate the ailing luxury car brand by returning it to the stratosphere. Pare the number of models, adhere to the core brand promise and build a limited number of best-in-class vehicles. Earn a price premium through excellence and exclusivity, and charge the consumer full whack for the privilege of owning same.
Packard faced this dilemma after World War II. The company had devauled its name prior to the war by selling lots of six-cylinder 110s and phasing out the custom-bodied V-12 models after 1939.
After the war, Packard could have regained its former status as the premier American luxury car if it put the effort into it. But the company simply could not afford to phase out the cheaper models, as that would have met a big reduction in employment at the Detroit plant and a culling of the dealer body.
Given the widespread fears of a depression with the end of defense work, this option was not feasible for Packard’s management, and would have met strong federal government opposition.
Today, Mercedes and BMW cannot simply walk away from the volume provided by their less expensive models (C-Class, E-Class, 3 Series, 5 Series). They aren’t going to lay off the workers who build them in Europe, and they aren’t going to tell over 1/2 of their American dealer body to take a hike. Same with Audi and Lexus.
And considering Cadillac’s lack of a credible contender in the category dominated by the S-Class, I have a hard time viewing it as a true luxury marque.
Strippo: When Toyota slowly but surely redefined what luxury is for many non-TTACers (ultra-quiet, ultra-reliable, comfortable appliances at a relatively fair price premium), it shined a harsh light on what the true luxury brands were really offering.
What Lexus did was reinvent the Cadillacs of the 1950s and 1960s – Cadillacs built before GM turned Cadillacs into Chevrolets with less reliable drivetrains.
People didn’t buy a 1964 Cadillac DeVille for its prowess on the handling course. They bought it for its smoothness, reliability, interior silence, build quality and superb HVAC system.
cdotson: The depression era brought V12 and V16 cars and 2-seater roadsters as long as a modern heavy duty pickup. Luxury makers moved upmarket and continued to survive where the entrenched wealth continued to exist despite the down market elsewhere.
The Great Depression witnessed a “cylinder war,” as luxury makers brought out V-12s and V-16s to compete with the Cadillac V-16, which debuted for 1930. They also worked with coach builders to produce fabulous examples of automotive beauty.
The Depression killed all of them except for Cadillac, Lincoln and Packard. These marques survived by moving downmarket. Cadillac already had the LaSalle and brought out the 60 Series, the less expensive, “owner-driven” Cadillac for the rising professional and executive class (as opposed to the fading old-money class). The Series 60 saved the division.
Packard temporarily saved itself with the medium-priced 120 and 110. Lincoln survived on sales of the medium-priced Zephyr.
All of the very expensive, custom-bodied, multi-cylinder cars built in America were dead by 1941 (the Zephyr had a V-12, but the car was always sold in the medium-priced market).
I have to disagree with the theory that luxury carmakers are having financial troubles due to not being exclusive (ie expensive) enough and selling entry level vehicles. I think their main problem is no different from that of the other car makers — people are short of cash/credit due to the housing market bubble bursting. I think that they may also be having trouble due to poor dealership treatment of customers and not offering entry & mid level products that are worthy of their prices.
Case in point: I’ve bought 3 Lexus ES vehicles over the past 10 years, and about 10 Toyota over the last 25 or so years, for myself or my wife. My wife wanted an ES due to the prestige factor; I wanted one due to the comfort (I have a 4-hr daily commute) and gadgetry. So, we both got one (‘04 and ‘07). Both have had transmission problems (known design problems for these models). The ‘04 had a laggy downshift, and it bugged her. But, she loved the prestige, the quiet comfy ride, and the high quality stereo. She would’ve gotten another after 5 yrs, but wanted a hybrid, so she got a Camry Hybrid. If Lexus had offered an ES Hybrid, she’d likely have gotten it. So, one lost sale due to not offering a desired product. As for me, I’ve had nothing but problems with my ‘07. The pre-delivery prep guy ripped up some plastic trim in his enthusiasm to tear out the plastic protective film on the door sills, and left mud in the car. The transmission slips and the torque converter thunks, but the dealer won’t fix it (took it in 4x), and the service writer made arrogant comments about how he can always tell which customers are engineers b/c they read all the TSBs and erroneously think they all apply and think they know everything. The HVAC had a defect that blew white powder into the cabin (every ‘07 had this), and the dealer butchered the dash and broke several electronic modules & servos fixing it, requiring numerous trips back to the shop. The HID bulbs failed after two years, and the dealer forgot to reconnect the turn signal & marker lamp wiring harness after replacing the HID bulbs (under warranty, to their credit), requiring me to spend hours fixing it myself. The dealer refuses to fix a wind noise problem that’s a known issue for this year, claiming it’s “normal”. On top of this, they charge high prices for their “superior” service — $200 for an oil change and tire rotation/balance; but, they don’t bother to balance the tires. I pay a grand for new tires, and they don’t remove the old wheel weights, they just add a few more; and, they don’t wipe the grime off the rims before sticking on the self-adhesive weights. To top it off, this is my second “lemon” — I traded a new ‘07 Camry V6 XLE in for this, as its transmission failed after being replaced, thinking Lexus would treat me better if I had problems and buy back the car (I knew it had the same drive train). To top it off, the stereo in my $40K car is horrendous (it’s not the top end kit) — my Camry’s JBL was far superior to this one. I was at one point thinking of getting a Lexus HS250h someday. But, with the bad dealer service and excessive mechanical problems of this ES350, I’m not so sure. A coworker of mine also has an ‘07 ES350, and is disgusted with the transmission and the audio system. Plus, hers won’t always start! This is a known problem (TSB for defective pushbutton start switch); but, her dealer (different one from mine) can’t reproduce the problem so they won’t fix it. She’s taken the car in 3x for that issue. Plus, she saw how my car got butchered when the HVAC was fixed, so she’s hesitant to get hers fixed (she also has another known problem of the AC blowing hot air out the rear vents). So, she’s driving a car without getting the annoying problems fixed, causing her to hate the car and the brand even more. I guarantee she will never buy a Lexus in the future. Another lost customer.
If Lexus increased the cost of their “entry level luxury Prius compact” (HS250h), it would absolutely not make me want it more. I’m not going to plunk down tens of thousands of dollars so I can have something others cannot afford. That’s silly. (BTW, the HS250h costs about $47K fully loaded; then add about $2.8K for MD tax, and it’s nearly $50K! I don’t call that entry level. The IS250 is their entry level car. If they want to win me back, they need to crack down on their dealers’ incompetent & careless service department workers, get the quality back up, and properly compensate customers who get burned by bad quality (as in mega customer retention discounts on trade-ins of crap-quality existing Lexus cars for new ones). My guess is the manufacturer is unaware of their dealership issues, since the dealers administer the customer surveys, and since the dealers don’t consistently report back on vehicle defects, since many techs don’t even read the TSBs and are unaware a customer’s complaint is valid.
I blame it all on Lexus.
That’s actually a good point. Lexus really did hamstring the established luxury brands and force them to compete in ways that they clearly weren’t able to. Even if Lexus is suffering, it’s done far worse harm to it’s competition, especially in the long run. Mercedes chose not to fight Lexus’ strengths and got trapped into an awful game of one-upmanship with BMW and Audi that opened up a whole market to Toyota that otherwise would have been a tough battle.
Honda could have done something similar to Ferrari and Porsche with the NSX, had they been able to follow through. If you cast back your mind to the NSX’s debut, contemporary European sports cars were terrible to live with, while the NSX was no worse to own than an Accord.
“Reinvigorate the ailing luxury car brand by returning it to the stratosphere.”
I think Jaguar is actually heading in this direction. It just might work out for them if the others continue heading down market.
This is a very interesting discussion. I want to agree with RF, but I think that the down-market = survival arguments are compelling. Further, the Packard example suggests that, once downmarket, there’s no going back.
I’m on my 4th 3-Series…but probably my last. The cars are no longer focused on performance, but on gimmicks and gizmos. How do run-flats equal performance? Although my car is under warranty and really hasn’t had any problems so I have no complaints, I just don’t feel that the car is aimed at me any more. It’s aimed at being the entry luxury car for everybody – including YOU- Mrs. Soccer Mom. We have a nice SUV for you. Oh, you want a cross-over Fast-back SUV? We have that too!
I just feel like BMW has just strayed too far away from its core purpose of being a performance sedan maker… now it’s a full line ‘nice car’ manufacturer.
I thought that the Mini was a great way for BMW to go downmarket without diluting the brand; but they brought out the 1-Series anyhow. I think that it’s ultimately doomed, just as the 318i was. It’s 80% of the 3-Series as a car for 90% of the price, and it doesn’t identify itself in a distinctive role like the Mini does.
However, as others have pointed out, there’s no going back… and by broadening their appeal, BMW is making sure that they don’t need ME as a customer anymore.
Unfortunately, I have no idea what car follows a 3-series in the Lokki garage.
One of the main reasons Packard suffered as it did is that it only had the one name. Cadillac was backed up by LaSalle and Buick; Lincoln to some extent with the Zephyr line; Imperial with lesser Chryslers and DeSotos. So it became increasingly difficult to sell the really ostentatious custom-bodied V12 cars to people who saw six-cylinder Packard 110’s and 120’s around town. (And after all the depression years it became so difficult to sell the really ostentatious cars by any manufacturer that the custom-body business essentially ended.) The lesser Packards of the 30’s were still well-built cars and they did save the company from going under in the depression, but the company’s efforts to distinguish their top-line cars from the lesser models weren’t sufficient after the custom-body era had ended. By the time my father bought his new Packard in 1950, you already had to be a bit of a nonconformist to buy one.
Now that we are going through times that are similar in a lot of ways, it seems that most of the manufacturers have fumbled away their luxury-car prowess. It seems that the main attribute of a luxury car nowadays is that it has to be a PITA to own. Maybe more and more people are thinking, why bother?
fincar1: It seems that the main attribute of a luxury car nowadays is that it has to be a PITA to own. Maybe more and more people are thinking, why bother?
Interestingly, by the late 1930s, people were saying the same things about the huge, multi-cylindered Cadillacs, Packards and Lincolns. They were gas hogs and more expensive to maintain.
Sadly, more than a few were destroyed in the drive for scap metal during World War II. But they were the last vehicles people wanted to be driving when gas rationing was in effect after the war started.
A Cadillac Series 60 V-8 and Pakard Super Eight were, in many ways, better all-around cars for daily use.
The idea of mass produced luxury cars is an oxymoron. Packhard was the first to sacrifice a premium brand on the altar of volume. Cadillac took years to do it but, they did it. Lincoln had their greatest success in the 80’s when caddy went down on the Buick-olds-caddy FWD platform and lincoln stayed big and comfortable (if not exactly roadable)with the town car. People bought town cars for their presence. I switched our funeral fleet from caddy to lincoln town cars in 1987 and people thought they looked imposing (funereal even). But did Ford put money in the town car and give us a reason to keep buying them? Why is it that when a brand makes money Detroit walks away from even freshening the look if not the underpinnings? I think here is another reason why Farago is right on, it is called staying focused. When you want to turn chevys into caddys, and fords into lincolns to downmarket the brand, somehow the money and effort that made the marque in the first place gets diluted. Come on guys, if you got down market brands, then why build similar cars with the luxury logos? Again, a small upscale showroom one or two cars and a clean modern shop with some offices and parts in the middle is all you need to sell top brands. Look at Rolls, Bentley, Aston Martin etc. Finally, if you hold gross on the new units by limiting production, you automatically make the trades more valuable and desirable. This makes more people want the brand and allows you to make a better deal to the new buyer because his used piece is more sought after. It used to be like that, not now.
Did you choose to ignore Lincoln in this discussion because you don’t think it merits comparison with the other brands? Or because it does not support the premise you’ve put forth? Are they not bucking the trend you highlight?
Interesting take. I believe, and there seems to be evidence supporting my position, that this phenomenon has been hitting luxury brands all over the globe. If you are responsible for a luxury brand it is very difficult in good economic times to protect the brand and avoid going down market. The profits are huge. Read some of the articles on Hermes. Hermes resisted the push down market and it protected their business and their cache. They sacrificed huge profits in the short term.
From a pure branding stand point, Alfred Sloan’s original brand strategy at GM was probably spot on. Modern automobile manufacturing is so complex and expensive, you need products from the bottom to the very top. Only then can you produce the mix of vehicles required to profitably satisfy the market. This means you need very strong brand controls to avoid the overlap. It also means that you need a dealer network designed to meet the needs of each segment. Obviously, It is very difficult to maintain the best long-term brand structure as no company seems to resist brand overlap (see VW Phaeton, Cadillac Cimmaron). Short-term profits, politics, and dealer demands work against you every time.
Has anyone noticed that some Mercedes owners quit referring to their cars as a Mercedes, well at least my friends and acquaintances with S-class models quit using the term Mercedes. People that used to say, “I drive a Mercedes,” now say, “I just purchased a new S-Class.” I suppose if you purchase a C-class, you tell everyone about your Mercedes, but if you just rolled off in an S, you simply say, “S-Class,” to differentiate your purchase from the mainstream rabble.
You would think that in the current climate and with a two luxury brands that GM would be in the best position to keep Cadillac more exclusive and use Buick as their mass market luxury brand.
Except for the fact that GM is Hellbent on taking them both downmarket with Chevrolet with the planned Cadillac ATS (isn’t that where Buick is supposed to be?) and reintroducing compact Buicks (which failed miserably when tried before).
Robert it right, luxury brands should be building themselves up, not dumbing themselves down. GM’s classic mismanagement of their two remaining luxury brands is a perfect example of how not to do it.
Robstar :
August 27th, 2009 at 8:19 am
$25k off a $45k car?
Which dealer do I talk to?
I think that would be Fantasyland Audi.
It seems that the main attribute of a luxury car nowadays is that it has to be a PITA to own.
That’s what they call “heritage”
****I have no idea what car follows a 3-series in the Lokki garage.****
Good chance that it’ll be another BMW or perhaps Infiniti.
It’s just too expensive to develop a 3-series-fighting platform. The only companies that have the money and will to build a competitor are Toyota, Nissan/Renault, VW, Merc and BMW (maybe Hyundai one day). And each of these names have decided to fight the 3-series in their own way. (I don’t count the CTS cuz it’s sized like a 5-series though priced like a 3).
As many of the posts pointed out….you need the volume to support the dealers and product development costs.
Besides if you’re an upwardly mobile MBA looking to spend his signing bonus, odds are he’d rather buy a cheaper BMW (328i) than a more expensive Ford (Taurus SHO).
Isn’t the Veyron a net money loser for VW?
Folks who stretched their resources to buy an entry level prestige marque were surprised and disappointed to discover the hallmark quality, reliability and durability had been excised. Why blow your financial brains out when a nicely optioned, reasonably reliable Toyonda or even Hyundai with superior resale value is available for thousands less?
Hard to imagine how moving further downscale will bolster yesteryear’s patrician brands. Sort of like slamming your fingers in a desk drawer because it feels so good when you stop.
I always respected Mercedes products for their vault-like build quality. Even a completely rotted fintail in the junkyard would reward shutting the door with a real feeling of strength. When they began having the ‘feel’ of a Honda, I lost interest.
My wife, who is generally low maintenance, has always lusted for a Mercedes. We look at them every few years and dream a bit, but have never pulled the trigger on one (the horrible electrical issues they’ve had recently have cooled our desire quite a bit). This year at the auto show, she sat in the E class yet again. After sitting in the Hyundai Genesis, the disappointment on her face was obvious. “Why would I spend all that extra money for a car that has a cheaper looking interior?” she asked. I agreed. There is no reason to buy the luxury brand aside from the catchet of the logo on the grille for the average person. Add the reliability and warranty of a car like the Hyundai and it’s easy to see why the “luxury” brands are tanking. They should have stuck to what they did best; well built, high technology vehicles for the exclusive few who can afford them. Trying to be all things to all people just makes you a master of nothing.