Editorial: Off With Their Heads: Luxury Car Brands Under Siege

Robert Farago
by Robert Farago
editorial off with their heads luxury car brands under siege

On Thursday, Audi of America president, Johan de Nysschen, will meet with journalists to explore the question “how has the international recession impacted Audi and the luxury segment?” The obvious answer: sinking sales. The not-so-obvious conundrum: what next? How does a luxury brand position itself for survival when class war is breaking out all over? Of course, the professional pundocrats aren’t using “C” word just yet. The euphemism du jour for the “where’s MY bailout” anger that may or may not be sweeping the nation—as taxpayer-owned AIG execs collect their bonuses and Bernie Madoff’s wife shelters in a penthouse funded by her husband’s ill-gotten gains—is “vengeful populism.” Whatever you call it, Audi and its luxury competitors are sitting in the cross-hairs of growing anti-conspicuous consumption. The recession/depression is going to kick the NSFW out of them.

Audi, BMW, Cadillac, Lexus and Mercedes have all poorly positioned themselves for these belt-tightening times. All five brands spent the last decade or more stretching their model range down into near-luxury and even non-luxury pricing territory. Not so long ago, none of these brands were available to average buyers (save on used car lots, where maintenance costs kept them clean of ten-foot pole marks). All five luxury brands couldn’t resist picking the low-hanging fruit, convincing themselves that they could democratize an exclusive brand.

Of course it worked. What aspirational car buyer wouldn’t prefer an up-market marque to a Ford, Hyundai, Toyota, Nissan, etc.? Thanks to a combination of affordable models and cheap credit, the “Big Five” have all experienced sales growth that makes Jack’s beanstalk seem like a redwood. BMW’s inexpensive leasing deals, in particular, created ultimate profits. But the move down market has created a vast flock of prodigal, homeward-seeking chickens.

For one thing, profits at Audi, BMW, Cadillac, Lexus and Mercedes are now dependent on relatively high sales volumes. In 2007, Mercedes-Benz NA sold 253,433 vehicles. Audi’s US sales jumped 11 percent, to 93,506 vehicles. Cadillac’s sales rose 13 percent. BMW’s ascended by 14 percent. Lexus took a hit that year, but they still managed to shift 342,000 units in North America. Compared to the mainstream manufacturers it’s small beer; but it still requires many pubs to serve it. All five luxury brands expanded their dealer networks. Which are now, or soon will be, struggling for survival. Last month, Lexus sales took a 35.8 percent year-on-year dip. Audi lost 25.4 percent of its previous year’s monthly totals. And so on, right on down the line.

Brand equity has also taken a huge hit. Although you might think the luxury car brands’ democratization makes them less vulnerable to a class-related backlash, nope. Let’s face it: it’s not a great time to be seen “splurging” on a luxury car. The car brands’ upmarket cachet has suddenly turned into a liability. Real world employees worried about their paychecks—and that’s all of them—are not going to stunt and floss in the company parking lot behind the wheel of a brand new Audi, BMW, Cadillac, Lexus or Mercedes. They know that rolling phat in a luxury-branded whip would be tantamount to wearing a little button emblazoned “overpaid.” Fuhgeddaboutit.

Even worse, the customers with real money, where profits fall like rain, have already left the building. They’ve opted for more genuinely exclusive marques. Audi and Mercedes recognized this problem before the axe fell; buying (Lamborghini), creating (AMG, S-Line) or resurrecting (Maybach, Bugatti) über-luxury off-shoots. But even if Audi and Mercedes managed to skim the cream off their own coffee, they face the same danger as their less brand-savvy luxury competitors: stagnation. Now that upmarket brands offer a wide range of models, cash-strapped or cash-aversive buyers can either stand pat (i.e., not trade-up) or, worse, opt for less expensive alternatives within the brand family.

So why would Mercedes create the GLK, when it already offers a full-size SUV AND a smaller alternative? Why would Mercedes market the GLK as a vehicle containing the same technological excellence as its bigger brothers, only in a smaller (read: cheaper) package? The Bama-built German “cute ute” represents a failure to communicate luxury brand values—and price points—within Mercedes’ corporate culture. It’s the same hubris that led to the Audi A3, BMW 1-Series, Cadillac CTS (sorry guys), Lexus IS250 and Mercedes C-Class. Short term greed over careful, long-term brand husbandry.

I know TTAC’s Best and Brightest have hashed this out many times. Many of you don’t see a price point as a brand barrier. But it’s petard hoisting time folks, and you’re about to see the brands reap what I said they’d sowed. In this suddenly, violently downsized, flash-aversive sales environment, brand-extended luxury automotive marques must either redefine “luxury” (as reliability, longevity, etc.), move back up-market (a slow, painful process) or die. And the longer the downturn lasts, the greater the chances that one or more of these brands will never recover.

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2 of 109 comments
  • Robert Farago Robert Farago on Mar 23, 2009

    Guys, illuminate (illuminati?) me: what does this have to do with luxury cars?

  • U mad scientist U mad scientist on Mar 24, 2009

    I think it'll end up postulating that "the Jews" will soon be the only ones with money to buy cars, which disagrees with the premise in the article that the inexpensive models are a mistake. I kid.

  • Inside Looking Out The next 4Runner will be BEV.
  • The Oracle This is a proper Italian red sauce turd.
  • Carson D This isn't a notice of a wait time for 4Runner fans. This is a deadline for the opportunity to buy one new before they're gone. Whatever comes next, there is no possible way that it will be as good at doing 4Runner things as what is available today.
  • Bkojote There's a lot "just right" with the current 4Runner, and having spent time in more contemporary equivalents for road trips, I completely understand why they sell a ton of these.Here's some topics that aren't super common among 4runner owners - excessive carbon buildup in the engine after 40,000 miles (Audi/VW), bent valves (Bronco) , failed oil coolers (Jeep), cracked engine blocks (Jeep), dead vehicles from OTA updates (Chevy Colorado), being stranded due to opening the door too many times (Defender), malfunctioning engine sensors (Defender, VW), dead batteries due to electrical system malfunctions (Jeep), unusable defoggers (Jeep), waiting for seat heaters to boot up (Subaru), randomly catching fire (Kia/Hyundai), crappy build quality (Ford, Tesla).The interior feels solid and rattle free, and everything feels substantial in the way a Jeep Grand Cherokee or Kia Telluride does not. 14 year run means accessories are plentiful and well sorted. The control inputs from the radio to heated seats to climate control work better than 99% of the cars you can buy new at this point and are dead simple and ergonomically satisfying. Even dynamically (I drove a model with the KDSS system to be fair) it is a surprisingly composed vehicle on mountain roads- it's far more civilized than a Bronco or Wrangler, and hell, it was far more pleasant than the past two peastant-grade Benz crapmobiles I've been in.So I get it- car journalist rags whine about how overly complicated and tech-heavy modern vehicles are while their substance is cost cut, but here's the literal definition of 'don't fix it if it aint broken.' . It's a trusty Ford Econoline in a world of craptastic Ram ProMasters.
  • Frank Sounds like they dont want to debut it at the same time as the new Land Cruiser, which is probably smart. The new 'runner is ready to go I am told, so there's a reason for this delay.