By Jenny King, Special to Tribune Newspapers
3:20 PM EDT, May 6, 2011
Well-equipped, affordable cars are muscling in on the luxury market's turf.
Or is it the other way around?
Today's new-car market offers a panorama of models priced between $20,000 and $30,000 that in many respects can compete with gleaming, leather-appointed luxury models with significantly higher price tags.
Luxury car makers are talking about moving into this segment while builders of cars once thought of as entry-level are already there. And thinking about moving farther up.
"There is a blurring in both directions between premium and affordable models," says Jeff Schuster of J.D. Power and Associates. "For example, brands that weren't linked to premium cars now are offering highly-contented models."
The luxury car makers like Mercedes-Benz already have a wide band of European products which would make it feasible to bring smaller, less expensive models to the North American market, Schuster adds.
Regulatory pressures in Europe and the U.S. are pushing all auto makers to build smaller, lower-emission, more fuel-efficient cars, adds Jeff Hill, of Boston Consulting Group's Los Angeles office.
"And there's a need to get global scale on those investments, given platform economics," Hill says.
Customers are likely to benefit from the increased competition.
"There are many buyers with high enough incomes to afford luxury brands who choose to buy volume brands with luxury feature content and options," Hill says.
The 2011 Murano CrossCabriolet is what Nissan refers to as its "segment buster."
The luxurious four-seater convertible is available this spring for a cool $46,390. That's a far cry from an entry-level Nissan Versa sedan that starts at $9,990.
"We anticipate couples with older children still at home to choose this as a second family vehicle," says Kelly MacDonald, a senior marketing manager with Nissan in Nashville, Tenn. It is likely to draw from Murano owners who are looking for luxury features like leather, satellite radio, the intelligent key without having a luxury nameplate on the outside.
Kia, another maker with a reputation for marketing affordable cars, has been piling technology and options on its midsize Optima sedan. A 2011 Optima EX, with a base price of $22,495, offers a premium package with panoramic sunroof, heated outboard rear seats and a heated steering wheel plus a navigation system with back-up camera, real-time traffic updates and upgraded sound system that bring the pre-delivery price to $26,745.
Kia, often viewed as the maker of econobox transportation for first-time new-car buyers, says the average age of its customers is 53. Forty percent are college-educated, two-thirds are married and average household income is $63,353, according to R.L. Polk & Co. figures.
Polk named Kia the "most improved" brand in customer loyalty in 2010, when the Korea-based company enjoyed record sales and its 16th consecutive year of market share growth in the U.S.
Luxury car maker BMW is getting budget-conscious customers hooked on its products through a successful pre-owned vehicles sales program.
"Certified pre-owned vehicles are the actual, first stepping stone for many into the BMW brand," says BMW spokesman Tom Plucinsky in Westwood, N.J.
BMW says it has the largest program of this type among premium makes, delivering 140,000 certified pre-owned BMW vehicles a year to customers.
"And smaller doesn't necessarily mean entry level," Plucinsky says of the 1-Series. "The 1-Series is considered a performance series."
The (larger) BMW 3-Series is far and away the brand's most popular nameplate, selling about the same as the 1-, 5-, 6-, 7- and Z car lines together. It is the magnet that draws buyers into the BMW family and probably for that reason has the least expensive model: the The BMW 328i four-door sedan (around $33,000).
"Entry level means different things to different customers," said Plucinsky.
Steven Witten, head of J.D. Powers' global auto research in California, says recent studies show 27 percent of premium vehicle buyers considered non-premium brands at various dealerships.
Eleven percent of those who purchased non-premium brands looked at some premium makes. Witten says the primary reason given for not buying premium was the high price. They noted reliability concerns and fuel economy issues as well.
Nineteen percent of the premium consumers said the same thing (price too high) of the non-premiums they had inspected. They also commented on interior styling and design issues and said the non-premium vehicles didn't have all the features they wanted.
Witten, who owns a minivan and a luxury car, admits he likes the luxury dealership experience: "It's quieter and more efficient."
Perception vs. reality
Introducing a premium product to a brand may increase the average perceived value of products in the brand's portfolio, says Shashi Matta, a marketing professor at Ohio State University.
Yet there is always a risk to a brand's credibility when adding a premium or an inexpensive product, says Matta.
"If a value- or mid-priced brand is trying to move into a premium market segment, the challenge is making the product appealing to consumers who value luxury and want a premium offering," Matta says. "For this very reason, Toyota has the Lexus brand and Honda has the Acura brand."
If a luxury brand offers a value product to its portfolio, the challenge may be that of alienating its core consumer segment.
"Luxury brands appeal to consumers because of status that these brands confer on them," Matta says. By introducing a value brand to the portfolio, a luxury brand could potentially reduce that status.
Lincoln is facing that challenge as it redefines itself following the demise of Mercury.
"For the first time in some decades, we are now in the position of working toward becoming a world-class luxury brand," says Lincoln spokesman Christian Bokich in Dearborn, Mich. "We are comparing ourselves against other German and Japanese luxury competitors and not against Ford."
Acknowledging an older owner base, Bokich says Lincoln plans to "skew into a younger demographic" while maintaining loyal long-time customers.
"We've said we are coming out with a C-segment smaller vehicle, but haven't specified which body style or competitive set," Bokich says.
With the introduction of its 2012 Verano sedan in the fall, Buick, too, seeks to expand its appeal to include consumers interested in a compact car.
"People here are getting rid of their (luxury) gas hogs and high payments and trading them for Hyundais." Says Kevin Wilkerson, sales manager at Hyundai of New Port Richie, Fla. "I'd say it has been a trend for the last couple of years."
But apparently some of those former luxury car owners are ambivalent about a change in status. Wilkerson says the dealership has on several occasions pried off the Hyundai insignias on the front and back of the car and on the wheels, replacing them with a flying wings emblem. This aftermarket package runs $399, he says.
"I guess they don't want people who admire the car to guess that it's a Hyundai," Wilkerson says.