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As luxury makers offer cheaper cars, does it help or devalue the brand?

With prestige nameplates now starting in the low $30,000s, the question is whether that pricing democratizes luxury – or devalues it.

As a consumer, what's not to like? For about the price of a mid-level Honda Accord you could park a new Mercedes sedan in your driveway or a BMW coupe. The most affordable Porsche in Canada just dropped in price by $6,500, to $52,700 – little more than many Canadians spend on pickup trucks.

The Mercedes CLA, the BMW 228i coupe and Porsche's new four-cylinder Macan SUV are just some examples of aristocratic luxury brands expanding into segments and price points where they compete with mainstream brands.

While auto makers can grow their sales this way, there are also some intangible risks.

"They run the risk of devaluing the brand in the eyes of those who have already bought the vehicle," says Chris Travell, a director with consulting firm Bond Brand Loyalty. "It's rather like admitting people to the club who you would prefer not be there."

In 1985, the lowest-priced Mercedes in Canada was the base E-Class at $39,950 – equivalent to almost $82,000 in today's dollars. Nowadays, E-Class pricing itself starts at $64,500 while less than half that sum will get you into a B-Class hatchback ($31,700). And that's just in Canada. In Europe there's the even smaller, cheaper A-Class. Not forgetting that Mercedes-Benz also owns Smart.

Archrival BMW has the Mini brand, while the BMW badge itself – long synonymous with superior rear-wheel-drive dynamics – now adorns a front-wheel-drive hatchback (a version of the 2 Series not sold here).

The simplistic explanation for this trend is higher sales volume and the battle for top-selling luxury-brand bragging rights. Another justification: by getting upwardly-mobile customers into your brand at an earlier life-stage, you're more likely to keep them when they enter their peak earning (and peak spending) years.

"It's bringing a whole bunch of new people to the brand," says Mercedes-Benz Canada national product manager Chris Goczan. "It's 75 per cent conquest sales."

Then again, it could be argued that those are merely spin-off benefits from the real dynamic driving this trend: brands traditionally associated with larger and/or more powerful cars need to sell smaller, economical ones to help them meet corporate average fuel economy standards.

Still, there are limits. Goczan says we won't see a $25,000 Mercedes any time soon. Meanwhile M-B Canada's sub-$40,000 small cars such as the B-Class, CLA and GLA are intended to offer premium options in their respective categories. "It's following where the market is going, and offering the right product at the right price in the right segment."

That's echoed by Porsche Canada president Alexander Pollich. The 2017 four-cylinder Macan, he says, is simply giving customers what they want. "If you look at the competition, the Audi Q5, the BMW X3, they all have entry level variants in the compact SUV segment and there has been very strong demand from customers who want to see a Porsche offering in that segment as well."

As for managing the "brand dilution" factor, auto makers say it's okay to offer smaller or less-powerful products as long as they still incorporate the brands' core values. "There is absolutely no compromise in terms of our genes," Pollich says. "Our philosophy is that every vehicle we put on the road has to be a sports car, has to be a true Porsche, and that's also the case with the four-cylinder Macan."

For Mercedes-Benz, Goczan draws a parallel with the hospitality industry. "If you go to a Four Seasons hotel, there are different rooms at different prices for different customers, but it's still a Four Seasons hotel. We want to give the Mercedes-Benz experience, and the basics are built into every car."

Travell of Bond Brand Loyalty also cites the hospitality industry, but from a somewhat different viewpoint. He notes that old-school luxury-brand dealers may have a hard time adjusting to a new breed of less-affluent customers. "This could be avoided by delivering differing tiers of experience within the same luxury brand, so someone who spends $30,000 on their car might get a different level of experience compared to someone who spends $100,000.

"This has certainly been done in other industries such as the hospitality industry, for example, so it's not without precedent."

Bargain Luxury

Honda

Acura ILX

Base price: $29,490

Acura may not have the pedigree of the Europeans, but in exchange the baby Acura sedan (based on the last-generation Honda Civic) comes loaded with content for less cash. Even the $29,490 base ILX has a 2.4-litre, 201-hp engine, eight-speed dual-clutch automatic and lots of active safety tech. Higher trims with NAVI and a high-end audio remain below $35,000. One thing not available at any price, however, is AWD.

Audi

Audi A3

Base price: $31,600

Audi is noted as a pioneer of AWD in passenger cars, but you won’t get it in the base A3, which is front-wheel driven by the same 1.8-litre, 170-hp engine as in the VW Golf TSi. To get an engine more competitive with the opposition, a $36,400 MSRP gets you a 220-hp 2.0-litre turbo as well as Quattro AWD. Both engines are paired with six-speed automatics.

Lexus

Lexus CT200h

Base price: $31,800

The junior Lexus is a different take on entry-luxury, but it seems to resonate with customers who have made the CT200h one of Lexus’s better-selling cars. Different? Well, not only is it a compact hatchback, it is also sold only as a hybrid. Its gas-electric powertrain is basically the same as that of the last-generation Toyota Prius, with city/highway fuel-consumption ratings of 5.5/5.9 litres/100 km.

Mercedes-Benz

Mercedes-Benz CLA250

Base price: $35,300

A Mercedes comes even more affordable in the $31,700 B-Class, but most buyers go for the same-under-the-skin CLA starting at $35,300. Mercedes calls the CLA a coupe though it’s really a four-door sedan with a coupe-like profile (i.e., a 7/8-scale CLS). Under the hood is a 208-horsepower, 2.0-litre turbo four driving the front wheels through a seven-speed dual-clutch automatic. The AWD 4Matic version asks $37,500.

BMW

BMW 228i

Base price: $36,200

In Europe and other markets, the 2 Series is a FWD hatchback. But we get only the RWD coupe, which comes as close as any modern BMW to replicating the sporty compacts that made BMW’s name. The base 228i has a strong 241-horsepower turbo four with a choice of six-speed manual or eight-speed automatic transmission. AWD is available, as are a host of performance, convenience and luxury options.$36,200

In Europe and other markets, the 2 Series is a FWD hatchback. But we get only the RWD coupe, which comes as close as any modern BMW to replicating the sporty compacts that made BMW’s name. The base 228i has a strong 241-horsepower turbo four with a choice of six-speed manual or eight-speed automatic transmission. AWD is available, as are a host of performance, convenience and luxury options.

Jaguar

Jaguar XE

Base price: $45,000

Jaguar is having another go at the compact luxury market with the XE. Although it’s a move downmarket for Jaguar, the XE competes in a segment full of established players, the BMW 3 Series and Audi A4. The starting price includes automatic transmission, AWD … and a 180-horsepower, 2.0-litre four-cylinder diesel engine. A 340-horsepower supercharged V-6 is the uplevel choice.

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