The 2013 Mercedes-Benz CLA 250 Sport starts at $33,900. Mercedes-Benz has enjoyed spectacular growth in Canada in large part because of a willingness to make its cars more affordable to a larger audience.
Luxury on the cheap? Or are we witnessing the democratization of luxury cars that sees long-standing premium brands push down market in search of new customers? If so, the questions are: What is a luxury vehicle and what does a premium brand stand for? Depends on your perspective.
Mercedes-Benz, for one, has just launched a $33,900 Mercedes-Benz sedan, the CLA. That pricing puts it head-to-head against well-equipped versions of the Ford Fusion, Hyundai Sonata, Kia Optima, Chevy Malibu, Nissan Altima and others from mainstream auto makers. The CLA is also competing against certain versions of the BMW 3-Series and Audi A4 ($35,900 for the base 320i and $37,600 for the entry version of the A4).
Coming next year is the Mercedes-Benz GLA, a smallish crossover based on the CLA and its shared underpinnings with the Mercedes-Benz B-Class. It will be priced in the high-$30,000s. And Mercedes has long sold the B-Class as yet another option for what we'll call entry-level customers who want to join the Mercedes brand. Base B-Class price: $30,500.
Next year, Audi, the luxury arm of the Volkswagen Group, will bring an all-new A3 sedan to Canadian showrooms. The outgoing 2013 A3 hatchback starts at $34,100. It's not a stretch to imagine that the new A3 sedan pricing will start in a similar place. What we might call the companion Audi Q3 small crossover is also coming and it will be going head-to-head with the GLA and others. Looking for stickers in the mid- to high-$30,000s for base models.
For luxury brands selling in Canada, the move into affordable chunks of the market is critical. Auto analyst Dennis DesRosiers, of DesRosiers Automotive Consultants, argues that Mercedes has been a leader among luxury brands in terms of "doing something right in all segments." That includes addressing affordability. Mercedes-Benz has enjoyed spectacular growth in Canada in large part because of a willingness to push into new segments and sub-segments.
DesRosiers says that there is a general assumption that Mercedes years ago saw the need to mix up its offerings to counteract an older demographic among buyers. That is, Mercedes was attracting buyers with so-called "old money," while rival BMW was pulling in "new money" – younger premium buyers.
New money, DesRosiers says, eventually becomes old money and that might seem to be the answer for Mercedes's old money dilemma. Perhaps, but not fast enough, not in a car business that demands steady and profitable growth. In 2005, BMW overtook Mercedes as the world's biggest luxury-car brand in part due to the launch of the small, inexpensive 1-Series to global markets. Then in 2011, Audi passed Mercedes, moving into second place globally.
Daimler AG head Dieter Zetsche has said that Mercedes will not stay No. 3, vowing to drive the Mercedes brand back atop the world of luxury car makers by 2020. Canada is not immune to global trends, of course. To do its part in growing the Mercedes brand, Mercedes Canada officials have long argued two things about this country:
Our market is more European than American, which means Canadian premium buyers are willing to spend premium dollars on smaller cars. That's different than the United States, where expensive is still largely equated with big. Smaller, more affordable premium cars are a more compelling purchase in Canada.
Premium car brands are always alert to changing demographics. As baby boomers – the first of which are around 70 now – and their Generation X kids age, they will be pushed aside by twenty- and thirty-something car buyers. One of the ideas behind democratization is to bring these younger buyers into premium brands early and in growing numbers. That way they will move up the brand chain and eventually buy more expensive luxury cars.
DesRosiers, though, has argued that democratizing the luxury car market by moving down into more affordable, almost mass-market segments might prove problematic to the premium brands.
"Doesn't one of the fundamental definitions of luxury include the word 'exclusive'?" he argued in a note to clients. "Isn't it true that once a vehicle becomes a mass market vehicle, then by definition it is no longer 'luxury?' "So I wonder whether the fight to sell more, more, more will eventually hurt these OEMs [original equipment manufacturers] versus help them.
"By telling your customer base that you can now afford XYZ Luxury Vehicle because it is in the same price range as a mid-sized mass volume intermediate car, are you not undermining your core brand values?"
Fair questions and they are among those the leaders at premium brands wrestle with daily. What is clear is that the argument for democratizing luxury is winning out. Nissan Motor's Infiniti premium brand, for instance, has begun a product renaissance that includes the arrival of the new Q50 sedan with a base price of $37,500. Down the road, Infiniti's plan includes the Q30 small crossover expected for 2015.
The Q30 will share its mechanical underpinnings with the GLA from Mercedes as part of a joint development agreement between Nissan and Daimler, Mercedes' parent. Speculation abounds that both vehicles will be built in Aguascalientes, Mexico, as a way to reduce production costs and make luxury brand vehicles more affordable.
Acura, the high-end brand of Honda Motor, began an earnest re-make last year with the launch of ILX sedan, which starts at $27,990. Since then, Acura has also introduced a new RDX crossover ($41,990 to start), the larger MDX crossover with a base price just less than $50,000 and the RLX sedan ($49,990 base). In each case, Acura is presenting the case for more affordable luxury – while also making the point that all its new models come wrapped up in premium customer service.
Lexus, Toyota's premium brand, made its first push into affordable territory with the CT 200h hybrid hatchback. It listed for $31,450 in 2013. This year, Lexus has introduced the remade 2014 IS lineup, the most affordable of which is the $37,300 IS 250. Expected for the second half of next year is a smaller global crossover vehicle based on the Toyota RAV4 platform – the NX. It should go head-to-head with the Q3 and BMW X1.
Other premium models intended to push luxury into the mainstream include the Porsche Macan, shown in production form at the Los Angeles Auto Show, and a compact sedan from Jaguar priced less than $40,000 that might be called the Q-Type. Jaguar has confirmed a new small, affordable car, but has not given it an official name. Still, Jaguar has trademarked the Q-Type name.
So, luxury on the cheap? While this new crop of premium models start around $30,000, that's still about $4,000 more than the average price of a new car in Canada, according to DesRosiers. Moreover, buyers can easily push the final price of most affordable luxury cars into the $40,000 and $50,000 range.
Indeed, the CLA 45 AMG 4MATIC flagship of the CLA line starts at $49,800, with options driving the price into the $50,000s. Yes, luxury brands are spreading into mainstream pricing segments with new models. But, among car companies, the hope is to lure buyers upmarket where the returns are richer.
Special to The Globe and Mail
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