A Blog by Jonathan Low


Jul 12, 2015

Why German Luxury Car Brands Dominate

Brand value only really works when performance matches perception. The German automakers have extended the benefits of quality, design and engineering to lower priced models in order to extend their franchise. And it's working. JL

Lawrence Ulrich reports in the New York Times:

How have the German automakers done it? For one thing, by cranking out a dizzying array of models across a broader price spectrum than their competitors; from $30,000 entry-level cars and newfangled crossovers to six-figure supercars and electrified models.
LIKE an arrogant sports dynasty, Germany’s luxury car brands have long dominated the competition — and when rivals get too close, the champs load up and zoom ahead again.
So it is in the 2015 season. Mercedes-Benz, BMW and Audi are winning by important measures: Critically acclaimed models, technical innovation and sales in the United States and around the world. And their ambitions are only growing, as they target broader segments of the market with affordable small cars and the crossover sport utility vehicles that Americans seemingly can’t get enough of.
Most American and Japanese brands, including Cadillac, Lincoln, Infiniti and Acura, find themselves again scrambling to catch up.Image result for image german luxury car dominate
With cars flying out of showrooms at prerecession levels, luxury sales continue to outpace the recovery, up 8.6 percent this year through May versus 4.5 percent for the total market. That has luxury brands fighting for a bigger slice of a larger pie, and the Germans must be feeling stuffed: BMW sold an American-record 168,623 cars through the first half of 2015, up 7.1 percent, to seize the luxury lead. The Mercedes brand set its own record with 164,504 sales, up 8.8 percent, according to Motor Intelligence.
Audi, which is owned by Volkswagen, remains neck and neck with BMW and Mercedes for the global luxury crown, but it had long been an also-ran in the United States. Now, Audi’s high-design cars have made it a genuine alternative, and a darling of younger professionals. Audi’s ascent includes 54 consecutive month-over-month sales records in America, vaulting it to fourth place in luxury with nearly 94,000 units through June.
Only Toyota’s Lexus division, which tumbled down the American charts after leading as recently as 2011, is making a serious run at BMW and Mercedes — and only after Toyota’s president, Akio Toyoda, urged a revamp of Lexus’ bulletproof-but-boring cars to compete against the dynamic Germans. Lexus sold nearly 159,000 cars through June, helped by its new IS sedan and NX crossover.
How have the German automakers done it? For one thing, by cranking out a dizzying array of models across a broader price spectrum than their competitors; from $30,000 entry-level cars and newfangled crossovers to six-figure supercars and electrified models.
Count every body style and engine, and BMW offers 100 models in America. They include so many crossover sport utility vehicles — many churned out from BMW’s plant in Spartanburg, S.C. — that BMW might run out of numbers: The X1, X3, X4, X5, X6 and, coming around 2017, a three-row X7.
“First of all, Americans love power and fun performance, and we can deliver that,” said Ludwig Willisch, chief executive and president of BMW of North America.
Michael Harley, editor in chief of the car shopping site AutoWeb, said that the Germans have engineered a remarkable turnabout from the days of upstart Japanese rivals.
“In the ’90s, Lexus, Infiniti and Acura were leading the tech race, and the Germans were caught napping,” Mr. Harley said. “Now the Japanese have lost direction a bit, their technology seems old school, and the future of the industry is being determined by the Germans, not the Japanese.”
Mr. Harley said that Mercedes, BMW and Audi had combined a product onslaught, aggressive pricing and improved reliability with traditional strengths in design, performance, engineering and technology, “and it’s all paying off in the showroom.”
Michael Maldin and his wife, Elaine, paid $48,000 for a 2015 Mercedes C 300 sedan in January, a brand that the longtime BMW owners had considered ostentatious and insufficiently sporty. But Mr. Maldin was won over by the compact C-Class’ interior.
“It looks like something out of MoMA, very posh and contemporary,” said Mr. Maldin, a sales manager for an enterprise software company in Boulder, Colo.
Mr. Maldin said he was also struck by the performance of the Mercedes turbocharged engine — “a four-cylinder, which I swore I’d never have in a car.”
Competitors have improved, Mr. Maldin said, yet he echoed a refrain that sets teeth on edge from Detroit to Tokyo: German cars just drive better.
The C-Class’ popularity has put it in a heated competition with the venerable BMW 3 Series sedan, America’s top-selling luxury model for five straight years.
As their expanding lineups battle it out, including in the critical California market — where BMW sells one of every four 3 Series cars sold in the United States — German brands are also dipping toward the mainstream.
With Americans paying an average $33,500 for a new car, models including the Audi A3 sedan, BMW 2 Series coupe and Mercedes CLA sedan are solidly average, at least in price. Mercedes trumpeted the original $29,995 price of the CLA 250 on billboards and commercials.
For seven of 10 customers, the CLA is their first Mercedes, said Steve Cannon, chief executive of Mercedes-Benz USA. Three-quarters of buyers are coming from Toyota, Ford and other mass-market brands, and many are younger than traditional Mercedes buyers.
“If you’re not feeding the brand from the bottom over time, if you don’t have that healthy inflow of younger buyers, you’ll become irrelevant at some point,” Mr. Cannon said.
Mr. Cannon’s Montvale, N.J., office was packed and emptied, with Mercedes moving its American headquarters this weekend to its new home in Atlanta. After 43 years in New Jersey, Mercedes is starting a southern migration coinciding with the biggest product offensive in its history, with 10 more models coming to showrooms over 18 months. They include the GLE, a coupe-styled sport utility vehicle that becomes the fifth Mercedes built at its Alabama factory.
As German brands expand their American footprint, they have continued to innovate. BMW has placed a multibillion-dollar bet on cars made of lightweight carbon fiber to save fuel, including its futuristic i3 electric car and 7-Series flagship sedan, which will be available this fall.
For all the fascination with Google’s self-driving prototypes, Mercedes has 10 semiautonomous showroom models, including the C Class, that can already steer themselves along highway curves, even as they manage their own acceleration and brakes. Audi helped pioneer the move to downsized turbocharged engines, a trend that is now revolutionizing the industry.
The Germans are exploiting another edge as well: Wealthy buyers happily spend $100,000 and more for a Mercedes especially, but also for some BMWs and Audis — higher altitudes where Asian and American brands have struggled to compete.
Mercedes sold more than 25,000 S-Classes last year, a dominating showing for a car that costs from $95,000 to well over $200,000.
“As you introduce volume at the lower end, profit margins do get challenged, but we can counterpunch with the S-Class or AMG GT,” a sports car, Mr. Cannon said. “If other brands counterpunch, they move into our strong suit, and they have difficulty.”
And the counterpunch is coming. Cadillac and Lincoln, among others, have announced multibillion-dollar plans to revive their brands.
Mr. Willisch of BMW dismisses industry critics who say that BMW is betraying its core values with a surfeit of sport utilities or cars like the 320i, which can be leased for as little as $269 a month.
“If you want to grow, you need to conquest new customers,” Mr. Willisch said. “Yes, we’ve broadened our lineup, and not all are direct successors, but they share the same family values.”
Mr. Maldin said he did not see models like the C-Class as evidence of slumming — as long as the cars are luxurious and perform at a high level.
“When they take the quality and engineering of an S-Class and bring it to a different size and price point, that raises the game for the whole marketplace,” Mr. Maldin said. “I don’t see it as watering down the brand, but as expanding their reach.”


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