Packard’s low-priced Light Eight arrived in the early 1930s, followed in 1935 by the mass-produced, six-cylinder 120, priced below $1,000, which arguably saved the company in the Depression. But these cars, and the even less expensive models that followed, seriously undermined Packard’s prestigious name.
By 1937, according to James Ward who wrote “The Fall of the Packard Motor Company,” “…a frugal shopper could drive away in a new (Model) 115C for only $795. A well-heeled shopper could glide away in a 16th Series Twelve after shelling out as much as $8,510… Within a few years, Packard had become a mass producer of middle-priced automobiles… The approach confused the public. Packards could not be both practical and luxurious, cheap and expensive, exclusive and common.”
GM’s low-priced LaSalle line was introduced in 1927 to fill a then-perceived gap between Cadillac and Buick. Fortunately, the financial strength of General Motors, and the company’s desire to field the finest car in America, ensured Cadillac would survive, even though its high-end V-12s and V-16 volume was extremely small. LaSalle probably didn’t hurt Cadillac as much as it competed with Buick. But not surprisingly, the brand did not return when GM production began again after WWII.
Studebaker’s purchase of Pierce-Arrow in 1928, resulted in a needed cash infusion, along with less expensive Pierces, (engineered by several ex-GM staffers) and that soon resulted in a situation where the top-line Studebaker President was nearly identical to an entry-level Pierce. Sales quickly dried up, perhaps accelerated when Pierce announced the $10,000 Silver Arrow sedan. Once-proud Pierce-Arrow was gone for good by 1938.
The smaller expensive car phenomenon was not limited to the luxury carmakers of the 1930s. Ferrari got into the affordability act in the mid-Seventies, with its Dino 246 GT/GTS. Advertised as “Almost a Ferrari,” and sharing its 4-cam V-6 with two Fiat models, Luigi Chinetti’s dealers practically had to give Dinos away at the end (although they’re beloved by collectors now). In the early 1980s, the Chevy-based Cimarron, remember: “Best of all…it’s a Cadillac,” soon became the butt of marketing jokes.
So why do you suppose so many brands today are adopting this questionable strategy?
Before you argue that we’re not in a severe economic depression like the one that crippled the 1930s, consider the confused and highly competitive state of the luxury market today. The entire core of the prestige luxury business has shifted dramatically. Mercedes- Benz, BMW and Lexus (temporarily the volume leader) are fighting it out, in a greatly expanded category, stalked by Audi and Jaguar. Along with those competitors, Cadillac and Lincoln have shrunk from years past and like Lexus, they have become very dependent upon SUV sales. In addition, both domestic top-liners have models in what’s euphemistically known as the “entry lux” category with LS and CTS positioned against the 3-series, CClass and IS300. Jaguar’s X-Type is running in this pack too. The X-Type is a decent amalgam of Mondeo and Jag underpinnings, with the bonus of all-wheel-drive, but it’s still been slow to catch on.
Possibly urged on by dealers who want to be competitive on every level, and marketers who arrange their lineups against rivals on a modelby- model basis, the flow of new products is continuous as these competing vehicles are matched, one by one. Cadillac is about to launch its Corvette-based XLR roadster against the Lexus SC430 and M-B’s SL-Class. BMW’s Z8 is now history, but the Muncheners are planning a 6-series convertible for 2004.
Lincoln has just announced a strategy that will include all-wheel-drive entries like its Navicross show car, and the brand will not pursue a higher-end position, leaving that ground to Ford-owned Jaguar and Volvo. Jaguar, by the way, is developing station wagons (the British call them “Shooting Brakes”) and insists it won’t do an SUV. After all, Ford has Volvo and Land Rover (which is often colocated near Jaguar stores) for that business.
Curiously, as Audi realigns itself (in the U.S.) upward against the loftier brands, its in-house “partner” Volkswagen is impishly introducing very competitive models like the Passat W8, the $100,000 Phaeton sedan and a Porsche rival, the Touareg SUV. Although most people feel the brand positioning of ‘people’s car” precludes upscale models, former VW-head Ferdinand Piech, did not. Taking a stand against luxury forays can cost you your job. Reportedly VW’s Robert Buechelhofer, an ex- BMW board member and most recently VW’s marketing chief, left the company over a policy dispute regarding the marketing rationale (read sense) of the Phaeton. While it’s too early to predict failure for the Porsche Cayenne, PCNA’s canny former CEO, Fred Schwab, was out the door soon after he proposed a $500 customer spiff to entice more people to at least have a look at the new Porsche truck. (The Cayenne is fun to drive, no question, but did Porsche really need to get into the SUV business and double its sales volume? Ferrari seems content to remain at around 4,000 units annually. Porsche was selling a lot more than that.
Have these companies forgotten that the words exclusive and high volume don’t belong in the same sentence?
Moving even further upscale, BMW, Mercedes-Benz and Volkswagen have begun the renaissance of proud old badges like Rolls- Royce, Maybach, Bentley, and very possibly Bugatti, distancing themselves from somewhat less expensive traditional luxury brands. The air for $250,000+ cars is thin. Time will tell if every one of these makes will hit their sales targets, after the first heady year, and justify what have to be huge investments in tooling, plants and marketing dollars. Bentley’s already announced a coupe that will be priced at half the sticker of its big sedans.
Naturally Cadillac and Lexus have indicated they too will head further up-market. GM product chief Bob Lutz has been heard to say something to the effect that ‘if Cadillac can’t make a success of itself, GM shouldn’t be in the automobile business.’ Lexus’s Denny Clemens told a New York Auto Show audience that among concepts his company is considering, there’s “… a highly customized car in the $150,000 range.” Lexus has its sights on as many as 300,000 units annually. So much for exclusivity.
The domestics will be followed by Chrysler, who wants to play on its heritage, distance itself from Dodge and go after Volvo, Acura, maybe even Infiniti and Lexus. Chrysler could pull it off. Some people will remember the elegant Imperials of the 1930s and the classy, wood-bodied Town and Country models. Chrysler has begun to re-establish itself (using selected Mercedes-Benz underpinnings and head-turning styling) back in the high-end game with the Pacifica wagon, the Crossfire coupe and the soon-to-come Hemipowered 300C sedan. That’s not a bad strategy, so long as the use of Mercedes-Benz components doesn’t come back to haunt the value of Stuttgart products.
Luxury is going to be a crowded field at every level. Ferrari-owned Maserati plans to offer a reborn Quattroporte sedan in the Summer of 2004 (and, if you can believe the vehicle they showed in Detroit, they may even do an SUV). If Maserati can overcome its reputation for poor quality, they could certainly attract people who think Mercedes-Benzes are too common. Meanwhile, Aston Martin and Lamborghini expect to crowd out Porsche and Ferrari with new models priced in the $125,000 range. With expansions like these, brands run the risk of diluting positions that took years to establish.
At the same time, and perhaps more to the point, some luxury marques are heading seriously Southward. Although the C-Class coupe hasn’t been a barnburner, (American guys on an upward mobility swing don’t drive cute little hatchbacks), Mercedes-Benz is considering a modified A-Class sedan for the U.S. One Mercedes-Benz dealer says, “if they position it as a small but luxurious little commuter, they may have a chance, but I’m not convinced.”
Not content with Mini’s rapid success (yes it’s a hatchback, but it’s distinctly sporty with a great heritage) and despite possible badge dilution, BMW isn’t denying a future 1-series, and they showed an example in Detroit. The rationale here from BMW’s CEO, Helmut Panke, is that the 1-series is about the same dimensions as BMW’s famous 2002 two-door sedan the car that put them on the map in North America. Again, thanks to history, it’s arguably easier for BMW to sell lower-priced cars than it is Mercedes-Benz. BMW headed upward for the 3-Series to its bigger, more expensive cars. Mercedes-Benz created the 190, aka the ‘Baby Benz,’ and struggled through several iterations before it was truly accepted as a Mercedes. The C-Coupe is a stretch.
But size doesn’t seem to be a concern for these carmakers. Audi has tested small A2s and A3s on North American roads. Volvo’s already here with smaller cars. And Saab may partner in showrooms with Cadillac. GM executives who are seemingly indifferent to the obvious transparency of badge engineering (just look at the Celica-esque Holden Monaro/Pontiac GTO), have strongly indicated a rebadged Trailblazer, masquerading as a Saab, is a possibility.
And trucks are welcome. Luxury knows no physical bounds these days as high-end SUV sales rise. For upscale carmakers, the booming truck business has been a mixed blessing. Product planners are wrestling with the fact that as more trucks are sold, that puts pressure on CAFE averages, so these forays into smaller luxocars will help. Interestingly, ‘luxotruxs’ have had immediate and continuous acceptance (with the exception of Lincoln’s hapless Blackwood).
Case in point, as this is written, Lexus is mailing out invitations that read: “What if you had the opportunity to drive and evaluate a dozen of the world’s finest Luxury Sport Utility Vehicles in one unique setting…and all the salespeople had the day off? What follows is an invitation to drive Lexus and other SUVs at a resort near you. No salespeople need apply. For Lexus, who was selling more trucks than cars for a while, obviously SUV’s remain big business.
And the Lexus brand, with RX, GX and LX variants, is hardly alone. Controversial newspaper columnists couldn’t stop the demand for SUVs. The war in Iraq actually helped the sale of H2 Hummers. I don’t foresee any changes here unless gasoline rises to over $2.50 per gallon. Even then, it may be too late to dent the fondness luxury buyers have for SUVs.
The other even bigger issue is aging buyers… luxury carmakers want to intercept younger customers, get them into the fold and keep them there. Along with the Escalade, the hot-selling CTS has helped Cadillac (who had nowhere else to go but downward in the age appeal of its models, Seville aside), but the IS300 has been a relatively poor seller for Lexus.
Ignore this marketing axiom at your peril. There’s a range of elasticity for every brand. M-B’s Jurgen Hubbert has often stated his belief that ‘there can be a Mercedes-Benz model for every segment.’ His company has convincingly demonstrated this in Europe with a range that extends from A-Class to SClass. Of course, in Germany, the taxicabs and the police cars are Benzes. But even Mercedes-Benz recognizes that there are limits, hence the Smart car at the bottom end and the new Maybach at the top.
|The full Amanti: Kia does luxury on the cheap, debuting the Amanti at the 2003 New York Auto Show. The content rivals entry-level German cars, the sticker doesn’t.|
Luxury no longer means a greater level of quality and even features. The Kia Amanti, which bowed at the New York Auto Show in April, has content and safety features that rival entry-level German cars and Lexus with a sticker that’s under $30,000. Interestingly, but for an “n,” the name is eerily reminiscent of Mazda’s stillborn Amati luxury entry, and the Kia flagship’s styling (complete with EClass headlights and a bold grille that apes Chrysler and Audi) will probably please people (read Toyota Avalon and Buick Park Avenue buyers) who like driving a bargain. “Luxury car buyers are simply not loyal these days,” a New Jersey highline dealer told me. His customers, like many others across the country, shop for lease deals, enjoy trying the latest models and like top salespeople, they are apt to “go with what’s hot.” Visitors to Phoenix rave at megaluxury stores that sell a wide range of brands and share service facilities. That’s simply not exclusive, and exclusivity is the one thing that’s meaningful as more and more affordable mid-range brands are packed with luxury features. The problem is often compounded by a dealership’s sales force, who are not always comfortable and conversant with both entry level and high end buyers.
Being number one in sales can be a curse. Exclusivity is to be cultivated. So are customers. Brands that are diluted will eventually wind up no longer standing for anything. Just ask any classic Packard owner.