Mercedes, Audi, and BMW have a new cash cow that’s turning around the luxury market – Business Insider

Posted: Friday, December 09, 2016


Mercedes Benz GLC 20
The popular Mercedes GLC.
Hollis Johnson

Luxury cars and regular-old SUVs are a pair of reliable profit
drivers in the auto business. 

But luxury cars have seen their fortunes stall in recent years.
Premium brands have dealt with this by rolling out more SUVs. And
it looks like the strategy is working.

“Low gas prices, changing consumer tastes and attractive new
vehicles are creating the perfect environment for luxury SUV
sales to grow,” Jessica Caldwell, executive director of industry
analysis for consumer auto site Edmunds.com said in a statement.

“Given that luxury brand loyalty rates are typically higher than
for volume brands, this trend has the potential to affect this
vehicle segment for years to come.”

The numbers are impressive: luxury SUVs will outsell
luxury cars for the first time in 2016. And according to Edmunds,
SUVs are bringing growth to brands that historically have
been considered niche players.”

The site pointed to Jaguar and Volvo and prime examples.

Those automakers are “enjoying the most gains, thanks to the
popularity of the F-Pace and XC90,” leading to a
Jaguar sales increase of “more than 81% through the first
three quarters of the year, while Volvo’s overall sales rose
almost 26 percent.”

The auto market might, in fact, be experiencing a structural
shift away from cars and into SUVs and crossovers. For luxury
brands, this is going to be tricky.


Volvo XC90 7
Volvo’s very successful XC90.
Hollis Johnson

For example, Mercedes, BMW, and Audi all have at the core of
their portfolios passengers cars. They also sell crossover SUVs,
but they can’t conceivably bail out on cars — even if the market
becomes increasingly unfriendly to them — because that type of
vehicle in enmeshed with their brands. 

BMW’s “ultimate driving machine,” historically, has been the
3-Series sport sedan, not the X3 or X5 crossover.

This logically presents an opportunity for some luxury brands —
Acura leaps to mind — that have lagged the so-called Tier 1
luxury players, but that aren’t as wedded to car sales. 

Whether there’s truly a structural shift afoot is in any case a
question that won’t be answered until gas prices start to move up
again from their currently, relatively low levels.

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