Audi Joins Mercedes to Lure Mainstream With Cheaper Cars – Bloomberg

Posted: Thursday, January 09, 2014



Photographer: Patrick T. Fallon/Bloomberg

Audi added a sedan variant to the A3 line for the first time largely to catch up in the U.S.

Audi added a sedan variant to the A3 line for the first time largely to catch up in the U.S. Close

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Photographer: Patrick T. Fallon/Bloomberg

Audi added a sedan variant to the A3 line for the first time largely to catch up in the U.S.

Audi, Mercedes-Benz and BMW are
rolling out cheaper models in the U.S. to woo customers from
mass-market rivals like Ford Motor Co. (F)

Audi, which will present the A3 sedan at the North American
International Auto Show in Detroit next week, will offer the car
for $29,900 when it goes on sale in the spring. That would match
the price of the Mercedes CLA sedan, which has been on sale
since September, as the German brands push models that cost less
than half their flagship cars.

Germany’s high-end automakers are increasingly vying with
mainstream competitors for buyers of models such as the $26,780
Ford Taurus and $30,545 Chrysler 300. Their aim is to lure a
broader base of customers and keep them loyal as the companies
target global sales records.

Mercedes’s push with the CLA helped the Daimler AG (DAI) unit
grab the lead in U.S. luxury-car deliveries in 2013, beating out
BMW and Toyota Motor Corp. (7203)’s Lexus for the first time in more
than a decade. Bayerische Motoren Werke AG (BMW) will introduce the
$33,025 2-Series coupe in the first quarter in its bid to lock
in new customers.

“Luxury has always been aspirational and once you’re part
of that, you tend to want to maintain that,” said Jeff Schuster, an analyst with LMC Automotive. “There tends to be
more loyalty with premium than non-premium brands. That’s
certainly a motivator to expand the lineup.”




Photographer: Krisztian Bocsi/Bloomberg

A customer looks at the front of a Mercedes-Benz CLA 180 Coupe automobile, produced by… Read More

A customer looks at the front of a Mercedes-Benz CLA 180 Coupe automobile, produced by Daimler AG, inside the Mercedes-Benz Gallery showroom in Berlin. Mercedes, Audi and BMW are only outsold by Volkswagen AG’s namesake brand in Germany. Close

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Photographer: Krisztian Bocsi/Bloomberg

A customer looks at the front of a Mercedes-Benz CLA 180 Coupe automobile, produced by Daimler AG, inside the Mercedes-Benz Gallery showroom in Berlin. Mercedes, Audi and BMW are only outsold by Volkswagen AG’s namesake brand in Germany.

Big Bang

Steve Berger, a 59-year-old from Massachusetts, never owned
a Mercedes before picking up a black CLA with a tan interior
earlier this month. He had previously considered Chevrolet and
Lincoln models, until he was awed by the styling.

“It hit me right away like ‘Bang!’,” said the television
ad salesman, who paid about $37,000 for his model after being
convinced by the handling. “It’s a bargain price for the car.”

The down-market shift replicates the German carmakers’
approach in their home market. Mercedes, Audi and BMW are only
outsold by Volkswagen AG (VOW)’s namesake brand in Germany as
affordable models such as the Mercedes A-Class hatchback and
Audi A1 subcompact, which aren’t offered in the U.S., broaden
their appeal to less-affluent buyers.

Upscale brands account for 31 percent of the German car
market, compared with 19 percent in the U.S., according to
consultancy IHS Automotive. Backed by expanded lineups, these
brands will probably grow 24 percent in the U.S. by 2018,
compared with a 6.7 percent gain for the total market.

A3 Mission

Getting a share of that growth is key as BMW, Mercedes and
Volkswagen’s Audi contend for the global lead in luxury-car
sales. BMW currently holds the top ranking, which Mercedes and
Audi have vowed to take by the end of the decade. Audi added a
sedan variant to the A3 line for the first time largely to catch
up in the U.S.

“In Europe, the A3 is massively conquering new
customers,” Audi sales chief Luca de Meo said. “This is the
mission for the A3 family in the U.S. market as well.”

In addition to showing the A3 sedan, Audi will debut a
compact crossover concept in Detroit. The two-door model, which
will have a sloping coupe-like roof, represents a potential new
entry-level sport-utility vehicle for the brand. Mercedes plans
to roll out the GLA, its cheapest SUV, in the U.S. later this
year. BMW already sells the $30,900 X1 crossover there, its
least expensive model in the market.

Smaller Trunk

Even if prices are coming down, buying an entry-level
German luxury car still means sacrifices. The CLA is about 16
inches shorter than the Chrysler 300 and has 7 liters less trunk
space than Ford’s Taurus.

The less-expensive models also have a potential downside
for the manufacturers. Offering vehicles far cheaper than cars
such as the $92,900 Mercedes S-Class and $80,200 Audi S7 risks
diluting an image based in part on being unattainable to the
average Joe. Defending that reputation is critical for high-end
models as the elite Maserati and Jaguar marques expand to
challenge the German manufacturers.

The cheaper Mercedes, BMW and Audi models are “bringing
the fight down to brands that not that long ago wouldn’t even
compare,” said Kevin Tynan, an analyst with Bloomberg
Industries. “I understand the need for volume, but you’re
killing the exclusivity. That just can’t be good.”

The CLA has front-wheel drive to save costs, while most
Mercedes vehicles have the power supplied to the rear wheels for
a more refined ride. That difference led Consumer Reports to not
recommend the car, saying the CLA “doesn’t deliver the driving
experience that its image leads you to expect.”

No Lexus

Lexus won’t follow its German competitors in offering cars
for less than $30,000, because the Toyota and Scion brands cover
that segment for the Japanese manufacturer, Jeff Bracken,
Lexus’s general manager, said in a December interview. The
upscale nameplate’s cheapest model is the $32,050 CT hybrid.

Mercedes dismisses concerns that more-affordable cars will
hurt its image. So far, 75 percent of CLA buyers are new to the
brand, and the lower prices are drawing people into the
showrooms where they notice models like the best-selling C-Class, which starts at $35,800, the company said.

Before the rollout, “I might have been worried about CLA
cannibalizing C-Class, but quite to the contrary, it fueled C-Class sales,” said Steve Cannon, head of Mercedes-Benz USA.
“Just because we’re moving to a new price point doesn’t mean
we’re diluting. It just means we’re opening up the brand.”

That may mean more lost customers for the likes of Ford and
General Motors Co. (GM) if CLA-buyer Berger is any indication. The
resident of suburban Boston, whose previous ride was a Subaru
Legacy, has no regrets about buying a bargain Mercedes.

“The fit, the materials, the way the car sets up — I
guarantee you, if you drive my car, there is no way you’d think
it was a $37,000 car,” he said.

To contact the reporters on this story:
Christoph Rauwald in Frankfurt at
crauwald@bloomberg.net;
Mark Clothier in Southfield, Michigan at
mclothier@bloomberg.net

To contact the editors responsible for this story:
Chad Thomas at
cthomas16@bloomberg.net;
Jamie Butters at
jbutters@bloomberg.net

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