Audi, Mercedes Seek to Lure Mainstream With Cheaper Cars – Bloomberg
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.”
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.
Audi’s sales rose 8.3 percent in 2013 to a record 1.58 million vehicles. In the past four years, the brand has boosted annual sales by more than 600,000. Mercedes also set an all-time high in deliveries last year.
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.
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.
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.”
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.