Luxury cars are typically meant to symbolize prestige,
wealth, and even excess, but sometimes they can come
pretty cheap. Every so often premium automakers push
out cars with starting prices well below the market
average. While many consumers see a car as a largely
rational purchase, a means of transportation, perhaps
a tool for work, and maybe a way to have some fun,
luxury buyers are generally willing to pay for a few
extras a person may not exactly need.
Buttery leather seats, real wood dash panels, and
premium sound systems.
However, in their quest for ever greater volumes, some
premium automakers are trying to see if they can get a
few more buyers down at the lower end of the price
range. While there are some advantages to going down
market, there are also some perils.
Sometimes it doesn't work out.
The average new car price in the United States in 2019
was around $33,600 including incentives and dealer
discounts, according to J.D.
Power. That is for all cars, not just luxury.
About 40% of all premium vehicles sold in the US cost
less than $40,000, according to J.D.
Power. BMW, Audi Mercedes, the three largest luxury
brands by volume in the United States, are some of the
biggest sellers of luxury vehicles at any price,
including the lower end.
One very notable example of a luxury car at the lower
end of the price range came from BMW in 1994, the BMW
3 series compact, officially known as the BMW 318ti.
The car was BMW's mid-1990's shot at widening its
highly successful 3 Series range of sports sedans,
which the company had debuted in 1975.
But the three door hatchback sold poorly in the United
States and was discontinued in North America after
just four years on the market.
It enjoyed more success elsewhere in the world though,
and stayed in production through 2004.
A few years after the 318ti, Mercedes-Benz also tried
its hand at selling a cheaper model for the masses.
The Mercedes C-Class Sport Coupe or SportCoupé was a
three door hatchback or lift back car sold in the US
beginning in 2001.
The SportCoupé had a starting price at the time of
$25,575. A pretty low price for a Mercedes.
For a few thousand, more buyers could opt for a bigger
engine and some other features.
However, at least in its basic form, the car lacked
many of the basic elements buyers would expect in a
Mercedes such as leather seats and a CD player.
The SportCoupé failed to make a sustained impression
with customers, and eventually went the way of the BMW
318ti. The model was eventually discontinued in the
US. However, the Germans aren't the only ones who try
their hand at selling a cheaper car that can appeal to
a different kind of buyer.
Jaguar, while under the ownership of the Ford Motor
Company, also tried reaching out to less well-heeled
customers with the X-Type, a mid-sized sedan.
It started at $30,000.
The car sharing underpinnings with a Ford model sold
in Europe called the Mondeo.
It was not considered a bad car, reviewers simply
didn't feel it was good enough to be a Jaguar.
And again, sales were lackluster.
Ford would eventually sell the entire Jaguar brand to
India's Tata Motors.
The automotive arm of the Tata conglomerate.
Despite failures, luxury automakers have continued to
see the promise in dipping into the mainstream market.
Mercedes Benz released these CLA in the U.S.
for the 2014 model year.
It was basically a sporty compact sedan with a
starting price of just under $30,000.
To save money, Mercedes built the CLA on a chassis
shared with another model and assembled the car in low
cost Hungary.
But some reviewers at the time commented that the car
lacked the rich feel of other Mercedes-Benz models.
A reviewer at car blog Jalopnik said the CLA is an
economy car dressed in a fancy suit, but underneath
the dapper garb lies a compromised Benz.
This doesn't mean it was a bad car.
Reviewers still complimented the CLA's outer design
and interiors and said the car drove well, but the
$29,900 dollars starting price did not last, the CLA
250 now slots in at a starting price of around $36,650
as of 2020.
Mercedes-Benz cheapest car in the US is now the
A-class sedan, which starts at around $32,800.
That is nearly $10,000 cheaper than the next larger
class of sedans, the C-Class, which start at around
$41,400. Mercedes still considers the CLA an entry into
the brand, it is just that the newer CLA offers a bit
more than the A-class and a lot more than the original
CLA, which was regarded as pretty barebones for a
Mercedes at the sub $30,000 starting price.
Auto industry insiders note that BMW and Mercedes
brands don't really have mass market brands like many
of their competitors.
So if they want to increase volume, they have little
choice other than offering a wide range of products
under the same brand.
This does offer customers a wide array of options,
which helps the brands cover a broader slice of the
market. Throughout much of their history, both German
automakers specialized in selling top shelf versions
of traditional passenger cars that boasted luxury and
high performance. But since the 1990s, U.S.
consumers have increasingly sought out sport
utilities, and Mercedes-Benz and BMW have responded.
The largest portion of each brand's sales growth in
the US in recent years has come from SUVs.
But both companies have sold cheaper cars in part
because they give each brand a chance to attract new
buyers, especially younger ones who might not yet have
the cash for one of the classic mid or full sized
models. If you have as a what if example, if you have
somebody buy one at 25 even if their next car isn't
necessarily an Audi or Mercedes, maybe they come back
a little bit later on. If you can catch somebody that
young and get them interested into your brand, it
maybe later in their life that they come back, but you
still have a better opportunity of getting them to
come back. It's easier sometimes than to get them in
fresh. Mercedes told CNBC that 70% of CLA buyers come
from other brands and the majority of those are coming
from non-luxury brands.
On average, these customers are eleven years younger
than the typical Mercedes Benz buyer 54% of A-class
buyers in 2019 came from other brands as well.
And those customers most frequently had owned Toyotas,
Hondas, and Lexus vehicles prior to switching over,
Mercedes said. Some industry observers are skeptical
that luxury brands are going to be able to convert a
considerable share of the market by simply offering a
lower priced vehicle when so many of their other
models are going to be simply out of reach for many
customers. But Mercedes told CNBC that two thirds of
CLA buyers have gone on to buy another Mercedes-Benz
vehicle. There is another risk to all this, of course.
Industry observers warn that as with fashion or
similar industries, high end brands risk diluting or
losing the exclusivity associated with their names if
they go too far downmarket or simply become too
common. Brand power is always important and yes, there
can be a point where you saturate your own market and
you then start to feel a little bit run of the mill
and that's a risk.
And I think that for the most part BMW and Mercedes
have defended it pretty well.
In the days of the C230, Mercedes did take some
criticism for broader quality issues that industry
watchers said threatened the brand's premium
reputation. Mercedes told CNBC that it doesn't think
the mere existence of more affordable models will
devalue the brand and that customers can see the
difference between a $33,000 A-class and a $94,000
S-Class. Mercedes is actually doubling or even
tripling down on its strategy, you could say.
The three pointed star has an SUV counterpart to the
CLA called the GLA.
It also released an all new model, the GLB in 2019.
Mercedes hopes these new entry models will continue to
draw new buyers into the brand.
Over the last 20 years, the range of models available
from companies such as BMW, Mercedes, and others has
widened in many ways, not just in terms of price.
In 1999, for example, BMW sold six lines of models the
3 Series, 5 Series, and 7 Series sedans.
The Z Line of Roadsters.
And for the first year in history, BMW's new sport
utility vehicle, the X5.
It also made high-performance versions of its 3 and 5
series sedans.
The M3 and M5.
As of March 2020, BMW's USA lineup consisted of a 2,
3, 4, 5, 7, and 8 series of sedans and coupes, a full
X Line of sport activity vehicles ranging from the X1
to the X7, the Z4 Roadster, the electrified i3 and i8
models and BMW's high performance M batched line.
It is much the same for Mercedes.
Audi likewise has a pretty robust selection of
vehicles in many different forms and for many
different prices. The luxury brands were trying to
grow their volumes so aggressively right?
They came out with cheaper vehicles when the times
were a bit tighter, smaller vehicles that cost less.
Now they're coming out with SUVs, but also swooped
backed more SUVs that are kind of more coupe like.
And I think the problem is that there's so many now.
And whenever there's too many of anything, I feel like
it devalues the brand.
I mean, that's true with just about anything in life
right? Regardless of the risks, carmakers do need to
sell lots of cars.
All of them have to make massive investments in
technologies and businesses that are unlikely to bring
any profit in the near future.
Survival is a numbers game.