As sales rise, Germans go into overdrivePOSTED BY Nigel Andretti ON 16 April 2015
SALES of German luxury cars have never been better but questions are being raised whether the Teutons are pushing the envelope a bit too hard.
In the first three months of the year, Audi, BMW and Mercedes sold 1.3 million vehicles worldwide, 9 percent more than in the year-earlier period.
The teutonic bragging rights stayed with BMW. It sold almost 451,600 vehicles around the world in the first quarter, besting 438,200 at Audi and 429,600 for Daimler’s Mercedes-Benz. Records were broken all around.
Despite a rising tide of buyers, BMW, Mercedes and Audi seldom talk about raising prices and any chatter about keeping costs in line is usually tacked onto the very end of any corporate communication. Usually, they simply crow about performance metrics and volume gains. And each of the German- based luxury players appears dead-set on being the luxury leader in terms of units a Bloomber report said on Wednesday.
Massive sales gains, however, present some tricky terrain for a luxury brand. In addition to the pitch-perfect engine, and aspirational hood-badge, the appeal of a German-born luxury car, at least in part, is the prestige the air of exclusivity, like being an owner of the Green jacket from the Masters golf championship.
But that little cocktail of pride and prestige loses some of its intoxication every time one of these cars rolls out of a dealership.
“The issue in luxury is people don’t always want the No. 1 selling vehicle,” Lara Koslow, head of the Consumer and Customer Insight Center at Boston Consulting Group, told Bloomberg. “They don’t want to be one of many; they want to be one of few.”
To get numbers up, Audi, BMW and Mercedes have steered towards slightly less upmarket parts of town. Each of the automakers now has an entry-level model priced around US$30,000 (RM110,000) in the US. Daimler Chairman Dieter Zetsche calls them “conquest cars”.
So how do Germany’s car bosses deal with that potential stigma? Well lately, they’ve just made more varieties of car. In the past 10 years, the number of luxury model lines in the US has surged 26 percent to 90 in total, according to TrueCar, an online car-shopping platform.
That number doesn’t account for further variations such as different body styles or hybrid engines — BMW’s best-selling vehicle – the standard by which all luxury cars are measured – comes in 13 variations.
These cars are ubiquitous, but BMW has made sure each buyer still feels at least a little bit special. Meanwhile, it’s providing a slew of new price points. There’s no longer a US$10,000 gap between models where a potential buyer is liable to either walk away or buy the cheaper vehicle.
BMW’s rivals take a similar tack. Those in the market for a Mercedes SUV now have seven classes of vehicles to choose from not just seven vehicles. (For the record: G-class, GL-Class, GLA-Class, GLE Class, GLK-Class, M-Class and the R-Class.)
“These companies are doing a really good job with this,” said Bloomberg Intelligence analyst Kevin Tynan. “The shared stuff is usually all things the customer doesn’t see.”
By 2020, Mercedes will launch 30 models, including 11 all-new vehicles. It’s even promising a pick-up truck.
Audi, meanwhile, says it will expand its lineup from 52 models to 60 by 2020.
So far, the strategy is working. Operationally, it’s not a stretch — luxury cars share a lot of the same fixings. And the base – what car makers call a ‘platform’ can be used across a wide range of models, ensuring savings in both development and production costs.
Larry Dominique, executive vice president of industry solutions at TrueCar and a former executive at Infiniti, said the extra costs, on a per-car basis, are reasonable. “Volumes have gotten so large, at some of these companies that the denominator is a very big number,” Dominique said. “They can make the math work.”
German executives are playing a dangerous game though. There’s a burgeoning and by now pretty robust field of research that shows an expanding product range can have a cooling effect on business. Adding more options often wears down both a consumer’s willingness to buy and even their well-being.
“There’s absolutely diminishing returns at some point,” Dominique said. “Especially if some of these entry-level vehicles don’t stand up on quality.”
In short, shoppers, boggled by the SUV aisle at the Mercedes store may just Uber over to Cadillac where they will find utilities in just two sizes: regular and Escalade.
Cadillac is counting on just that. The brand’s marketing chief Uwe Ellinghaus said its biggest opportunity is “the ubiquity of the Germans.” Last year, drivers bought almost seven BMWs for every Cadillac.