Are American Car Buyers Really Re-Thinking Luxury?

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The Chrysler 200 starts at $19,000. Can it really be called a luxury car? (Chrysler)

When Chrysler ran its 2011 Super Bowl ad for the Chrysler 200, all the attention was on the fact that the automaker spent $9 million on an unprecedented two-minute commercial that starred music legend Eminem. But there was a curious part of the ad's message many people missed.

The Chrysler 200 is pitched in the ad as being not only "Imported from Detroit," but also as "luxury." However, the 200's sticker price ranges from $19,000 to $27,000 for the convertible version. Such a low MSRP hardly seems like luxury.

But auto executives say the whole notion and definition of luxury has changed and continues to change as the country works its way through the economic hard times of the last few years.

General Motors' Buick brand has never been considered genuine luxury, but that is the way the company is pitching it these days. Ads for the Buick LaCrosse, for example, often compare the car to a Lexus. "Buick is a legitimate luxury car, and beats a Lexus ES350 on many features and performance, so we believe it absolutely is luxury people will appreciate as much for image as value," says Buick vice president of marketing Tony Disalle.

What is "True" Luxury?

Because some "mass-market" brands like Hyundai and Volkswagen have been introducing new cars that climb well above $40,000 and $50,000 price tags, and some luxury brands like Audi and Mercedes-Benz have slid down the price ladder to what is now Buick territory, the lines of "true" luxury seem to have blurred.

"The luxury car is the one someone attending a country club doesn't have to explain," says marketing consultant Dennis Keene.

But with country club memberships way down in the last three years, is that even a good yardstick?

Industry consultants and marketing experts point to a generation gap the "near luxury" brands like Chrysler, Buick and even Hyundai are trying to exploit. "When baby boomers came of age and money, they rejected their parents' luxury brands like Cadillac, Lincoln and Buick," says industry consultant Cameron McNaughton of AutoPerspectives.com. "You have a new generation of buyers that over the next decade will move into the luxury segment and while they are aware of Mercedes, BMW and Lexus they think of them as their 'parent's cars,' not necessarily a fatal flaw, but they are certainly not perceived as being that special," says McNaughton.

When Lexus's top selling sedan, the ES350, has a starting price of $36,000, and a Buick has a comparably priced, better styled and comparably or better equipped LaCrosse for $33,000, who is to say which is the true luxury car? Additionally, says McNaughton, "A lot of people entering the luxury car category are also going through their first real recession and they are going to define 'value' a little differently and want to demonstrate it."

Chrysler vs. BMW vs. Cadillac

Charles Kelly, a 38-year old digital advertising executive in Leonia, NJ is one such car shopper looking through a different lens. His company did well last year, even in the difficult economy, and he wants to spend some of his bonus trading up to a better set of wheels. "I had Jeep, and now I'm looking for a nice looking sedan." What's on his shopping list? It's a surprising mix: a BMW 5 Series, Chrysler 300C and Cadillac CTS. "The BMW 5 is the most expensive, but will hold its value better than the other two, but I'm looking at the Chrysler and Caddy seriously because I like the styling and they are considerably less expensive." The image factor? "All three are great looking cars and perform well, and that's all I really care about," says Kelly.

One of the ingredients to establishing true luxury credentials for a brand whose prices start at or below $30,000, which is the case with Lexus and Buick, is a "halo" vehicle. "It's easier for a $30,000 Lexus, for example, to have credibility and cachet with the wealthier consumers as true luxury when the top of the brand, the LS400, is over $70,000. Even Lexus, the number-one luxury car brand in the U.S. based on sales, though, has seen the gap between its prestige and that of Mercedes-Benz. And maybe it is feeling the hot breath of brands like Hyundai and Buick on its rear fenders, which is perhaps why the Japanese brand is launching the $375,000 Lexus LFA super-luxury car at the end of this year to boost its luxury credentials.

"That's pretty 'old school' thinking," says Ford global marketing chief James Farley, who ran the Lexus brand for Toyota before coming to Ford in 2007. Farley is trying to revive the Lincoln brand for Ford, since the company sold off Jaguar, Land Rover, Volvo and Aston Martin. Lincoln will introduce a new car priced below $30,000, but Farley says he is not interested in an expensive halo car such as a rear-drive sports car priced above $80,000. "I don't believe people buying cars below $50,000 care one way or the other if you have a six-figure super car in the showroom...this is a different time than it was," says Farley.

VW and Hyundai "Movin on Up?"

In 2004, Volkswagen, which literally translated means "the people's car" tried to go way up the price ladder and launched the Phaeton luxury sedan, which carried a sticker of $85,000 and legitimately rivaled a Lexus LS400 or Mercedes S Class, for features and comfort. But it is widely considered a marketing and business fiasco. VW also sells a Touareg SUV that can cost over $60,000. "It is relatively easy for a luxury brand with true up-market cred to introduce lower priced models, but it is devilishly hard for brands whose popularity is at the low end of the market to reach up that far," says consultant Keene.

Now, Hyundai is pursuing a similar strategy, though it has enjoyed better success than Volkswagen in some ways. The Hyundai Genesis was modeled after the BMW 5 Series, and is the Korean automaker's attempt to move the Hyundai brand up market so that it can cover every kind of buyer. It sold 22,000 of the $33,000-plus sedans last year in the U.S., about four years worth of VW Phaeton's global sales. This year, the company raised the bar higher by introducing the $58,000 Equus sedan.

Swedish automaker Volvo, which was acquired by Chinese automaker Geely last year, has never quite been considered a luxury car. In Europe, as well as the U.S. it has been more akin to Buick or Chrysler -- premium, but not luxury. But Volvo CEO Stefan Jacoby, who went to Volvo last year from a post running Volkswagen in North America, says he is leading Volvo "to a true luxury brand positioning."

Jacoby says the cars will be more luxury focused in design and features. "At the same time, though, I absolutely believe and see that the idea of luxury is changing with a new generation and that we can appeal to those who don't want to be so flashy or extroverted in showing their wealth...I think there is a quieter luxury customer that is growing in number."

Buick, Chrysler, Volvo and Hyundai will always be tough sells on Wall Street where Goldman Sachs bonuses are back in full force. That's money that sends traders and partners to the Mercedes and Aston Martin dealers. But the fact is there are fewer members in the fat-wallet brigade than there was before the financial meltdown of 2008. Unemployment remains high, as does the number of people who just aren't looking for work any more.

To a lot of people who are redefining their lives with less money than they used to have, a $30,000 Buick that drives and feels like a much more expensive Lexus or Mercedes is going to feel like luxury enough.

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Are Green Car Buyers Shallow?

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The 2011 Honda CR-Z was developed with a strong emphasis on the car's styling (Honda).

Don’t judge a book by its cover.

As children we’re told time and again that storied clich? which urges us to withhold judgment and look beneath the surface to find the true essence and value of something. But do we take it to heart? Those likely to buy electric vehicles certainly don’t.

According to a study by CNW Research, electric vehicle shoppers value distinctive styling in their green machines, even more than improved fuel efficiency and reducing carbon emissions.

The study of 6,000 responses from mass-market vehicle intenders was collected during April and May. It found that of the myriad reasons those surveyed would purchase an electric vehicle, a vehicle’s distinctive styling was the most important. With 52.33% of respondents claiming to value it the most, styling beat out lower emissions (39.68%), higher fuel economy (21.66%) and “makes a statement about me” (36.11%) to present an interesting profile of the typical “green” driver: Someone who bought his or her vehicle primarily because they thought it looked good.

Of course, the styling of a particular vehicle ranks among the most important aspects for consumers of conventional internal combustion engine cars. There is an important difference, however. “While likely EV buyers are looking for cutting edge design, conventional-vehicle buyers want ‘nice’ but not over the top,” said CNW.

Along with the vehicle’s exterior appearance, study respondents valued the styling of the car’s interior as well. “Overall Interior Appearance” was almost 25 points higher for electric vehicle intenders.

Why The Prius Worked 

The results of the CNW study can be seen in the huge success of the Toyota Prius over the past decade. The Prius hit the market with innovative new looks. Buyers shopping for a hybrid ate it up and the small sedan became so closely associated with the word hybrid, that it nearly became a generic term like Kleenex.

Hybrid efforts by other automakers, like Honda and Ford, lagged behind, as their strategy with vehicles like the Honda Civic Hybrid and Ford Escape Hybrid did not include distinctive styling. Looking identical to their gas-powered brethren, with merely a hybrid logo to distinguish the green models, these models did not allow their owners to make much of a statement.

The Prius, by contrast, was a stand-alone model that bears no resemblance to any other Toyota product. After also experimenting with hybridized versions of standard, internal-combustion-engine products, including vehicles from its luxury brand Lexus, Toyota recently launched its first stand-alone hybrid Lexus with the 2010 HS 250h.

According to CNW, styling also proved to be a major setback in Honda’s attempt at a performance-minded green vehicle in the Accord Hybrid. Sitting at the top of the Accord line, the Hybrid was the most powerful version of the best-selling sedan. Yet consumers did not bite, in part because the Accord did not have the innovative styling to match its high-tech powertrain. Honda discontinued the Accord Hybrid in 2007 after just three model years.

Stylish Developments

It seems as though the automakers, especially Honda, now have a better idea of what consumers want from a green product. For instance, the 2011 CR-Z, Honda’s new sporty hybrid, was developed with the utmost emphasis on styling, both inside and out.

“We wanted to bring something new to the marketplace and break out from the rest of the hybrid vehicles out there,” said Will Walton, a product-planning manager at Honda.

Walton said that Honda is targeting consumers that place a large amount of their consideration on the looks of a vehicle, so it knew it needed something that would really catch the eye, even before people realized the CR-Z was a hybrid car.

“The design can appeal to those seeking a hybrid or those who just want a stylish car. Design will be a key area of differentiation,” Walton said.

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Car Buyers Rank Entertainment Over Safety

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2010 Honda Odyssey Rear Entertainment System. Honda©

It's the great high-tech showdown: As new technology floods into vehicles, consumers are starting to favor infotainment over safety features in their cars for the first time in recent memory.

Buyers now say they are more likely to spring for features like navigation and high-end audio than for safety-related services like tire-pressure monitoring or collision mitigation, according to the market research firm J.D. Power & Associates. Just a few years ago, safety options reigned supreme.

At some level, consumers must feel they are getting more value from infotainment.

"We started seeing the change about three years ago," said Mike Marshall, director of automotive emerging technologies at J.D. Power and Associates. "The trend was stronger than ever this year."

Sound systems are moving up the list that blind spot detection, rear-view cameras and adaptive headlight systems once dominated, he said.

Sign Of The Times

Many young buyers are driving the trend: A good number of the features are becoming less expensive and more likely to be available in moderately priced vehicles that new buyers can afford. But Marshall said it's basically consumer tastes -- not prices -- that are responsible for the change.

The shift is moderate so far. No one is expecting the market for features like parallel parking aids or active braking assists -- which help slow the vehicle in an emergency -- to disappear, especially from luxury cars. But even small shifts in consumer tastes can be important to an industry struggling to zero on its customers.

Auto suppliers and manufacturers bet billions on projections of the demand for their innovations. In a way, consumers are betting even more, as it's hard to put a value on the life saved when a feature like electronic stability control kicks into action and prevents a dangerous skid or rollover.

Costs Of Some Tech Features Are Dropping

If you had to pick just one epicenter of the innovation, Robert Bosch GmbH in Stuttgart, Germany, would certainly be a candidate. It's a source for everything from clean diesels and turbocharging, to navigation systems and emergency braking aids.

Some of Bosch's on-board technologies, such as a navigation system on the Nissan Juke and Rogue, Sentra and Versa, seem perfectly suited to the infotainment trend. Known as Nissan Connect, the low-cost navigation was first used on the Japanese brand's models sold in Europe. It's available in the U.S. for a few hundred dollars.

Initially, U.S. consumers were lukewarm about built-in navigation -- no doubt due to prices as high as $2,000. But now their popularity is growing, said Mark Peters, a director of engineering in Bosch's car multimedia division. "Once people have navigation, once they drive with it, they say they won't have another car without it," he said.

J.D. Power's survey approach makes it possible to tease out how willing consumers really were to spend their money on infotainment versus other, competing features. Researchers first ask respondents whether they are interested in a particular technology without telling them the pric, and then they reveal the price when they ask the question a second time. That answer is much closer to the consumer's buying intention.

Stereos Are Tops

In this year's study, premium sound systems tended to score ahead of adaptive headlights and rear vision camera systems. In a similar 2009 J.D. Power survey, 77 percent of the survey respondents initially said they were "definitely interested" in blind spot detection. But the percentage declined to 14 percent when they were told how much the safety innovation cost, an average of $1,600 at the time.

According to that study, less than 10 percent of those surveyed were "definitely interested" in advanced adaptive cruise control at an average price of $1,500. Adaptive cruise control helps drivers maintain a safe following distance and reduces the risk of collisions. But twice as many consumers in the survey were interested in on-board navigation systems at a similar price. Once the researchers put a price tag on infotainment options, consumer interest fell off, too, but not as steeply as it did for safety features.

That's a big change from just several years ago. In 2005, safety figures almost universally ranked higher on customer wish lists, according to Bandon-Ore.-based CNW Marketing Research. Back then, innovations such as run-flat tires and adaptive cruise control did better than MP3 players and satellite radio on consumer wish lists.

Are the auto industry and consumers going to see this trend continue? "That's looking into a crystal ball, but my opinion is that they will," Marshall said.

One tidbit from latest J.D. Power survey seems to bear that out: Nearly 40 percent of the smart phone owners in the survey said they wanted on-board systems that could read their emails to them through the car's stereo speakers. Still another change has occurred in the last few years: Today many of the innovations are extensions of smart phones and other consumer electronics and start out reasonably priced as a result.

In the past, navigation and audio systems made their way into luxury cars first and then gradually reached the mainstream. Prices started high and then declined along the way. "With these lower cost systems, you are actually seeing a shift," said Peters. "Some of these have not been introduced on high-end vehicles first."

From Optional To Mandatory

In the end, consumers might not get a choice on a few of the latest advances. U.S. regulators may impose them as part of fuel-economy and safety policies. One example is the requirement for electronic stability control in all cars by 2012.

Start-stop could soon follow suit. This system shuts down the engine automatically when a vehicle comes to a stop and starts it again when the driver takes pressure off the brake. It cuts fuel consumption and emissions, especially in congested urban driving.

Bosch introduced its current version of the system in 2007, and European automakers have put it on everything from the tiny Mini to the mighty Porsche Panamera Coupe. The German supplier delivered 1 million units worldwide last year. Frank Frister, a product manager with Bosch Start/Stop Systems, expects U.S. carmakers to be able to adapt their automatic transmissions to it quickly.

With the rising a Corporate Average Fuel Economy (CAFE) standards coming out of Washington, they may have no choice, he said. "A CAFE goal of 35.5 by 2016 is really an aggressive target for most OEMs," said Frister. "They will be trying to get all the fuel-saving technology they can onto the cars."

In early October, U.S. officials floated up to 62 mpg as a possible goal for 2025, either upping the ante or turning the screws, depending on one's point of view. In the future, U.S. automakers can only hope that the innovations just keep on coming -- and not just in infotainment.

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