FEATURE
A Whole New Ballgame
By JAY PALMER
Special Section on Luxury Autos: A look at the most exciting high-end debuts -- and how they fit into a changing driving landscape.
WHAT DO LUXURY-CAR buyers want? At one time, many of them, in a moment of candor, might have answered: "a fast, flashy automobile that shouts that I'm richer, better and cleverer than most people and not reluctant to flaunt my good fortune." Those days, however, are as dead as the tech, Internet and housing bubbles or the quaint belief that pension plans and 401(k)s offer rock-solid assurance of a comfortable retirement.
Cars such as the Jaguar XJ, embody today's version of luxury. But tomorrow's vision may be different.
In the past, says Hans-Dieter Futschik, the director of passenger-car and exterior design at Mercedes-Benz headquarters in Stuttgart, Germany, the concept of luxury largely was centered on impressing "the neighbor and the kids down the street. Now, it's much more about impressing yourself."
This change, fed by both the global recession and social and environmental concerns, has led some buyers to select lower-cost, higher-mileage vehicles in place of the powerful, ultra-costly cars and light trucks that they formerly favored. Think of how many times Hollywood stars are now shown pulling up to movie premieres in Toyota Prius hybrids, even if a Porsche Carrera Turbo or Corvette ZR1 is tucked inside the six-car garage at home.
In short, ostentatious displays of wealth in the form of 500-horsepower, gas-guzzling sedans are increasingly frowned upon, especially in Europe, where new taxes on motorists penalize big and heavy vehicles. True, there always will be willing buyers for traditional luxury models -- you will see many on them on the pages of this section -- but the trend is clear. "The high end is not always different from the mass market," observes Jae Min, Audi's chief designer in California. "Certainly safety, performance and all those others things are still a factor. But buyers' standards are changing, and customers are getting more intelligent. They have become much more aware of the impact of their decision and where everything leads."
Consumers' shifting tastes pose a big challenge for makers of top-end cars. Long envied for generating high profit margins, manufacturers such as BMW, Audi and Mercedes in Europe, Lexus, Infiniti and Acura in Japan, and Lincoln and Cadillac in the U.S., are having to come to terms with the grim realities of a sales slump like no other since the Great Depression.
In 2008, U.S. sales of luxury cars, once considered relatively resistant to recession, fell almost 21% from the 2007 level -- versus an 18% decline in overall light-vehicle sales. They were down another 32% in this year's first eight months, and aren't likely to begin recovering until 2010 at the earliest.
BMW, the world's largest luxury-vehicle producer, posted a 24.2% drop in U.S. sales of cars and light trucks in 2009's first nine months. In the same stretch, Daimler-Benz's Mercedes unit suffered a 23.6% decline, Lexus was off 26.8%, and Cadillac, battered by General Motors' bankruptcy filing, temporary plant closings and difficulty arranging leasing for its customers, was down an awful 43.6%.
The downturn has forced difficult decisions. "All of the luxury producers are canceling product-development programs, cutting capital spending, cutting marketing spending and ultimately cutting head count," says Maryann Keller, an auto-industry consultant. "Yet if they are to remain players in this up-market segment, they must also continue creating new models that will not roll off the production lines for at least three or four years."
If they get it wrong, as Volkswagen did in 2003 with its Phaeton, which was priced like a top-line Mercedes even though it bore the humble VW pedigree, they may end up producing vehicles that no one wants without a huge discount. If they get it right, as Lexus did with its RX in 1998, they can create a new category, in this case the large luxury crossover.
A key part of the new strategy is a renewed emphasis on entry-level buyers. Over the past decade, most auto makers have come out with smaller, less-expensive models, aimed at younger, less affluent shoppers, without tarnishing the appeal of their more expensive vehicles.
MERCEDES HAS ITS SMALL A and B-class in Europe and C-class in the U.S. BMW launched its 1 Series; Audi, its A3. Lincoln came out with its $36,000 MKZ while Cadillac has a similarly priced SRX crossover and plans to introduce a car below its CTS in the U.S. In Europe, small cars are now the largest part of the premium segment. At the same time, new threats loom from below. Korea's Hyundai, best-known for inexpensive transportation, has had success with its near-luxury Genesis model and plans to start selling a full-blown luxury sedan in the U.S. soon.
Even so, the established luxury-vehicle companies still have most of their offerings in the $50,000-to-$100,000 range, where demand remains weak and competition is very strong. Sports car maker Porsche, for example, has just launched a $90,000 four-door sedan -- that isn't a misprint -- the Panamera, priced to compete with BMW's 7 series and Mercedes S class. And Jaguar has just introduced the $72,500 XJ.
And, if they are to remain viable, they have to anticipate what the high-end buyers will want down the road.
At Mercedes, Futschik says, the company's development process is grounded in the concept of "Ideal" -- an acronym for "impressive, dynamic, elegant, advanced and lasting." Such phrases sound great, but ultimately, like pornography, luxury is impossible to define but easy for an individual to recognize. In the end, it's that personal extra something that you've craved and now feel you can finally afford.
A true luxury vehicle, of course, will always have sumptuous appointments, the newest safety features and high-tech gadgets. And, increasingly, it must have a state-of-the-art power train.
Though not all wealthy car buyers view global warming as a fact, and many aren't overly concerned about gasoline prices, few want to be viewed as callous polluters. And governments are moving toward slapping fat taxes on large carbon-emitting vehicles.
That has led to improvements in conventional gasoline engines, more of which now feature direct fuel injection, variable valve timing and turbocharging. It's also given impetus to alternative powerplants, even though cars featuring diesels or hybrid or electric motors cost more than gasoline-powered vehicles.
Diesels, long popular in Europe, are becoming more common in the U.S. -- and they are very different from those of the 1980s and 1990s, which belched black smoke and sounded like an 18-wheeler trying to climb a steep hill. Today's diesels are engineered to take advantage of new ultra-low-sulfur fuel to meet emissions standards. They are as quiet as a gasoline engine, deliver much the same acceleration and offer 15%-25% better mileage. Best of all, at least for now, diesel fuel doesn't cost any more than premium gasoline in most states. Historically, it has been priced much higher because more petroleum is needed to make a gallon of diesel fuel than an equivalent amount of gasoline.
Mercedes offers diesels in some of the biggest models it sells in the U.S., including the R-class crossover, and the M- and GL-Class SUVs. BMW's diesel models include the 335D sedan and two SUVs. Audi offers a diesel in its Q7 sport-utility and will add a diesel A3 wagon late this year. And more diesels are coming from these and other manufacturers.
ON THE HYBRID FRONT, Lexus has just introduced the $34,200 HS 250h, the first of the marque's hybrids really geared more for economy than for performance. Based on the Prius, it delivers a very high-tech package rated at 35 miles per gallon in the city and 34 on the highway.
Mercedes already sells the $87,950 S400, a hybrid version of its top-of-the-line sedan, and may introduce a diesel-hybrid version. And BMW plans to introduce its first hybrid in the U.S. by early 2010.
But the most powerful coming trend might be the introduction of luxury cars powered mainly by electric motors. These were the rage of the recent Frankfurt auto show. Almost all the European luxe manufacturers have electrics in the works, as do the Japanese, and Lincoln and Cadillac in the U.S. In fact, it's likely that a Caddy version of the Chevrolet Volt will be introduced by 2011 or 2012.
How far can the trend toward electrics go? Well, Rolls-Royce has said that it is considering an electric version of its $350,000 Phantom. Wonder whether its ads will read: "At 60 miles an hour, the loudest noise in this new Rolls Royce comes from the faint hum of its electric motor."
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