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.
