I’ve been waiting for today. My esthetician, Veronica, finally got back from France visiting her relatives. To me, Veronica is not a luxury, she is a necessity.
While Veronica was working on my face I asked her about her trip. She talked about how conscientious the French were of the names on clothes and accessories. Veronica was riding in the car with her nine-year-old niece and her niece looked at Veronica’s purse and asked, “Who made that purse?” Veronica was shocked that a 9-year-old would know what a Prada purse looked like.
Perception is reality.
I asked her what she thought a luxury car would be? We ruled out the very expensive, handmade cars. Those cars we classified as opulent, not luxury..
I explained to Veronica that J.D. Power listed cars by category. They have a category called large premium and midsize premium. Those were the luxury brand cars that we knew: BMW, Mercedes, Jaguar, Cadillac, Lincoln, Lexus, Acura.
The luxury manufacturers with the largest marketshare (most sales) so far this year are BMW, Lexus, and Mercedes, in that order. Fourth would be Cadillac.
If you look at the large luxury cars that have the most marketshare they are Cadillac DTS, Lincoln Town Car, Mercedes S-Class, and Lexus LS-series.
I asked her if it would surprise her that the Cadillac DTS was the number one large premium car.
That didn’t surprise her. I could see Veronica’s hand sway above my face as she described the design and comfort of a Cadillac. It was as though she was remembering her childhood. Veronica’s father was a speechwriter for Richard Nixon. You could see him driving his big ole’ Cadillac, his daughter’s hand hanging out the back window, cutting through the stale dry wind. Life was good.
There is a perception that domestic car companies do large well. At first cynical glimpse, it would make sense. Americans are larger in girth than any other major car buying group, therefore American manufacturers know how to make luxury for their own.
Large luxury versus large affluent
Jeff Schuster, Executive Director of forecasting for JD Power said that was not the case, “The price point for domestic large luxury vehicles is below the spectrum when the buyer is considering which vehicle to buy. Audi A-8 and Mercedes-Benz S-Class are slightly different buyers”
When I talked to Veronica she confirmed this. “My father owned a Lincoln back then, but I rode in many Cadillacs. Howe’ver, when my family became quite affluent we switched to Mercedes. Both my Mother and Father owned Mercedes. Mercedes-Benz was a status symbol of affluence.”
The Cadillac DTS prices out at $46,000-$54,000. The Lincoln Town Car has about the price, from $46,000-$52,000. The Mercedes-Benz S-Class starts at $90,225 and goes up to $199,825. The Lexus LS-Series goes from $63,000-$106,000.
Midsize luxury cars
But what happens when you get into the midsize luxury vehicles? Are the American car companies still in the game? Not in the top three of the midsize luxury vehicle category, according to JD Power. This is where Veronica lost it.
I tell Veronica that the top three midsize luxury vehicles are BMW 5-Series, Lexus ES-Series, and the Mercedes-Benz E-Class. She nods in agreement that those are cars she would buy as well.
So I ask her what she would say if I told her that the fourth vehicle in the midsize luxury segment was the Hyundai Genesis? There was a silence and then it came out as a shriek, “I would be speechless!” Speechless it is, Veronica. It is true.
Midsize luxury vs. affluence
Does price point play the same importance in midsize luxury? The BMW 5-Series starts at $45,800-$60,400. The Lexus ES goes for $34,470. The Mercedes-Benz E-Class goes for $53,200-$88,500. The Hyundai Genesis goes from $32,000-$37000.
What is a luxury car?
There are no other luxury vehicles in the Hyundai segment. When you ask someone to name luxury car brands Hyundai isn’t in the top five. In fact, there are other midsize segments JD Power could have used to classify the Hyundai Genesis. No one would have batted an eye if the Hyundai Genesis were a midsize conventional car, competing with the Toyota Camry, Honda Accord or Nissan Altima. How did JD Powers decide that the Hyundai Genesis was a luxury vehicle?
Schuster gave me some insight into the process. “We look at the price point, content, features. Then we look at the brand, the brand position, and the image. Another deciding factor is the cross-shopping patterns and trade-in patterns. When someone buys a Hyundai Genesis what else were they looking at?”
Competition is tough in every segment. There have been brands that have tried to break out of the mold. FahrvergnÃ¼gen actually means driving pleasure in German. To Volkswagen buyers, though, it means the people’s car. When Volkswagen brought out the Phaeton Volkswagen buyers revolted. This established brand tried for a value play and lost. The Volkswagen group is still going after the luxury market, they’re just doing it with their Audi brand instead.
It’s interesting that Hyundai was able to quietly sneak into the midsize luxury segment and take the world by storm. While many people have found this incredulous, the buyers haven’t revolted as they did with the Phaeton. Many might see this as Hyundai expanding their business versus rebuilding their name, a phenomenon brought on by Chrysler and General Motors that has saturated the media market.
Schuster understands this, “The fact that Volkswagen and Hyundai have experimented or tested launching vehicles that stretch the natural boundaries of the brands demonstrates just how competitive the auto industry is. In addition, it also illustrates that the aspiration to become a premium brand is very strong. We expect the growth of the premium market to continue once the market is on the road to recovery.” Schuster also says that Hyundais execution was phenomenal.
“You don’t gain marketshare with a status quo strategy – competition will eat you alive! There is a risk/reward trade-off and timing and market conditions certainly can be factored in the success of breaking down boundaries. In addition, it also illustrates that the aspiration to become a premium brand is very strong. We (J.D. Powers) expect growth of the premium market to continue once the market is on the road to recovery.”
The road to recovery – now that is a necessity.