Tesla’s star boss Elon Musk is set to reveal on Thursday a change to the company’s lineup — computer-controlled steering? all-wheel drive? a truck? — but this shift toward affordability could prove to be the most momentous change in the eyes of American drivers.
Tesla will join a growing pack of niche and luxury auto icons now squeezing their entry costs in hopes of winning over a new market of middle-class buyers. Audi, BMW and Mercedes-Benz have all slashed sticker prices and re-energized marketing in hopes of boosting sales and bumping away the competition, including Tesla.
But on their drive downward, they’re increasingly nudging into a surprising competition: mainstream automakers. Value brands like Ford and Honda are actually bumping prices up and adding more luxury features in hopes of capturing more driver dollars — and securing a new generation of loyal lifetime buyers.
“There’s going to be a new battleground where you’ve got luxury [car] makes moving downmarket a bit, and the low-end makes moving up,” said Steve Cannon, the chief executive of the U.S. division of German luxury giant Mercedes-Benz.
“We’re all going to be fighting over the coming years for our share of the Gen Y buyer. It’s going to be the primary buying demographic for the next 20 years. … If our access point is $60,000, we may not see these kids in 10 years. And by that point it may be too late.”
German luxury brand BMW now sells its entry-level coupe, the 2 Series, for about $32,000. And Audi lists its A3 at $29,900, which has helped the German automaker sell nearly 15,000 of the make this year, more than it sold between the years of 2010 and 2013 combined.
Mercedes-Benz paid for a star-studded Super Bowl ad this year to showcase its new $29,990 CLA-Class, a compact sedan some dubbed the “Baby Benz.”
More than 30,000 have sold in the last year, making it one of the best-selling cars in its lineup, the automaker said. And the firm’s “conquest rate,” an industry measure of new buyers, shows about 75 percent have been sold to drivers who had never bought a luxury brand.
But perhaps most interesting for Mercedes in the long term, executives said, is their new buyers’ age: More than half of the CLA-Class’ buyers are from either Generation X or Y, and the median age of buyers was 47, compared with 55 for the rest of its makes.
That’s important, because attracting buyers when they’re young is the first step to winning their business, and loyalty, for life.
“We are a luxury-biased country. We love little luxuries, big or small, and we’re going to break off whatever piece of luxury we can fit in our pocketbooks,” said Cannon, the Mercedes head. “So if I can stand toe-to-toe with a mass brand? I like our chances.”
Meanwhile, mainstream brands have been attempting to keep that loyalty. Formerly entry-level cars like the Honda Civic are evolving and gaining new premium makes (and being replaced, at the starter level, by even more compact cars, like the Honda Fit). And legacy brands are being upgraded with luxury features like lane-keeping assist warnings, rear-view cameras, radar cruise control, leather interiors, heated and cooled seats.
That has helped those value brands’ average transaction prices climb in recent years, a Kelley Blue Book analysis of data for The Washington Post show. A Ford Fusion that rolled off the lot for about $24,000 in 2011 now averages just under $26,000.
“The person who bought an Accord 20 years ago was in their late 20s, with a certain budget and a certain expectation of luxury. Now those Accord buyers are more wealthy and expect more luxury and even more refined vehicles, and Honda is happy to supply that,” Kelly Blue Book senior analyst Karl Brauer said.
“What have always been mainstream volume brands are essentially saying, ‘We’ll keep adding features and we don’t care what it does to price. Instead of losing them to a luxury nameplate, we’ll keep them, and they’ll pony up the extra money,’ ” Brauer said. “The luxury brands, they’re saying, ‘Fine. You’re coming into our territory, we’re coming into yours. If you’ve got midsize buyers ready to pay $30,000 or more for a Honda badge, we’re going to say what about a Mercedes or Audi badge for the same price?’ ”
Even the highest-end automakers have slashed their sticker prices with the aims of attracting new buyers. English luxury maker Aston Martin this year debuted an “accessible race car,” the V8 Vantage GT, its first car selling below $100,000 (and a third the price of its $300,000 Vanquish Volante).
Maserati, the Italian luxury dealer, last year debuted its Ghibli sedan now selling for $66,900, less than half what buyers would pay for the company’s sporty GranTurismo — a price that, as the company’s North America chief executive Peter Grady told the Los Angeles Times, “will bring in customers who may not see themselves in a Maserati.”
The once-niche automaker, which wants to boost its global sales from 6,200 in 2012 to 50,000 next year, aired a cinematic Super Bowl ad this year to tap a new audience and fight back at the competition. (Its ending slogan: “We have prepared. Now we strike.”)
Luxury makers hoping to hook mainstream buyers have faced criticism from their upscale clientele and market watchers, who worry the price cuts could cannibalize sales of their other makes or dilute their high-end brands. But Cannon, the Mercedes head, said the bigger “existential threat” is clinging to prestige while losing out on a torrent of buyers, like millennials, the largest generation in American history.
“It’s about getting on their radar screens, because if they don’t know it’s attainable at that price point, they’ll never walk in the door,” he said. “You’re risking irrelevance if you don’t make that move. … If you’re not refreshing your demographics with new buyers, there are plenty of older brands out there who will.”