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Business Driver: German brands seek greater share

Mercedes, BMW, Audi offer new models at lower prices

Published March 28, 2013

“It’s not affordable luxury. It’s affordable premium.”

That’s how Mercedes-Benz Canada President Tim Reuss pegs the automaker’s hipped-up, buzzed-out CLA-Class model — the German company’s latest salvo in its pursuit of brand expansion and image makeover.

Model Kate Upton’s CLA TV spot may have set men’s locker rooms on fire, but the one featuring Hollywood heavyweight Willem Dafoe is far more revealing. In the ad, Dafoe plays the devil attempting to buy a young man’s soul with the promise of the CLA, and the accompanying perks it brings. The guy ultimately rejects the offer. Why? Because the four-door sports sedan costs just $30,000.

OK, that’s what our southern neighbours will pay. Canadian prices have not yet been revealed — Reuss says it will be in the $33,000 to $34,000 range — but you get the point. When it comes to premium German brands these days, affordability is the name of the game.

In fact, the CLA won’t be the most cost-friendly Mercedes in Canada. The B-Class, priced at $29,900, has that locked already and is the most affordable of all German luxury models here.

Mercedes is not the only automaker widening the consumer circle. Over the past few years, both BMW and Audi have aggressively slashed prices and tweaked dealership incentives in search of greater market share.

As German automakers smash sales records in North America year after year, the competition is expected to toughen up — not just among premium brands but for American and Japanese mass-market brands as well. Particularly for the latter.

Audi’s least-expensive model, the A3 hatchback, clocks in at $34,100, and there are plans to launch a sedan version later this year. In fact, the Audi A4 costs much less than some versions of Ford’s Fusion.

Similarly, BMW’s 3-Series sedan hovers around $36,000 in Canada. At the Detroit auto show, BMW unveiled plans to launch a new version of the 3-Series that could slash prices by a few more grand.

For Reuss, however, lower price tags are just an added bonus. The overarching strategy, at least for his company, is to place itself in every possible segment available, without compromising the marque’s upscale image.

For instance, the CLA could fit between a compact and a midsize, aiming squarely for the driver who’s potentially in the market for a loaded Honda Accord or Ford Fusion.

“It’s about expanding within a segment. We want to carry our full brand values in these models and offer the premium option for that particular segment,” Reuss said in a recent phone interview.

Much has been made about Mercedes courting Gen Y appeal, particularly with the CLA lineup, but Reuss says the ads and media hype only reveal part of the story.

“We don’t necessarily want younger buyers. The main aim is to address and capture potential in markets where we haven’t been.”

Whatever the ultimate objectives may be, the strategic combo of affordability, smart segmentation and broader demographic appeal are definitely paying off. In Canada, the march of German luxury brands, even through the dismal recession years, has been quite spectacular.

BMW nearly doubled its sales from 16,598 vehicles in 2004 to more than 31,000 in 2012. Mercedes has done even better, nearly tripling its volume from about 12,000 in 2004 to 33,000-plus last year.

But the real standout has been Audi. In just four years, the brand went from 10,000 to 20,000 in 2012. Smart product planning, parent company Volkswagen’s cost-chomping modular platform strategy, and aggressive on-the-lot sales strategies are likely to further push Audi closer to its German counterparts.

But Reuss doesn’t see Audi as a threat. Rather, its competitor’s growth seems to reinforce his own strategic direction.

“All of us have grown tremendously. Audi’s growth is not coming at our expense,” Reuss says.

But there are some potential risks to the broadening base. Although Reuss insists Mercedes-Benz is not simply chasing “volume” and will never compromise its core quality, too many premium cars on the road could erode brand allure and exclusivity.

Moreover, affordability doesn’t always translate to higher sales. In Canada, the C-Class sells better than the B-Class. Similarly, the A4 wins hands down over the A3 in the Audi lineup.

How the Germans perform over the long term is anyone’s guess but it won’t be an easy ride for their competitors for sure.

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