Lexus is still aiming to take the throne of the U.S. luxury automobile market, a position that it forfeited in 2011. But it’s aiming to do so without a weapon in its arsenal that for its competition has proven to be very valuable: a car at or under $30,000.
Historically, when one thinks of nameplates like Audi, BMW, or Mercedes-Benz, it often conjures imagery of large luxo-barges that boast a city block-sized footprint, a hot tub, and a helicopter pad. Though that may be exaggerating just slightly, the point is this: Luxury has long been synonymous with size, and that matters because those same brands have now pinned their volume growth aspirations on some pretty small and compact vehicles.
For Audi, it’s the A3. Previously only available stateside in a hatchback form, Audi re-introduced the model for 2015 as a compact sedan, and the results have been nothing short of spectacular. Through the first nine months of 2014, sales for Audi rose 14.7%, and the A3 accounted for 17,049 of the 146,133 units sold in that time, despite only being released in the Spring.
That’s enough to put a bite in sales of Mercedes’ new CLA, a brand new car that for the first time brings a new Benz under $30,000 (or the historical equivalent) off the showroom floor, though just barely, at $29,900. Taxes and options will push it over $30,000. Like the A3, the CLA has done exactly what it was meant to do: blow open the wallets of younger buyers who now see it as a choice between a Benz and its tri-star badge or, say, a nicely loaded Toyota Camry. For most, that’s a pretty straight forward decision.
But Lexus doesn’t have a comparable vehicle, a volume model that appeals to both younger styles and younger wallets. The closest they have is the CT hybrid, picture above, which begins at a reasonable sounding $32,050 before destination. But rather than a perky 2.0 liter turbo or a torquey diesel engine, the CT is a hybrid, and it’s a bit of a task to get the younger generations to shell out over $30,000 for what many consider to be a Prius in a nice suit.
But Lexus is seemingly convinced that it doesn’t need a sub-$30,000 model in order to not only effectively compete, but actually surpass others in the luxury space and again take the reins on the American premium market. Currently, sales for Lexus — which are up 14% on the year — sit at 244,038 units, while BMW has moved 267,193 vehicles and Mercedes-Benz has delivered 261,804.
“From a product research standpoint, what you’ll see is us not heading downstream, but heading upstream,” Jeff Bracken, the U.S. general manager for Lexus, told Bloomberg on Monday following a speech at the Automotive Press Association. “That makes it more difficult, right? Because there’s certainly good volume below $30,000,” he added. “But there’s nothing easy about this business. For Lexus to be truly a luxury division, we need think of ourselves above $30,000, not below it.”
Bracken raises a pretty valid point. As luxury companies move south into more fiscally accessible vehicles, they risk watering down their brand image as the gap between them and more conventional vehicles narrows. The smaller cars, though better volume sellers, also carry smaller margins. But it doesn’t seem like they’ve had a huge effect on the brand’s image — Mercedes is selling more S Class sedans than ever before, despite the presence of the CLA.
Another venue for entry-level luxury is the compact crossover, a segment which is seeing explosive growth even in the luxury field. Mercedes has the GLA, Audi has the Q3, BMW is supposedly working on an “X2,” and even Lexus is joining the fray with the NX — the first Lexus-badged vehicle to come equipped with a turbo.
This indicates that while Lexus is concerned with heading too low, it’s not leaving the low end out in the cold and relying on its margin- and profit-heavy SUVs and large sedans. Clearly, the affordable end is still worth Lexus’ time and investment, especially for bringing new buyers into the fold.