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  • 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.

Luxury cars are typically meant to symbolize prestige,

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Why BMW And Mercedes Made Cheap Cars That Failed

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    day posted on 2020/05/04
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