L.A. Show: Luxury war

Henry Payne
The Detroit News
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Los Angeles — The throaty rasp of a 505-horsepower V-6 echoed off the walls of the Los Angeles Convention Center Wednesday morning as a bright red, $70,000 Alfa Romeo Giulia Quadrifoglio rolled down a catwalk followed by a harem of gorgeous supermodels.

The luxury procession didn’t stop.

Audi R8, Audi RS 7, BMW M4 GTI, Land Rover Evoque Convertible, Mercedes SL-Class, Lincoln MKZ, Cadillac XT5, Buick LaCrosse, Infiniti QX30, Jaguar F-Pace, Jaguar XE, and more took a bow over the show’s two days.

Upscale automobiles dominated this year’s auto show just six months after luxury dominated the New York Auto Show. There were plenty of mainstream unveils – Ford Escape crossover, Fiat 124 Spider, Honda Civic Coupe — to appeal to California’s wide variety of auto tastes, but nearly 60 percent of the 36 reveals were of the luxury variety.

How many luxury cars can you fit into an auto booth? California and New York represent 40 percent of U.S. luxury car sales, but the Los Angeles Show also represents a shift in the auto industry where the luxury space is more crowded than ever before.

“That is understandable,” says Cadillac President Johann de Nysschen, whose luxury brand alone will introduce eight new models into the segment by 2020. “Luxury brands account for between 10-12 percent of global sales, but they generate half of the industry’s profit.”

Within the VW Group, for example, luxury brands Porsche and Audi account for 60 percent of the profits despite their relatively low sales volumes.

Already crowded, the segment is poised to grow even more. Startup luxury maker Alfa Romeo will bring eight new models to market by 2018, including the Giulia. Hyundai this month announced that it is creating a new luxury brand, Genesis. Meanwhile, Lincoln is resurgent in the luxury space with new Continental and MKZ sedans and two more all-new products by decade’s end. The MKZ debuted here boasting a new face and powertrain for the brand.

The number of products is exploding because the definition of a luxury vehicle is expanding.

Luxury sedan sales are in decline as SUV sales roared ahead by 20 percent last year, leaving companies with few crossover offerings, like Cadillac, flat-footed. The introduction of its new XT5 here Wednesday is the first salvo in a Cadillac SUV assault. But luxury is also being redefined downward. Witness the $35,000 BMW X1 subcompact crossover or the $33,000 Mercedes CLA small sedan which cost almost half as much as their mid-size siblings.

“Generations X and Y are entering as a major buying force in the luxury space,” said Cadillac’s de Nysshen. “A lot of these young people have grown up in upper-middle class homes and have had considerable exposure to luxury brands. They want it — and are looking for a lower price point than $70,000.”

De Nysschen’s former employer, Audi, has pursued a down-market strategy, and he intends to do the same in Cadillac. “This is an an inevitable consequence of wanting to positon the brand for the Millennials,” he says.

De Nysschens’ colleague, General Motors President Mark Reuss, sees another reason for the dramatic expansion in down-market luxe: Government regulation.

“If you look at the regulatory environment of the future, luxury car makers are going to have to expand the number of entries they have ... to solve their carbon dioxide emissions. They have to branch down on compliance basis for CO2.”

However many products they bring to market, Detroit manufacturers face a formidable challenge in increasing market share because of German brand dominance. They are taking different strategies to change that trend.

Both Cadillac and Alfa are taking the BMW, Mercedes, and Audi performance reputation head on.

Cadillac’s V-series of performance cars, for example, has won rave reviews as a BMW M-badge competitors. And Alfa’s ferocious Giulia Quadrifoglio claims the best performance in the segment with 505 horsepower, a 3.8-second zero-60 time, and a Nurburgring production sedan track record 13 seconds faster than a Porsche Panamera.

Lincoln is taking an entirely different approach. Where Cadillac and Alfa go after the high end of the performance market, Lincoln is targeting lower-priced luxury makers like Lexus and Infiniti.

“There are customers who want aggressive looks, aggressive performance, but there are a large group of customers in the landscape who are looking for materials, safety, quietness,” said Lincoln President Kumar Galhotra. “They don’t want their automobile to add to their daily stress. That’s a fairly large segment.”

He said Lincoln is focused on the core of the luxury segment and expects to increase sales from 200,000 to 300,000 by the end of the decade.

Whatever their strategy, executives agreed that good product is not enough. Brand marketing is essential.

“You can’t just say that the cars will sell by themselves,” says Cadillac Marketing Director Uwe Ellinghaus. “Nothing sells by itself. Because Cadillac had an erratic pattern in its brand message it was not clear what Cadillac stood for versus the mighty German competitors. We need to beef up the brand communication.”

Henry Payne is auto critic for The Detroit News. Find him at hpayne@detroitnews.com and Twitter @HenryEPayne

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