Houston, we have a price war.
Audi announced Thursday that its all-new 2015 A3 sedan will start at $30,795 when it goes on sale next spring. That's only a hiccup less than the $30,825 base price of Mercedes' recently launched CLA sedan. Both include destination.
These models represent uncharted territory for the two luxury brands in the U.S. The CLA is an all-new model for Mercedes, while the A3 was previously sold in the U.S. as a hatchback.
With the Audi A4 and Mercedes C-Class growing in size and price, both brands had a hole in their lineup that was crucial to fill with an entry-level model aimed at younger buyers.
"A lot is at stake here," said Jesse Toprak, senior analyst for Truecar.com. "Automakers want to get [buyers] while they're young, and as they become more affluent they'll buy the more expensive version of the brand."
This means that pricing these cars competitively is essential to their popularity, and profits on cars like the new A3 and CLA won't be as high as other models in Audi's and Mercedes' lineups.
"These aren't meant to be cash generators, they're meant to create volume," Toprak said. "What you own now is still the No. 1 indicator of what brand you'll buy next."
In addition to keeping the prices competitive, Audi and Mercedes have strived to boost the value of these gateway cars.
The Mercedes CLA comes with a 208-horsepower, turbocharged four-cylinder engine and a seven-speed automated dual-clutch transmission. Its styling mimics the look of Mercedes' much larger and more expensive CLS sedan.
The Audi A3 sedan, meanwhile, has a smaller 170-horsepower, turbocharged four-cylinder engine and a six-speed, dual-clutch transmission. But the Audi will come standard with gear that the Mercedes won't, including leather seats, a panoramic moonroof and xenon headlights.
Both models are front-wheel-drive, though each offers all-wheel-drive as an option.
These features are meant to tempt shoppers lured into leasing a vehicle they might not otherwise be able to afford, Toprak said. At least 60% of the 2015 A3 sedans will be leased, Toprak predicted, with even higher numbers for the CLA. This compares with an industry average of 26%.
"This tells you it's a reach vehicle, that people are buying the image," Toprak said.
Helping these high lease rates is the fact that the auto industry is in the middle of a "perfect storm" for leasing, Toprak said. High residual values and low interest rates mean an automaker can offer a car for a lower monthly lease rate and be confident in a strong resale price when the lease is over.
This should make it easier for brands like Audi and Mercedes to pull in people in their 20s, 30s and 40s who are so important to the brands' survival.
Additional models will also help. Mercedes will soon put on sale a high-performance AMG version of the CLA, and in 2014 it will put on sale the GLA, a compact crossover based on the same platform.
At the same time, Audi has planned an A3 convertible, S3 go-fast version, and all-electric A3 etron.
This coming lineup of A3 models, as well as the Mercedes GLA will be on display at the 2013 L.A. Auto Show in November.