Luxury Car Buyers Turn to Detroit : W. German Mark’s Rise Makes BMW, Mercedes Less Popular
After two decades of tooling around in one Mercedes-Benz after another, H. J. McPherson finally went American.
Unhappy with the rising prices of German luxury cars, the retired executive from Saratoga, Calif., traded in his 1981 Mercedes-Benz 380 for a 1988 Lincoln Mark VII in July.
And he couldn’t be more pleased with the deal.
“I like my Mark VII Lincoln very much,” McPherson said. “It’s a peppier car, and of course, it’s $20,000 cheaper. When I started buying Mercedes, I never thought about buying an American car. But the German auto makers got carried away with the prices, so I did this time.”
McPherson is not alone. Faced with sticker shock, mainly because of the rapid rise in the value of the West German mark against the dollar, more and more affluent buyers, who once wouldn’t be caught dead driving a Lincoln or Cadillac, are giving the domestic luxury car companies another look.
“The strengthening of the mark gives us an opportunity that we haven’t had over the past couple of years,” observed John O. Grettenberger, general manager of General Motors’ Cadillac division. “We’ve seen an increase in import trade-ins. We certainly hope we are capturing a larger portion of the luxury car market. We’re working hard at it.”
Ironically, Lincoln and Cadillac, perhaps for the first time, are winning over buyers because they are so cheap--at least by comparison.
The mark’s rise since 1985 has led to price increases of as much as 31% on West German luxury cars. “The appreciation of the deutsche mark has certainly had a major impact on our pricing,” concedes Thomas O. McGurn, a spokesman for BMW of North America.
While most luxury buyers are willing to pay more for quality and status, even they have a breaking point on price, analysts say. And now that Detroit’s luxury cars have improved, they say that a social stigma among certain upscale groups about owning a domestic is gone.
“Luxury car buyers are price-insensitive only up to a certain point,” said Scott Merlis, an auto industry analyst at Morgan Stanley in New York City. “They are starting to retrench and are turning to cars like the Lincoln Continental, which is one of the strongest products to come out of Detroit in years.”
Although the trend has not led to an explosive revival in domestic luxury car sales, the return of some import-oriented customers has had an impact, especially at Lincoln, which seems to have captured the fancy of many luxury buyers with its new Continental.
For example, while Lincoln sales jumped 19% in the first half of 1988, BMW sales dropped 19% and Mercedes-Benz posted a 3% decline.
While Cadillac has not seen the kind of growth enjoyed by Lincoln, it has at least reversed the long slide in its sales and market share it suffered in the mid-1980s. In the first six months of this year Cadillac sales rose slightly to 128,185, up from 127,142 units in 1987.
The turnaround for the domestics has helped Lincoln increase its share of the American car market to 1.7%, up from 1.6% in 1987, while Cadillac’s 2.7% share remained constant.
By contrast, both BMW and Mercedes have watched as their market shares have eroded this year. In August, BMW’s portion of the U.S. market dwindled to 0.65% from 0.9% in 1987, while Mercedes-Benz’s share dipped from 0.9% last year to 0.8%.
Other German makes have suffered as well. Sales at Volkswagen’s Audi division fell 53% in the first half of 1988, hurt both by the mark’s rise and the aftereffects of widely publicized charges that its cars were unsafe. Porsche, hit harder by the stock market crash than any other car company, watched its sales fall more than 33% in the first eight months of 1988.
Some analysts explain the numbers by arguing that, in the wake of the stock market crash and the ensuing backlash against yuppies, the Germans have lost much of their status appeal.
“The German cars are perceived as Yuppie-ish,” said Dennis Sperduto, an auto industry analyst at Argus Research in New York City. “That’s something that some people don’t want to be associated with.”
But most observers fix the blame for the German’s slump on the price hikes brought on by the rising mark.
“The strengthening of the German mark hasn’t helped us at all,” said Curt Labnow, sales manager at Long Beach BMW. “People are paying more for their car, and they are getting less. Yes, our sales have been hurt.”
Indeed, the German price hikes have been stunning, particularly on some individual car lines. For instance, in just two years the base price of BMW’s two-door 325i jumped about 50%, from $19,560 in 1986 to $29,190 in 1988. During the same period, the base price for the Mercedes “Baby Benz” 190 model leaped from $23,700 to $29,190, while the sticker on Mercedes’ larger 560 SEC skyrocketed from $58,700 to $77,065, a 31% increase.
Even affluent buyers say they can’t stomach such steep increases, and so are turning to Detroit.
“This is one luxury car buyer who is price sensitive,” insisted Barry Matthews, a San Jose businessman who traded in his 1984 BMW for a new Lincoln Town Car in April. “I traded in a coupe model because I wanted a sedan. To get into a larger BMW, you’re going to pay $50,000. The quality of a BMW is no longer there for the price you pay.”
To hold onto their drivers, the Germans are countering with sales incentives, a marketing gimmick they previously considered beneath them. But they are trying to maintain their tony image while they do it; Mercedes-Benz, for instance, just finished offering free trips to Germany for customers who bought a Mercedes there.
But such lures aren’t enough to counter massive sticker shock, analysts say.
Insisted Merlis: “The problem with the European car makers are threefold: a weak dollar, a weak dollar and a weak dollar.”
