Also in this report:

– Superstore threat prompts new customer focus: Canadian dealers, car makers out to pre-empt arrival of U.S. mega-retailers p.29

– Spotlight onAutomotive Creative p.30

– Chrysler using kiosks for sales training p.32

For a sure sign that consumers are coming out of the recessionary doldrums, look no further than the state of the luxury car market.

This segment, traditionally 3-5% of the overall automotive market, has seen impressive growth recently, fueled mainly by increased sales in the entry-level luxury and luxury sport-utility categories.

Entry-level luxury – which encompasses vehicles in the $35,000-$55,000 range – proved particularly strong in 1996, showing a 21.1% increase in sales over the previous year.

Dennis DesRosiers, president of DesRosiers Automotive Consultants in Toronto, attributes the growth in luxury vehicle sales to the relatively buoyant state of the economy, and the number of new products now available in that segment.

‘The economy has certainly co-operated by providing consumers with a fair amount of wealth,’ he says.

In addition, there have recently been a number of significant new entries in the entry-level luxury and luxury sport-utility segments.

‘When you put a new product into a segment, it typically expands the segment, so you pick up better volume,’ he says.

DesRosiers sees manufacturers now making extra efforts to convince consumers to buy into the luxury market. But he also warns of the potential for margin erosion, since there aren’t really enough consumers to buy all the products now positioned in this segment.

As the trend toward entry-level and sport-utility luxury vehicles has taken hold, auto manufacturers have moved to capitalize on it.

General Motors of Canada is among the most recent to join the bandwagon, with last fall’s addition of the Catera, a $42,200 entry-level sedan, to its Cadillac lineup.

Other car makers whose names bespeak luxury – bmw, Mercedes-Benz, Toyota (which markets the luxury brand Lexus) and Nissan (which sells the upscale Infiniti brand) – are also pushing entry-level models. And some have ventured into the luxury sport-utility segment as well.

Jo Anne Caza, marketing manager for Mercedes-Benz Canada, says her company has long had strong offerings in the entry-level segment – from its 190 model to its C-class line, which starts with the C230SE at $36,950.

(By way of comparison, Mercedes’ top-of-the-line SL Class starts at $101,900.)

In the fall, Mercedes will make its entry into the luxury sport-utility segment, with the launch of the M-class All Activity Vehicle.

The M-class will be available in two models: the ML320 Class, priced in the mid-$40,000 range, and the ML320 Elegance, starting in the low $50,000 range.

It’s a new departure for Mercedes, says Caza, but one that makes sound business sense.

‘If you look at the progression of the [sport-utility] segment, there’s obviously a lot of interest out there. In 1985, there were 47,800 units sold in Canada, and in 1996 there were 98,400. There’s a demand, there’s a need – and we want to be part of it.’

Caza says Mercedes has shifted its strategy slightly to appeal to buyers in the entry-level segment. While the core values and message have remained the same, price is now being communicated more than in the past.

Prices currently appear in all advertising for Mercedes vehicles, from entry-level to high-end models.

‘In the old days, people said if you have to ask the price, you can’t afford it,’ says Caza. ‘That’s changed a lot in the last few years. We’re saying now that we want to tell you the price, because [otherwise], you may think it’s more expensive than it actually is.’

Ian Forsyth, marketing director for Nissan Canada’s Infiniti division, says the growing popularity of entry-level luxury vehicles reflects the aging of the population. Maturing consumers are opening up to the idea of luxury, he says, but are not prepared to spend upwards of $70,000 on a car.

The company’s Infiniti lineup includes the entry-level I30 sedan, which starts at $30,000. (The top of the line is the Q45, at $64,500.) Last fall, the company launched its luxury sport-utility model QX4, which has a price tag of $44,500.

Forsyth says lifestyle factors are key to the growth in the luxury sport-utility segment.

‘Quite successful people in their mid-40s are buying the QX4. Partly because of status – they want the appearance the vehicle gives them. And also partly because of utility. They own cottages, or they go skiing; they’re very active people, and this vehicle fits with their lifestyle.’

Sales of the QX4 have far exceeded the company’s initial estimates, Forsyth says.

The sport-utility segment as a whole will remain dynamic for some time to come, he predicts. Whether it will maintain its current pace of 15-20% growth a year remains to be seen, but it is expected to remain stronger than the automotive market overall.

Forsyth says the basic Infiniti advertising message has stayed the same, with a focus on the Infiniti ownership experience. But a changing market has dictated some shifts in approach.

While top-of-the-line models are primarily direct-marketed, he explains, the sheer extent of the market for I30 and QX4 calls for the use of more broad-based media.

Wayne Jefferey, vice-president and general manager of Lexus, Toyota Canada’s luxury car division, says one of the factors driving growth in the luxury car segment is price.

He says that although prices in the segment overall have increased, prices in the entry-level segment have in fact gone down in the past few years, from $40,000 to about $35,000 for the lowest-priced models.

‘New technology allows manufacturers to build very nice, luxurious automobiles in that price category,’ he says.

At Lexus, the company’s entry-level cars begin at $42,900, with the ES300. (The top Lexus model, the LS400, begins at $80,000.)

Last fall, Lexus introduced its LX450 luxury sport-utility vehicle, starting at $72,000. In the next year, however, Lexus plans to bring out a new sport-utility vehicle in the $50,000 range, a lower-priced segment of that particular category Jefferey sees growing as baby boomers get older.

The core market for luxury vehicles remains those in the 40-50 range, although some of the new vehicles in the segment are also attracting younger buyers.

DesRosiers, for his part, says there’s no definitive evidence yet that baby boomers are starting to embrace luxury cars, but he does expect it to happen.

‘The theory is that as the boomer ages, he’ll have his house paid for, the kids’ education paid for, and he’ll be down to saving for retirement, for vacations and [for a fancier car], with the freeing-up of his budget.’

Overall, he predicts, the automotive market in Canada should see at least five to eight years of consistent single-digit growth.